Even as the NDA government has made ostensible efforts to make life easier for taxpayers — leaving only the retrospective tax issues largely unresolved — tax disputes may have only piled up, proof that old habits die hard with the revenue authorities. At the level of commissioners-appeal (CITs-A), the first recourse of the taxpayer in case of dispute, 2.8 lakh appeals involving a whopping Rs 5.67 lakh crore were pending till October last year, sharply up from the corresponding figures of 2.32 lakh and Rs 3.84 lakh crore at the end of the previous financial year.
In other words, in the seven months to October-end last year, unsettled disputes pending before these commissioners rose 21% and the amount locked up surged 48%. In the year to April-end, 2015, a period which too largely belonged to the NDA government, appeals pending before the CITs-A have only risen, though less steeply. And the CITs-A are only the first of the many layers of appeal where direct tax disputes are dealt with, with the income-tax appellate tribunal and the high courts being the higher fora and the Supreme Court, the final arbiter.
Though the finance ministry’s latest annual report only put out the data on the undecided appeals before CITs-A, other available data suggest that the situation is any better with the tribunal and the courts.
Data separately gathered by FE show that outstanding claims – which include disputed and undisputed ones in 3:2 ratio- by the I-T department rose from Rs 5.8 lakh crore to Rs 8.3 lakh crore during 2014-15.
The issue of unresolved tax disputes has larger dimensions. In the case of multinationals, aggressive transfer pricing (TP) adjustments demanded by the tax authorities have been a major source of worry in the last few years. Although the aggression has been toned down by the Modi government, the progress on the taxpayer-friendly mechanisms put in place like the advance pricing agreements (APAs) has been less than satisfactory. As regards APAs, which by definition would guide the I-T department’s pricing of non-resident firms’ transactions with their India-resident associates and enable them to get TP audit waiver, of the 590 applications filed between FY13 and December 2015, only 32 became final agreements. Even among this small number of final agreements, which signal resolution of the dispute, only 2 were bilateral ones involving the revenue department of the MNCs’ home countries.
Of late, however, there has been some headway in settling disputes involving US-based tech biggies like Microsoft, IBM, Google, Cisco, Honeywell, AT&T, Dell, Intel and Alcatel thanks to the invocation of the mutual agreement procedure (MAP) in the India-US Double Taxation Avoidance Convention. The current MAP agreement between the US and India targets to settle a total 200 cases — all relating to the disputes over the values ascribed by the Indian tax department to the past cross-border transactions of US-based MNCs’ associates in India.
The big gap between the Modi government’s targets and achievements in reducing the backlog of tax disputes is partly attributable to the rise in the number of new cases. Many analysts feel the government’s efforts would yield more concrete results in the coming months. “The government issuing clarifications on substantive law in a rational manner would help bring down litigation. This would bring clarity on interpretation of the law for both tax payers and the income tax department. However, polices that say that a tax payer could pay certain percentage of tax and penalty and would be relieved of the tax demand, would not help much. There have been praiseworthy efforts from the government in the recent past to bring in clarity on various issues such as MAT on FIIs, characterisation of income from sale of shares etc. These kind of steps are helpful in the longer term,” said Rahul K Mitra, partner and national head (BEPS & tax dispute resolution) KPMG India.
Efforts are being made to reduce indirect tax disputes as well. The threshold limit below which appeals are not to be filed by revenue department in Customs, Excise and Service Tax Appellate Tribunal (CESTAT) and High Courts have lately been raised to Rs 10 lakh and Rs 15 lakh, respectively. “Withdrawal of all cases in High Courts and CESTAT where there is a precedent Supreme Court decision and against which no review is contemplated. The Chief and Principal Commissioners directed to identify the cases fit for withdrawal among the cases pending in appeal before CESTAT and High Courts,” the finance ministry had said. Following this withdrawal applications in 980 cases in High Courts and 2, 174 cases in CESTAT have been filed. Out of this, High Courts allow withdrawal in 250 cases and CESTAT in 202 cases.
“There have been efforts to reduce litigation by increasing threshold limits for “tax effect” for filing of appeals, resulting in withdrawal of appeals by revenue at different forums,” said Sandeep Chaufla, Partner at PwC. In addition, the government has been issuing circulars clarifying the clauses that takes away the ambiguity between a tax payer and the assesse officer. There has been circulars clarifying treatment of profit of shares, taking tax holiday benefits, among others.
In April, in a significant reform that would cut the audit delays concerning indirect taxes, give relief to taxpayers and reduce litigation, the Central Board of Excise and Customs (CBEC) has eased and expedited the procedure of dealing with audit objections raised by the Comptroller and Auditor General. According to a CBEC circular issued to its field formations, the practice of issuing protective show-cause notices (SCNs) to assessees in cases where the audit objections are not accepted by the CBEC has been done away with. If the CBEC accedes to the objections, the SCNs would henceforth be issued forthwith and adjudicated expeditiously. No SCNs will be transferred to the call book, where they used to get piled up.