Direct tax litigation is rampant but yields little to the income tax department, even as it drains it of precious resources. The litigation could be cut down by as much as 80% if the power to appeal the decisions of the commissioner of income tax (appeals) in the tribunal is taken away from the principal commissioner, through an amendment to the Income Tax Act, 1961, a senior direct tax official wrote in a departmental magazine, Taxalogue, recently.
Krishna Mohan Prasad, principal director-general of income tax (legal & research) argued in the piece reviewed by FE that the revenue collections from the appeal cases filed by the department were estimated to be lower than the cost incurred as court fees and payments to lawyers.
He further said that currently, 50 out of 635 commissioners and 100 out of 1,575 additional/joint commissioner are deployed at the tribunal.
The amendment to law would free up as much as 90% of this manpower, he added.
“If the provision authorizing the CIT to file appeal against the order of CIT (Appeals) is omitted from the Income Tax Act, the pendency of cases could come down to less than 20% of the cases, in which the taxpayers file appeals, as approximately in 80% or more cases, it is the department which files appeal against the order of CIT (Appeals),” Prasad wrote.
He further said that the success rate of the departmental appeals at ITAT, high court and Supreme Court was as low as 10%, even though data on the same wasn’t readily available. “Once the case has been decided by the CIT (appeals), who is a senior officer of the department, there is no valid reason for filing further appeal by the revenue,” Prasad said.
Explaining why the department filed against CIT (appeals decision), Prasad wrote that most officers feel safe in filing appeals due to complex legal positions on various issues and to avoid the perception about the officer’s decision in not filing appeals “favours” the taxpayers even though the tribunal has traditionally upheld 90% of CIT (appeals) rulings.
Prasad also termed the process of departmental appeals as ‘paradoxical’ to not only the department but also to the taxpayers. He wrote that CIT (appeals) decisions are scrutinised by junior officials and eventually appeals are filed against it, even though other decisions of senior officials are generally accepted by the department readily.
On the other hand, a taxpayer may see a matter decided in different ways by the same department. For instance, an assessee can receive an adversarial assessment from the department by an assessing officer, which can then be overturned in his favour by the department (CIT appeals) and can further appealed against by the same department (CIT). Prasad termed this as ‘paradoxical’ as well.
In his article, which appeared in the first volume and first issue of Taxalogue, Prasad said that over 86,500 cases are pending at different levels, involving a disputed revenue amount of Rs 5.68 lakh crore. He also presented success rate of indirect tax cases in tribunal to compare it with direct tax in absence of readily available data. This varied between 10% in FY09 to about 20% in FY12.
He also quoted findings of the Comptroller and Auditor General (CAG) on litigation management of the department during 2006-09 which said: “Records to monitor filing of appeals and implementation of appellate orders were not maintained properly in the assessment units. Inadequate controls led to time barring of appeals and delays in implementation of appellate orders. AO’s work on appeals is not subjected to internal audit, denying the process of independent appraisal.”