Budget 2018: Although Indian tax law has evolved over the years, with the implementation of various amendments specifically aimed at resolution of disputes, currently, tax litigation in the country is still characterised by a significant backlog of pending cases at various forums. The existence of multiple appellate levels a dispute needs to clear before being resolved, coupled with lack of clarity in the law, makes it prone to several interpretations by various authorities and contributes to the delay in resolution of a dispute. The standard appeal procedure begins with the appellate commissioner or the dispute resolution panel (DRP), followed by the tax tribunal, a high court and ends with the Supreme Court. Eligible taxpayers usually approach the DRP because it is a quick route to the tax tribunal, since the law mandates a period of nine months within which the DRP needs to provide directions. On the other hand, there is no time limit laid down for an appellate commissioner to pass its order. Currently, the law provides a guiding timeline for appellate commissioners and tax tribunals to decide on appeals—a period of one year and four years, respectively, from the end of the financial year in which an appeal was filed. In actual fact, an appeal is usually disposed of within two to four years by an appellate commissioner and over six years by a tax tribunal. And although the tax tribunal must pass its order within 90 days from the date of conclusion of the hearing (otherwise, the case has to be reheard), this does not limit the timeframe for an appeal to be decided on, but causes undue hardship and prolonged litigation costs to taxpayers. Budget 2018 needs to amend the law to enforce a mandatory period within which an appellate commissioner and tax tribunal must pass their orders, and prescribe stringent consequences for not complying with these timelines. This will go a long way in expediting the litigation process.
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There are other dispute-resolution mechanisms such as advance pricing agreements, the mutual agreement procedure (MAP) and the authority for advance rulings (AAR). However, these focus more on foreign taxpayers or transactions with non-residents. For instance, MAP is available through the double taxation avoidance agreements entered by India with various countries. Non-residents can approach the AAR to determine their taxability before they initiate transactions in India.
Unfortunately, Indian residents do not have the option of using all these alternative dispute-resolution mechanisms. Only eligible resident taxpayers with qualifying transactions can approach the AAR. And although the increase in the number of benches of the AAR is a welcome development, existing stipulations still limit its accessibility for Indian taxpayers. Another alternative is to approach the settlement commission, which was introduced as a forum for mediation with the tax department. However, restrictions on the eligibility of taxpayers that can avail of this once-in-a-lifetime prospect has made this an unappealing solution. These concerns need to be addressed in Budget 2018.
It would be helpful if the dispute-resolution process is expedited and the scope of the AAR widened to reduce restrictions on resident taxpayers’ eligibility to approach the AAR, and the current recommended period within which the AAR must pass its order is made binding. Similarly, removal of the bar on the ability to file several applications to the settlement commission, to include applications for new issues (that have arisen after an earlier application) would also act as a catalyst to significantly speed up the dispute-resolution process.
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Budget 2016 introduced provisions where a tax officer can grant immunity from imposition of a penalty for under-reporting of income, wilful evasion of tax and failure to furnish a tax return under certain situations, provided the taxpayer pays the tax and interest due mandated by the assessment order within the specified period and does not appeal against the order. However, even if a taxpayer fulfils the prescribed mandate, it is at the tax officer’s discretion whether an application for immunity from imposition of penalty is granted. A larger number of taxpayers will opt for such provisions if these provisions are amended to make it mandatory for tax officers to grant immunity from imposition of penalties when the prescribed conditions are met. This will go a long way in reducing the number of tax-related disputes in the country.
In view of the above, it is amply evident that there is a real need for policies to be revamped and a progressive road map put in place to settle and clear the humongous backlog of litigation in the country and prevent new ones from being filed, to facilitate ease of doing business in India. The need of the hour is to proactively address this lacuna, which will go a long way in reducing the dispute-resolution litigation.
The author is partner, corporate and international tax, PwC India; Chahat Mahajan, assistant manager, corporate and international tax, PwC India, contributed to this article