While the stated policy and to a large extent the efforts of the tax administration are to reduce the mammoth tax arrears (outstanding tax demands), certain moves could frustrate the goal. The Central Board of Direct Taxes’ (CBDT) latest Central Action Plan, for instance, seeks to incentivise the CIT (Appeal), the first appellate forum, to pass ‘quality’ orders with additional credit of two units per order. Tax experts say this would undermine the CIT(A)’s ability to adjudicate the dispute, as the points that help his promotion could prejudice the body against the taxpayer.
Quality orders are defined as ones to enhance the assessment, strengthen the assessment order of the assessing officer and those to levy penalties on such orders.
Also, even as the outstanding tax demands are reduced by quick disposal of cases (helped by the tax department advisedly choosing to refrain from indiscriminately filing appeals against tax orders at higher fora, the tendency of high-pitched tax demands continues unabated. So while the latest Central Action Plan helped reduce the outstanding tax demands by Rs 3,24,528 crore or 31%, the pending disputes have only risen as Rs 4,62,412 crore of fresh demands were raised in the year.
“An assessee can’t quarrel with incentives given to an official by the department but this should not alter or go beyond the already established jurisdictional power conferred on the commissioners deciding appeals,” said Rahul Garg, leader, direct tax at PwC.
According to CAP, the department managed to only marginally reduce the number of pending appeals at the CIT(A) level. While the pending cases stood at 3.28 lakh on April 1, 2017, it had come down to 3.21 lakh on the April 1 this year despite disposing over 1.2 lakh appeals during the year.
To bring down pending appeals, the CAP set a target of disposing of at least a quarter of appeals involving a demand of Rs 10 lakh or more, and 100% of appeals involving a demand of Rs 50 crore and above. Further, the department has the target of disposing of at least 90% of appeals with less than Rs 2 lakh tax demand. The tax demand arrears increased to Rs 11.22 lakh crore on April 1 this year, up nearly 7% from a year earlier. For the year 2018-19, the reduction target for arrears has been retained at 40 % of the total demand as on April 1, 2018.