Real test lies in stopping infructuous demands
Given extensive digitisation of the income-tax return filing process and the I-T department’s claims of quick processing, the fact that there are Rs 1.5 lakh crore of refund claims pending—to use minister of state for finance Jayant Sinha’s numbers—is unacceptable. In this context, the Central Board of Direct Taxes (CBDT) has decided to set up a dedicated structure to improve taxpayer services. In addition to the several changes already made—all communication with the taxman will be on email, for instance—this is welcome, but a truly meaningful change will require more than this. Since the real test of the system will be not filing infructuous demands, the practice of ‘protective demands’—demands raised to avoid adverse comments by bodies such as the CAG—has to stop. It is due to this, for instance, that we have about 3 lakh tax cases pending with the first appellate authority with R5.5 lakh crore of demands; and this is apart from the cases pending at the ITAT, High Courts and the Supreme Court.
Some taxpayers may feel it is worth paying the principal tax amount in order to avoid the hassle of litigation and settle the case—as per the scheme announced in the Budget—but this is hardly the foundation of a taxpayer-friendly system. What is required is not just a system that gives taxpayers more of a chance to present their case, but one that constantly reviews the tax demands being made. One way to do this is to have a committee of experts—and not just those from the I-T department—to constantly review tax demands from the point of view of how just they are and whether they will stand judicial scrutiny, and then score tax officials on this. Another solution is to have a separate litigation department whose success will be measured by the number of cases they win in courts—this department will automatically reject cases that it thinks are weak and will serve as a constant check on assessing officers. The large taxpayer units (LTU) which were begun in 2006, to take care of the needs of large taxpayers, also need to be rejuvenated—while better coordination between the direct and indirect tax divisions is clearly called for, officials of the LTU have to act as friends of companies, not their foes.