In a bid to reduce the burden of litigation for both government and taxpayers, the income tax department has decided to ensure that litigation management continues to be top priority. According to sources, a detailed analysis of data shows that the disposal of appeals is much less than fresh appeals which are getting filed every year. Sources share that the government is likely to announce measures to reduce litigation in the upcoming budget.
“As per the recent data, number of appeals pending as on 31st march 2023 have increased to 5.16 lakhs from 4.96 lakhs as on 31st March 2022. More than 2.8 lakhs appeals have been pending for more than 3 years,” sources told CNBC-TV18.
To ensure faster disposal of appeals, tax department has penned down strict targets for its officers. Under the plan, “each appeal unit has been told to dispose a minimum of 450 appeals for FY24. Not just this, appeal units told to dispose all cases pending as on 1st April 2023 involving demand of ₹50 crore and above and a mandatory disposal of all appeals filed prior to April 2020, if the demand is more than ₹10 lakh,” sources said.
There are 285 appeal units under income tax department across India, who will have to submit a final report card to the board by January, before the measures get finalised for the budget announcement, sources added.
Former senior officers of the tax department shared that increasing number of appeals is not a healthy sign for the system as both taxpayers and the tax department continue to engage resources without any material outcome.
Experts see this as a healthy measure provided the appeals unit under the tax department is able to adhere to the targets set by top government.
“One needs to address the issues which are leading to such high number of appeals, the tax department should work on the root cause, reduce complexities in the law, bring in simplicity so that the law leaves limited scope for disputes. There have been studies initiated by the tax department in the past to find out the reason why the number of disputes are rising, some actions were also taken, but this is a dynamic area, the National Judicial Reference System (NJRS) project allowed the department to study the litigation trends at a national level on a continuous basis. Today’s AI technology could have boosted the analysis even further,” said a senior officer who did not wish to be quoted.
“Pending appeals before Commissioner (Appeals) has been a sore point for tax payers. The pendency goes on for years. In the last Budget a new provision was introduced to deal with small appeals. When appeals are stuck up for want of disposal, the tax payer is concerned that he has paid 20 per cent tax and is just waiting for justice. On the other hand, the revenue may be deprived of its just share of dues. I am glad that the requests made by the tax payers to get appeals heard has not got traction and the CBDT is mandating disposals. It is important that these disposals are made with due process of hearings and dealt with on merits,” Dinesh Kanabar of Dhruva Advisors told CNBC-TV18.
“The disposals of appeals by Commissioner (Appeals) across jurisdictions has not been very encouraging. There is still a lot of pendency. While more appeals are being heard by the Faceless Appeal units in the last few months, most of the units may be far from meeting the targets set by the Board. The focus on disposal of larger appeal needs to be prioritised,” said Ajay Rotti, founder and CEO of Tax Compaas.
“The Government did clear a lot of pendency due to the Vivad se Vishwas scheme. That was open for a limited period. They could consider another dispute settlement scheme. There is clearly a need to address the large pendency at the Commissioner(Appeals) level with some specific measures rather than just giving targets for disposal,” Rotti added.
Expressing similar sentiments, Sandeep Jhunjhunwala, Tax Partner at Nangia Andersen LLP said, “While the provisional figures of direct tax collections continue to register steady growth, disputes management still remains a strenuous conundrum for taxpayers as well as the taxmen. CBDT’s notification of 18 Dispute Resolution Committees across the country, introduction of Young Professional Scheme to aid Departmental Representatives, operationalization of the Board for Advance Rulings in Delhi and Mumbai, are all promising steps in the right direction.”
“Additional reformative measures such as prescribing disposal timelines for first level appeal, introducing ‘Vivad se Vishwas’ Scheme in a new avatar covering larger taxpayers and higher monetary limits, efficacious functioning and taxpayers representation in local committees to deal with high-pitched assessments, can go a long way in demonstrating Government’s stated objective of building greater trust with taxpayers.”
Sandeep Sehgal, Tax Partner, AKM Global, a tax and consulting firm stated, “This is a timely acknowledgement from the tax department and hopefully, this will lead to a sufficient impact resulting in considerable reduction in the number of pending appeals. However, this needs to be kept in mind that the quality of the appeal orders for disposal is equally important i.e. the overall objective of the appeal process is to provide justice and the proposed measures should be in sync with these objectives. For example, there is a provision for providing virtual hearings during the appeal process which is not granted in several cases or the requests are pending for several months or years. The virtual hearing could help in early disposal but the department doesn’t seem to be enthused.”
To be seen is whether the litigation burden gets reduced or not and what measures can be brought in during the budget to ease the pain.