Tax talk: CAG busts myth of reduced tax disputes

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September 25, 2020 7:30 AM

At the CIT-Appeals, the first forum of appeal against tax demands, the amount locked up rise from Rs 5.19 lakh crore in 2017-18 to Rs 5.63 lakh crore in 2018-19, the CAG noted.

“Increase in demand difficult to recover in FY 2018-19 was more than the increase in total arrears of demand during the same year by Rs 5,566 crore,” the CAG wrote.“Increase in demand difficult to recover in FY 2018-19 was more than the increase in total arrears of demand during the same year by Rs 5,566 crore,” the CAG wrote.

Despite a series of dispute resolution initiatives, including the latest ‘Vivad Se Vishwas’ scheme and oft-articulated commitment to reduce the backlog of litigation by withdrawing frivolous pleas, the government’s tax officers at the field level seem to have relented little when it comes to tax aggression.

The just-released Comptroller and Auditor General of India’s audit report with respect to the tax department, for the financial year 2018-19, revealed that the number of disputes and also the amounts locked up at various forums, including the tribunals courts, have only risen. The amount locked up in appeal cases with CIT-Appeals (Rs 5.63 lakh crore) in 2018-19 was more than the Centre’s revenue deficit in the year, the CAG observed.

Also, the auditor has noted a trend of increase in ‘demands difficult to recover’, in what reflects the taxman’s refusal to stop pushing cases lacking merit.

Also, “revenue impact of tax incentives” continued to be sticky at least until 2018-19 (last September’s corporate tax reforms may have addressed this issue to an extent), despite the government being vocal about the phasing out of exemptions/deductions and other sops to clean up the tax system. Revenues forgone on account of tax incentives were a considerable Rs 2,13,225 crore in 2018-19, and these have in fact risen from 18.3% of direct taxes collected in 2016-17 to 18.7% in 2018-19.

The income tax appeal cases of all categories of taxpayers pending at the Income Tax Appellate Tribunals (ITATs), High Courts and Supreme Court rose by a whopping 65% year-on-year to 1.35 lakh in FY19, the CAG reported. The appeal cases at the courts involved Rs 2,10,833 crore in FY19 compared with Rs 2,07,826 crore in FY18.

As far as the cases before the tribunals, the CAG has reviewed data up to FY18 only – when it stood at Rs 2.35 lakh crore crore – but given that the overall cases with all these forums jumped in FY19, the disputed amounts stuck at tribunals must have also risen.

And the rising trend of disputes may have only continued since 2018-19. As FE reported earlier, amounts involved in personal income tax disputes could have jumped in 2019-20 for the sole reason of post-demonetsation cash deposits in banks by about 90,000 individuals being tracked. These deposits had remained unexplained by them to the taxman’s satisfaction till the deadline.

At the CIT-Appeals, the first forum of appeal against tax demands, the amount locked up rise from Rs 5.19 lakh crore in 2017-18 to Rs 5.63 lakh crore in 2018-19, the CAG noted.

“Demands difficult to recover have been increasing year after year and accounted for 98.8% of the total arrears of demands in 2018-19 as against 98.2% 2017-18. Though total arrears of demand in 2018-19 amounted to Rs 12,34,078 crore, up 10.8% compared to 2017-18 (Rs 11,14,182 crore), however, net collectible demand decreased to Rs 14,593 crore in 2018-19 compared to Rs 20,159 crore in FY 2017-18 due to increase in demand difficult to recover,” the CAG wrote.

“Increase in demand difficult to recover in FY 2018-19 was more than the increase in total arrears of demand during the same year by Rs 5,566 crore,” the CAG wrote.

Based on number of submissions made to the department under Vivad se Vishwas scheme till September 8, 2020, dispute resolution process is underway in 35,074 cases. The scheme was aimed at encouraging people to avail the opportunity to avoid much higher tax liabilities that could potentially befall on them in the normal course of dispute resolution involving tax adjudicators and courts.

PIT dispute amounts which used to rise steadily bucked trend in FY18, the year after demonetisation, with a year-on-year fall of nearly Rs 80,000 crore or over 25% to Rs 2.24 lakh crore. The decline was attributable to the two income disclosure schemes — IDS and PM-GKY– that ran for a few months in FY17 before and after note-ban, respectively. These schemes eliminated disputes worth about Rs 75,000 crore and enabled the government to fetch over Rs 25,000 crore.

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