Panel’s suggestion may include applying filter for tax officer before a notice is issued and setting a time limit for concluding probe
Source: The Economic Times
The government is looking to address taxation-related pain points and cut down the number of tax litigations, while focusing on some of the major issues that may lead to revenue generation, people familiar with the development said.
The Central Board of Direct Taxes (CBDT) has formed a four-member committee, headed by income tax commissioner Sanjeev Sharma, to look into the matter and submit its final report and recommendations by mid-March.
The committee is looking to tackle the issue in a two-prong way — addressing some current pain points and recommending some steps borrowed from international best practices, people in the know said.
Its recommendations could include applying a filter for tax officer before a notice is issued and setting a time limit for concluding an investigation, they said. The panel has started inviting recommendations for best international practices on litigation management.
The tax department is one of the biggest litigators in the country at present, but it ends up on the losing side in majority of the cases, tax experts said.
As per government figures, 465,349 cases related to taxation are pending at various forums. Of this, about 1% cases are high value cases and constitute about 90% of the total tax demand.
Ketan Dalal, managing partner at structuring and advisory firm Katalyst Advisors, said the committee should focus on preventing, or at least mitigating, litigations such as pre-assessment filters. “Additionally, on the basis that ‘justice delayed is justice denied’, an ecosystem for meaningful and contemporary time limits should be prescribed for completion of litigation,” he said.
The committee may also look to address some immediate taxation-related pain points, including aggressive stance of tax offices that have shot off prosecution notices to many individuals and companies, people in the know said.
“There could be three areas which could be looked at,” said Sudhir Kapadia, national tax leader, EY India. “The first is the whole business of issuing prosecution notices, and if the taxpayer has paid the tax along with interest then these shouldn’t be pursued.”
Prosecution notices make such cases equivalent to criminal offences and give income tax officers additional powers akin to those of the police, experts said. Taxpayers can only seek relief from a magistrate’s court in such instances.
Kapadia also wants the committee to consider “setting up a mechanism where private rulings are offered to taxpayers where disputes could be altogether avoided.”
“Also, in cases where the tax department gets an adverse ruling at tribunal level, it should only appeal in certain cases and focus on quality as that would lead to higher probability of winning,” he said.
Experts also said the tax department should focus on large issues rather than going after the small fish. In some cases, prosecution notices are issued when a taxpayer has not paid or delayed paying as little as ?1,000, they said.
Experts called for an alternative dispute resolution mechanism that could lead to fast resolution of disputes.
“Where litigation does emerge, the focus should be on quick resolution,” Dalal said. “Since the conventional litigation trail takes far too long. Alternative dispute resolution mechanisms such as mediation and private rulings should be considered.”
The government could take a relook at streamlining some of the quasi-judicial forums and set up a separate redressal mechanism that acts as preventing litigation, people in the know said.
While Authority of Advance Ruling was introduced for the same purpose, many complain that several recent AAR rulings have led to litigation.
Insiders said the government is also concerned about how it should tackle taxing digital companies. It has already introduced equalisation levy and is set to introduce rules around significant economic presence to tax digital companies.
The government could also look to introduce peer review for tax officers, people in the know said.