Income tax appeal resolution typical time 15-20 years: Steps to cut appeal pendency urged in Budget 2025 However, India's tax litigation numbers, pendency, and resolution time are significantly high
Deepika Mathur
Executive Director, Deloitte Haskins and Sells Chartered Accountants LLP
The income tax appeal mechanism in India is multilayered and time consuming, hindering the business environment. India has an extensive tax appeals system that starts from the Commissioner of Income Tax Appeals (first appellate authority/ CIT(A)) to the Supreme Court (SC). However, India's tax litigation numbers, pendency, and resolution time are significantly high. It typically takes 15-20 years to reach a final resolution through the appellate system.
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As of September 2024, 5,80,000 appeals were pending nationwide, to be heard by the CIT(Appeals). As per a Parliamentary Standing Committee report, significant direct tax litigation has also clogged various courts over the last three financial years. The total number of appeals pending at the Income Tax Appellate Tribunal (ITAT), High Court and SC was 51,567 in FY 2021-22, 58,645 in FY 2022-23 and 64,311 in FY 2023-24. Due to the appeal pendency, the disputed amount stood at Rs14,21,130.27 crore in FY2023-24.
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The government has taken various steps to address the above issue, such as: Revising monetary limits for filing appeals, creating new posts in the income tax appellate system, revising appeal disposal targets per the CBDT central action plan, introduction of Direct Tax Vivad Se Vishwas (VSV) Scheme 2.0 and faceless appeals. VSV encourages payment of tax demand by the taxpayer on the basis that no interest or penalty will be levied. Although Faceless Appeal was introduced, it has proven ineffective. Despite the requirement for online submissions, the disposal process is slow, resulting in a significant backlog at CIT(A).
While the above measures have been introduced, a critical need remains to reduce the backlog and complexities in tax dispute resolution. Below are some measures and strategies that could reduce pendency of tax appeals.
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Timely clarification on contentious matters
Currently lot of issues are left to be decided by the Court. These issues are settled at the Supreme Court. The government and CBDT should proactively engage with their own officers and also with taxpayers to identify issues that need to be clarified and not wait for the outcome of litigation.The department may create a manual to clarify and interpret the provisions of the Income Tax Act to provide clarity and certainty on common tax issues.
Additionally, on some issues, the department can periodically release apropriate circulars/instructions/notifications/clarifications. These would reflect its stand on various High Courts and Supreme Court judgments, indicating whether department accepts them in principle. This also will reduce unnecessary litigation and redirect the focus of revenue officers towards quality assessments / appeals.
Strict timelines for passing orders
The closure of appeals is often delayed, mainly because no timelines are mandated for concluding proceedings at the various appellate forums. While there are timelines prescribed for appeal filing, timelines should also be prescribed for passing the order as well, to help speed up the closure of the appeal. A timeline is to be prescribed for CIT(A)/JCIT(A) to pass the orders in a manner similar to the timelines at the Dispute Resolution Panel level.The department should have an independent national tax litigation cell to monitor tax appeals from inception to final disposal.
Many departmental representatives as well as taxpayers seek several adjournments at the tribunal level leading to unnecessary delays in the appeal process. Frequent adjournments should not be given unless there is a genuine reason. Also, many matters are set aside by the ITAT for a fresh view or perspective on particular issues. Typically a set aside to the officer would mean going through a second round of litigation (starting with Assessing officer to commissioner to ITAT). In order to avoid this second round of litigation or shorten the time taken to resolve this, the ITAT can request for a report from the officer directly on the matters which require verification or clarification, so that the tribunal can directly adjudicate the matter within a defined time frame.
The assessing officer should pass orders within a time limit to give effect to appellate orders so that refunds and interest can be processed as soon as possible.
Strengthening tax administration
Dedicated tax benches should be created in the HC and SC to help distribute workload and reduce the backlog of income tax related cases. Further, recruiting more judges, administrative staff and support staff to handle the increasing number of appeals is essential.Alternate dispute resolution mechanisms like VSV
To address litigation pendency, the government can also consider alternate dispute resolution mechanisms such as mediation, which align with international best practices.Transfer Pricing litigation should be conducted over a block of years instead of yearly assessment. Flexible amnesty schemes such as VSV should be regularly introduced.
Implementing these best practices can reduce unnecessary disputes and litigation costs and lead to a faster resolution of disputes. This would be a step towards the government's stated objective of building greater trust with taxpayers and ease of doing business in India.
Deepika Mathur is Executive Director with Deloitte Haskins and Sells Chartered Accountants LLP. With inputs from Nitika Mehta, Manager with Deloitte Haskins & Sells Chartered Accountants LLP
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This story originally appeared on: India Times - Author:Faqs of Insurances
