Income-tax appeal limits may be raised to cut litigation

The CBDT is planning to increase the limit for appeals to the Income Tax Appellate Tribunal from Rs 1 million to Rs 2 million

In a move that will lead to more concentrated efforts in resolving tax litigation involving around Rs 5 trillion, the Central Board of Direct Taxes (CBDT) is planning to increase the threshold for filing appeals by income-tax (IT) authorities. The CBDT is planning to increase the limit for appeals to the Income Tax Appellate Tribunal (ITAT) from Rs 1 million to Rs 2 million. It also plans to increase limits for filing income-tax appeals in high courts and the Supreme Court from the current Rs 2 million and 2.5 million, respectively. 

“It has been observed that the threshold for filing appeals by the tax department against an unfavourable order is inordinately low. This is leading to a significant rise in the number of cases. It is a matter of serious concern that requires attention. Concerted action, therefore, is required to unblock the revenue involved,” said a senior income-tax official privy to the development.

According to this official, such a high volume of litigation has not only resulted in a large amount of money remaining unrealised, but has also become a constraint in achieving the government's objective of providing certainty to taxpayers. 

The CBDT is undertaking a nationwide survey and collating information regarding the possible effects of the proposed changes, according to sources. It is also working on a mechanism to deal with cases where the tax demand is lower.  

As of March 2017, there were 137,176 direct tax cases, valued at over Rs 5 trillion pending in the ITAT, high courts and the Supreme Court. The success rate of the income-tax department at all the three levels of appeals is less than 30 per cent. Over a period, this rate has been declining while the number of cases is increasing. The income-tax department’s appeals constitute nearly 85 per cent of the total filed involving direct taxes, according to the Economic Survey 2018.

Over 1,00,000 appeals involve tax demands of less than Rs 200,000. Increasing the threshold will reduce the number of cases significantly.

The CBDT has also issued an internal directive providing targets to commissioners for disposal. According to the directive, a commissioner must dispose 70 per cent of appeals involving demands of less than Rs 1 million during the current fiscal year. 

According to sources, assessees are facing challenges with a four-step redress mechanism. 

Some of the cases end up in the Advance Ruling Authority and Settlement Commission. The tax department goes for an appeal based on the limit set on the income-tax effect, which is the difference between the tax on income determined by the department and the tax calculated by the taxpayer. 

There are a number of other suggestions that the CBDT is working on. The mechanism for advance ruling could be strengthened and a high court cell could be set up in each jurisdiction to fast-track appeals. Besides, more specialised benches at all judicial levels are being planned. These cells will be responsible for tracking orders on a daily basis and compiling information on cases.