There are no strict limits on reopening tax assessments. This issue should be resolved, leveraging faceless assessment systems
That India is a highly litiguous society is a well known fact. According to http://www.bloombergquint.com, (September 29), Covid slowed down the economy but not the filing of cases in courts. An astonishing 40 million cases are piled up in courts and tribunals across the country with the Allahabad High Court leading the chart with 7.46 lakh cases followed by Punjab and Haryana HC (6.07 lakh) and the Madras High Court (5.7 lakh).
Tax assessments have nothing conclusive about them. An assessment can be reopened any number of times though the threshold has been gradually brought down over the years. Assessments once completed shall be final for all times, except when the tax authorities at the highest level establish that the tax-payer has deliberately concealed income. To get to this point, the tax department may not be comfortable with the level of scrutiny currently performed. This should be certainly tightened. For this, the faceless assessment process should be leveraged fully. A panel of commissioners should scrutinise every case above a threshold.
Scrap high pitched assessments
High-pitched assessments and the consequent recovery process often clog the courts with writs and stay petitions.
An easy solution for this problem is that in cases where the tax assessment results in a taxable income exceeding 125 per cent of the returned income, the assessment shall be a draft order and the tax payer can file an appeal to the tribunal with the rider that disposal shall be time-bound. The tax demand shall be enforceable only after giving effect to the tribunal order.
Each city should have an arbitrator and an ombudsman for settling (with no scope for further appeal) tax demands up to, say, ₹5 crore. The appointees should inspire confidence to access this option.
The law is very clear that High Courts should admit appeals against tribunal orders only on ‘substantial questions of law’. However, it is often seen that courts keep a low threshold and admit almost all cases.
The myth that all cases are a mixed question of law and facts is responsible for this spate of admission . Unlike in civil appeals, where the court has a duty to correct a perverse appreciation of facts by the trial court, in tax matters the scope of appeal is very narrow under the governing law and should be strictly abided by.
Transfer pricing cases reaching higher court is an example of this criticism.
It is quite possible that a tribunal gives a patently bad judgment; but the remedy is in setting right the institution and removing errant members and not for a High Court to correct every mistake done by lower authorities.
Any tax appeal pending in a High Court beyond two years is a reflection of the poor administration of the court concerned. There must be only a limited number of, say, five High Courts designated to hear tax cases. This will lead to greater convergence of views and more specialisation which this branch of law badly needs.
Getting the final act ready
The Supreme Court has over the years become another appeals court and the mountain of pendency is impacting its image. Here, again, the statistics on Special Leave Petitions admitted versus rejected is quite revealing.
If the Supreme Court has pendency, can it exhort lower courts for better efficiency? No case should be admitted in tax matters unless there is patent divergence of views of two or more High Courts.
It is hoped that the powers that be reflect on these suggestions and the upcoming Budget address some of the points.
As the tag line in the advertisement of a famous spirits company exhorts its customers to “enjoy responsibly”, let the motto in our country be “litigate responsibly”.
The writer is a Chartered Accountant and Company Secretary