Disputes in Income Tax - CAG Recommendations - Implementation of Appellate Orders Low in AO's Priorities
THE CAG embarked upon a study of Issues leading to Disputes in Income Tax and noted that, “The dimensions of disputes in income tax are staggering. Rs 2.2 lakh crore is the amount locked up in appeals at various levels, which can almost wipe off the revenue deficit of the Union Government in 2008-09. On an average, 48 per cent of tax demands remain uncollected and disputes account for 45 per cent of uncollected demands.”
The Audit worked with several constraints. The absence of a centralised database on appeals at the State level, hampered the selection of the audit samples. Audit therefore, had to examine individual assessment records for the selection, which considerably strained the audit plan. Poor maintenance of records across the assessment and judicial wings of the Department, is an area of concern. Non-production of records was a major constraint as well as concern. The Department produced only 49 per cent of the records requisitioned for audit; it was as low as 5 per cent in the case of Delhi Office.
CAG felt that implementation of appellate orders is placed low in the AOs ' priorities. Inadequate attention on correctness in implementation of appellate orders, led to mistakes amounting to Rs. 1,456 crore in 385 cases. 97 per cent of these mistakes in implementation led to under-assessment of tax benefitting the tax payer, which raises doubts on the integrity of the process.
CAG has recommended that:
1. Small tax payers' disputes may be hived off and dealt separately through an alternate dispute resolution mechanism. This would bring relief to a large number of disputants (66 per cent) and clear the pendency. Segregation of complex corporate disputes from such low end disputes, would promote greater focus on the “big ticket” appeals and also facilitate rationalisation of the workload of CsIT (A);
2. The reasons for low satisfaction in assessment of small taxpayers leading to disputes need to be identified;
3. The Act may be amended to stipulate a definite time limit in finalising appeals at the CIT(A) level, which may be in line with international best practices;
4. There is a need to remove ambiguities in the provisions of the Act to reduce the use of discretion by the AOs . The penal provisions of the Act, for instance, require a re-look, since the deterrent edge to these provisions is being blunted due to inability to sustain the penalty orders in appeals;
5. A databank of cases in which permission is not granted by Committee on Disputes (COD) containing details on the disputed provisions of the Act may be created so that similar cases are not pursued or referred to COD;
6. Responsibility must be fixed on AOs for technical or procedural lapses that drag the Department to needless litigation;
7. Automation of receipt and disposal of appellate orders, with inbuilt supervisory controls be implemented. Pending automation, maintenance and updation of control registers should be monitored regularly; a system for periodic reconciliation of data maintained by different sources, may be instituted;
8. An effective system, involving departmental representative/legal counsel may be laid down to ensure timely collection of appellate orders to stem the delays in implementation; as a confidence building measure, the data on AO-wise receipt and implementation of appellate orders should be placed on the website.
9. There should be supervisory review of orders giving effect to appeal, to detect mistakes;
10. A stricter accountability structure should be formulated to fix responsibility on AOs for incorrect implementation of appellate orders.