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Prolonged and expensive litigations: DRS can be empowered to resolve multi-crore pending tax cases

In a reply to a Lok Sabha member query (as reported in Economic Times date lined 15th July 2015), the Finance Minister Arun Jaitley gave the following vital statistics:

 A whopping Rs 1.45 lakh crore was locked up in dispute before the various income tax appellate tribunals in the country involving 37,506 cases;

 Rs 37,683 crore locked up in various High Courts involving 34,281 cases; and

 Rs 4,654 crore locked up in 5,661 cases before the Supreme Court.





And yet the Dispute Resolution Scheme 2016 (DRS) sets its sights on cases pending before Commissioner Appeals as on 29 February 2016 alone to the exclusion of cases pending at higher levels. Pray why appeals before the Tribunals, the ultimate fact finding bodies, have not been allowed to be resolved under the DRS especially given the massive amounts involved? It may be that the first appeal against the assessment order is obviously filed by the assessee before the Commissioner (appeals) and therefore the first initiative should also come from him but this would be taking a very narrow view of things.

Appeals before the Tribunal and beyond are filed by either of the two sides and there is no reason why the DRS should not be made available to dispute across the appellate forums so that either side to the dispute can take the initiative in ending the festering problem of prolonged and expensive litigation.

It is not as if otherwise the DRS is going to endear itself to the assessees. To be sure, it is transparent. It spells out clearly what all are to be paid---the disputed tax with interest till the date of assessment plus 25% of the minimum penalty where the disputed tax is more than Rs 10 lakh. Yet, people are not going to fall over themselves to take advantage of the scheme because it has a self-righteous undertone---the income tax guys are on the right side of the law and it is the greedy taxpayers who are at fault.

The truth often is the contrary. It is the department, in common with other revenue producing departments of governments both in states and the center, which has over the years been following the culture of high-pitched assessments---deliberately over-stating the department’s case in terms of taxes due from the assessees. Audit phobia is responsible for this knee-jerk, defensive reaction what with CAG always being pro-exchequer. And no officer worth his salt is going to pass up an opportunity to worm into the hearts of his higher-ups with his pro-exchequer, good-boy stance.

Against this backdrop, the DRS, as it is, is not going to enthuse the litigants a great deal. Remember, DRS is not a scheme targeting tax evaders but those who have complied with the law but are locked in legal battles with bulk of them being triggered by the cussedness of the revenue officials. In the event, most of them fight it out in successive stages of appeal.

To be fair to the Commissioner (Appeals), often perceived as a departmental man, is not blindly pro-exchequer invariably. And whenever he rules against the department, the department goes before the Tribunal as a matter of course, in a reflex action with nothing to lose despite the CBDT guidelines to examine individual cases thoroughly before filing an appeal.

Large tax payers invariably have more than Rs 10 lakh as the disputed amount. They will not shrug their shoulders resignedly and tiredly and cough up the disputed tax with interest plus 25% minimum penalty, confident as they are of their grounds and buoyed by the fact that the strike rate of the department is abysmally poor in terms of wins at the Tribunal, High Court and Apex Court levels thanks to the widely prevalent practice of high-pitched assessments.  Yes, it is possible that small taxpayers (less than Rs 10 lakh tax disputed) may rise to the bait of complete pardon from penalty but one is not sure.

The DRS therefore requires both enlargement of its scope and fine-tuning if at all it is to register a modicum of success---it should be available even for cases pending before the appellate authorities at higher levels.

The Authority for Advance Ruling (AAR) has been doing a commendable job by and large for the non-residents with its ruling binding on the department. Why not have a similar high-powered and highly respected authority for DRS who would do more than prepare the final tax invoice, as it were, and whose verdict should be binding on both the sides?

The DRS Scheme instead settles for a designated authority not below the rank of Commissioner whose job is to mechanically find out the disputed amount, add interest and penalty and present a final bill. No big taxpayer is going to fall for the DRS as it is. The one resolving the dispute must do more than the clerical chore of tax invoice preparation. For this he/they should be man/men of stature and authority like AAR.

Updated Date: Mar 09, 2016 14:27 PM

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