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The Central Board of Direct Taxes (CBDT) recently launched the e-Dispute Resolution Scheme (e-DRS) to streamline the resolution of income tax disputes. This online platform allows taxpayers to submit applications to Dispute Resolution Committees (DRCs) across India. It is an alternative to the traditional legal proceedings that already exist. Eighteen DRCs have been set up to accept applications.
“DRCs can modify orders, reduce or waive penalties, and grant immunity from prosecution,” says Kunal Savani, partner, Cyril Amarchand Mangaldas.
Who is eligible?
Eligibility is limited to those with a total income of up to Rs 50 lakh and a tax variation not exceeding Rs 10 lakh for the relevant assessment year.
“A taxpayer can apply for e-DRS for a ‘specified order’, including draft orders, intimations, certain assessments, orders increasing assessment or reducing loss, and orders related to tax deduction or collection (subject to conditions). However, orders from search, survey proceedings or international agreements are excluded,” says Savani.
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Taxpayers prosecuted for specified offences under the Income-Tax Act, 1961, or other specified Acts are also excluded.
Faster and cost-effective
The e-DRS offers a faster and more cost-effective alternative to traditional litigation. “The DRC is required to pass orders within six months after admitting the application,” says Kishore Kunal, advocate on record, Supreme Court of India.
Once the DRC accepts the application, tax and interest must be paid, but penalties (up to 100 per cent for under-reporting or 200 per cent for misreporting) and prosecution can be waived. “While tax and interest aren’t waived, penalties and prosecution can be fully waived if the application is accepted, benefiting taxpayers with income below ₹50 lakh who failed to pay their taxes,” says Kunal.
Limited mandate
Not all disputes qualify. Complex cases may still require traditional litigation.
DRC decisions are typically final and binding on taxpayers. If the proceedings are terminated or relief is denied, the decision cannot be appealed, which is a key drawback of the scheme. “In such cases, the only option for the taxpayer is to challenge the DRC order through a writ petition in the high court, which may address issues related to income computation or tax liability,” says Nikhil Kabra, partner, Ved Jain and Associates.
Thus, the scheme does not guarantee a resolution. “Taxpayers are advised to opt for the appeal route, which is more transparent, unless the tax department’s income computation is correct and the relief sought is limited to penalty and prosecution,” says Kabra.
Things to keep in mind
Under e-DRS, taxpayers can present their case, including via video conferencing, provided the DRC approves. “Unlike an appeal before the Commissioner of Income Tax (Appeal), the video conferencing (VC) hearing before DRC shall be subject to the DRC’s approval because of prejudice that may be caused to some taxpayers where such opportunity is not granted,” says Kabra.
Pay heed to the timelines. The application must be filed within one month of receiving the specified order, or by September 30, 2024, if an appeal is pending with the Commissioner of Income-Tax (Appeals).
Be meticulous with documentation. “When applying, taxpayers should gather all relevant documents to support their claims,” says Savani.
Check regularly for communications from the DRC. The dispute resolution proceedings can be terminated at any stage if the taxpayer fails to respond to queries or fails to cooperate. Concealment of material facts or submission of false evidence can produce the same outcome.
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