Recently, Central government has formed a four member panel in order to manage the tax litigation in line with the best international tax practice. The committee is mandated to prepare and submit its final report by May end. The committee is expected to tackle the issue in a two-prong way, firstly by addressing some current pain points and secondly recommending some steps relying upon international best practices
It is expected from the panel to take a holistic view of the prevailing tax litigations and come out with suggestions by which unnecessary tax litigation can be avoided. Here are certain areas which the panel should consider while preparing its report:
# It is observed that tax officers do not have focused approach for collecting evidence which can stand scrutiny of court in case of investigation. Many orders are passed on the basis of surmise or conjectures. Due to weak or inadequate evidence on record, such additions are deleted at appellate level. Hardly any conviction are procured by the tax department. It is suggested that tax department should pick up only that many cases where it can do thorough justice. Special teams of highly motivated officer should be formed whose goal should be to take up high value cases of tax evasion and secure conviction in court of law. By spreading the resources thin, tax department is giving courage to tax payers to evade tax.
# The government is constantly making efforts to gather critical information from various authorities by way of annual information return (‘AIR’) which can be used for selecting the quality assessment. However, it is noticed that instead of focusing on quality data, tax department indulges into fishing or roving inquires, the panel should make necessary recommendations so that the information gathered by the department is thoroughly examined before initiating any kind of proceedings on the assessee. Such an approach will enable only risk based assessment to be carried out by the department with optimum utilization of resources and in remaining cases, the department can trust the taxpayer.
# In many cases it is observed that the time spent by the field officers in completing an assessment is significantly high as compared to the monetary outcome / revenue generated by the assessment. Further, in many cases inspite of significant time spent while completing assessment, addition made are not surviving at appellate forums and courts are passing strictures against the tax department. The panel should make recommendation to hold the tax officer personally accountable for the order passed by him. The quality of the assessment framed by an officer should be regularly reviewed by seniors so that the officers get a regular feedback to improvise their skills.
# The tax officers many times frame high pitched assessment and raises huge demand on the taxpayer, even though, the matter in dispute is settled by a higher appellate authority. The reasons stated by the department is that the outcome of the appeal decided against the department is not acceptable to them and they have further pursued litigation before the High Court / Supreme Court. In such cases, panel should recommend that even though the officer has raised a demand in the assessment order, the assessee shall not be saddled with coercive recovery pressure untill such dispute has reached it’s finality. This will benefit the taxpayer big time so that his funds are not blocked which can be effectively used in his business.
# Many times department undertakes search and survey action on Hawala Dealer. However, it is observed that even after admitting by them as “Hawala dealer”, they gets away by paying taxes on just 1%/2% (as commission income) of amount of Hawala/bogus entry provided by them to the other taxpayer. The practice of only taxing the so called commission income should be abolished and very heavy action should be taken against such Hawala dealers. If money cannot be recovered from such Hawala dealers, they should be prosecuted without any exception and sent to jail.
# Committee should focus on preventing, or at least mitigating, litigations such as pre-assessment filters. This will help the tax department to focus on large issues rather than going after the small fish.
# It sometimes happens that assessing officer in order to achieve revenue target given by superior authority, makes unwanted addition which gives rise to unnecessary litigation. Accordingly, it is expected that revenue target should not be given to assessing officer.
# Authority of Advance Ruling (AAR) should be pronounced quickly. Further, department should not challenge AAR ruling.
# Advance Pricing Agreement (APA) team ruling is quick when compared with other country. However, assessee should be given trust by department for not questioning small issue, so that APA team does not get overloaded and pronounced its ruling
# Regular or habitual tax evader should be prosecuted so that justice can be made to the regular taxpayer.
# Like, in USA, tax payer rely on IRS’s Internal Revenue Manual which contains IRS’s own interpretation of tax laws considering court ruling. India should also issue manuals to reduce litigation.
# Many times it happen that department accepts high court order of one court but on same issue it challenges other high court order. Hence, if one high court order is accepted for particulars issue, other high court order on same issue should also be accepted. Further, CBDT should also issue circular accepting position taken.
# Introduce peer review for tax officers and give review to the respective officer in order to make them accountable.
# Since “justice delayed is like justice denied” hence committee should suggest time frame for Appellate authority so that all pending appeals are disposed off at the earliest.
# Wherever department gets an adverse ruling at tribunal level, it should do quality analysis and appeal only in certain cases which would lead to higher probability of winning,
Adoption of international best practice will go a long way in restoring trust of tax payer in tax department.
The article is originally written by Mr. Ashok Shah, Partner, N.A Shah Associates LLP