Taxman Pins Hope On Direct Tax Dispute Resolution Scheme To Garner Revenue

The government hopes to resolve at least 70,000 cases under the Direct Tax Dispute Resolution Scheme.

About 2.59 lakh cases with a total tax implication of Rs 5.16 lakh crore are pending before Commissioner of Income Tax (Appeals) as of February 29, 2016 and the Central Board of Direct Taxes (CBDT) expects around 30 percent of these assessees to avail the Direct Tax Dispute Resolution Scheme, said a senior official with direct knowledge of the matter.

Until now, the CIT (Appeals) has ruled in favour of the department in one-third of all tax disputes that have been brought before it. In the remaining 70 percent, the first appellate authority pronounced judgments in favour of assessees.

Under the Direct Tax Dispute Resolution Scheme, a taxpayer whose appeal is pending as on February 29, 2016 before the CIT (Appeals) can settle his case by paying the disputed tax and interest up to the date of assessment. For a disputed tax amount of up to Rs 10 lakh, the penalty will be forgone. In cases where the disputed tax amount is over Rs 10 lakh, a penalty of 25 percent will be levied.

For penalty appeals, the scheme allows the assessee to pay only 25 percent of the penalty.

The scheme also gives immunity against specified tax by allowing the assessee to pay only the disputed tax amount, and get immunity against paying the interest and penalty, provided he withdraws all appeals against the government in all judicial forums. Assessees can avail this scheme from June 30 to December 31 this year.

A specified tax is a consequence of an amendment made with retrospective effect in Income Tax Act or Wealth Tax Act.

As of now, the response to the scheme has been lacklustre but the department expects it to pick up pace in the last few days, as was the case with the Income Declaration Scheme, the official quoted above said. Tax experts concur.

Unlike the Income Declaration Scheme, the tax department is not planning an awareness campaign for the Dispute Resolution scheme but assessees are briefed by officials whenever needed, another official who did not wish to be identified said.

The department will start sending text messages and emails to assessees between October 24-25, he added.

Tackling Litigation

In an effort to reduce litigation, the department has also withdrawn around 12,000 appeals with a tax effect below Rs 10 lakh as of September 30. About 6,130 appeals were pending before the Income Tax Appellate Tribunal and the remaining 5,870 with the various high courts.

As on June 30, 2016, the disputed amount in litigation fell to Rs 4.45 lakh crore. Of this disputed amount, around Rs 2.45 lakh crore is stuck in disputes with corporates and the rest with non-corporates, a third official with direct knowledge of the matter said on the condition of anonymity.

The details including who has availed the scheme and the quantum of disputed tax amount will be circulated through the department on the 7th of every month for the next three months by the judicial wing, the second official cited above said.

The same official added that the amount pending in litigation at the CIT (Appeals) level as on February 29, may not necessarily include the penalty. This is because an order is due within six months of issuing a penalty and if during this time the assessee makes a request to keep the penalty in abeyance, it can be done by the assessing officer till the penalty is disposed off. However, the assessing officer can also reject the appeal of the assessee and levy the penalty.

There might be cases where the disputed tax amount of 5.16 lakh crore may not include the penalty amount, while there may others which factor in a 100 percent penalty. Those cases in which 100 percent penalty is levied, the remaining 75 percent will have to be waived off, as assessees availing the scheme will only have to 25 percent in penalty.

Some of these disputes may also be with large companies, where the disputed amount is huge and these companies may not want to close the case at CIT (Appeals) level, as there may be chances where the same appeal is pending in other courts like the Income Tax Appellate Tribunal and high courts, the official said.

The third tax department official quoted above said that companies like Vodafone can also avail the scheme as it gives immunity against a penalty and interest in case of disputes in specified tax.

The tax department and Vodafone have been in a dispute since 2007 over the telecom company’s $11 billion acquisition of Hutchison Essar. The tax demand, which was initially around Rs 8,000 crore, has now more than doubled to Rs 20,000 crore, including interest and penalty.

In 2012, the Supreme Court had ruled in favour of Vodafone in the case, but the UPA government thereafter brought in a retrospective amendment to tax laws, bringing such transactions under the tax bracket. Vodafone had then moved international arbitration court.

After the seven-month voluntary dispute resolution scheme closes, the principal commissioner will assess tax dues in 60 days, and the assessee will get one month to pay the disputed amount, the first source said. Therefore, the government is likely to receive the actual amount under the dispute resolution scheme by March 2017.

The amount expected to come under the scheme will be “collections out of arrears”, the second official quoted above said. The remaining part of the demand (wherein 100 percent penalty was factored in) will have to be forgone, and the projection of penalty, if factored in, will have to be altered, the same source said.

“Under the Direct Tax Dispute Resolution Scheme, taxes paid by applicants in those cases where the demand is outstanding, will have a positive impact on the government’s revenue collections,” Sanghvi of EY India said.