Budget 2020 India: The delay in dispute resolution, costs involved, along with the increasing magnitude of cases calls for an efficient policy of tax dispute resolution by the government.
By Rakesh Nangia and Sandeep Jhunjhunwala
Union Budget 2020 India: Efficient tax administration and efficient tax dispute resolution are two elements at the core of ease of doing business in any geography. In India, trends portray that the tax litigation process takes years to resolve. As per the Economic Survey of 2018-19, around 5 lakh tax cases are pending at various forums. The delay in dispute resolution, costs involved, along with the increasing magnitude of cases calls for an efficient policy of tax dispute resolution by the government. Taking leaves from international best practices, right from moderating tax rates to reinforcing independence & fairness in the assessment proceedings and raising monetary thresholds for pursuing appeals, the government is proactively working to embrace a progressive era of tax policies and robust dispute resolution machinery.
Introduction of tax amnesty schemes such as Voluntary disclosure of Income Scheme 1997, Kar Vivad Samadhan Scheme 1998, Direct Tax Dispute Resolution Scheme 2016 were first few steps taken by the government in the past to expedite liquidation of income tax arrears and pressing down the litigation meter. Recently, Sabka Vishwas (Legacy Dispute Resolution) Scheme 2019 (LDRS) was introduced with an aim to settle unresolved issues pertaining to the erstwhile Services Tax and Excise Acts. The “never-again” one-time amnesty scheme, which was operational for 4 months, had commenced on September 1, 2019, and offered a lucrative solution to the taxpayers to settle the cases pending before the Adjudicating Authorities, Appellate Forums and Courts.
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The amnesty component of the scheme offered an opportunity to the taxpayers to pay outstanding tax and be free of any other consequences under the law such as interest, penalty or prosecution. With almost 87 per cent of the eligible taxpayers availing the scheme, the government could collect approximately Rs 30,000 crores. The Central Board of Direct Taxes (CBDT) had brought about a similar scheme in 2016 ie Income Declaration Scheme (IDS), which was highly successful. However, unlike LDRS, the taxpayers could not approach the High Court or Supreme Court in case of a grievance. Considering a staggering backlog of disputes, substantial fiscal deficit and approximately Rs 7-8 lakh crores worth of taxes locked in dispute, another litigation settlement scheme in direct tax is the need of the hour.
The shortcomings of the earlier schemes must be holistically analysed before the introduction of a dispute settlement scheme under the Income Tax Act. For instance, LDRS did not provide respite in a situation where multiple issues were involved and the assessee wanted to settle the dispute partially. Moreover, it was not clear whether in case of multiple show-cause notices, whether a single application would suffice or a separate application for each show-cause notice would have to be made discretely. LDRS necessitated that the final hearing on a matter should not have been concluded before the cut-off date. This brings confusion in respect of cases where the final hearing has been conducted 6 months prior to the cut-off date and no order has been passed.
Judicial precedents require the matter to be reheard in such a scenario and the scheme did not provide a way out. It is important that adequate brainstorming through consultative participation with the taxpayers is done on the scheme before the same is finalised. Select international dispute resolution policies such as High-Risk Corporate Programme (HRCP) or Collaborative Dispute Resolution (CDR) must be analysed to embrace global best practices.
Keeping in mind the despairing litigation landscape, there is an imminent need to usher in a dispute settlement scheme for income tax cases. The proposal bringing a tax immunity scheme for direct taxes, as also enshrined in the report of direct tax task force, if introduced, would not only induce a positive sentiment amongst taxpayers who shall be able to settle their impending tax disputes but shall also help the government unclog tax revenues and clear the legal system of the clutter of long-pending cases.
(Rakesh Nangia is the Chairman and Sandeep Jhunjhunwala is the Director at Nangia Andersen. Views expressed are the authors’ own.)