Alternate dispute resolution mechanism expected in new tax code

The new Direct Tax Code to be submitted on August 16 by the committee headed by Principal Chief Commissioner of Income Tax Akhilesh Ranjan will have, among other things, an alternate dispute resolution mechanism, said a person privy to the discussion of committee.

As per the draft tax code, if a person gets a (tax) demand order on account of 20 items, the assessee has a choice that of the 20 items if he agrees on ten, he can pay the tax on those ten items, and get exemption from paying any interest or penalty.

The items on which the assessee does not agree, he can go for a negotiated settlement. The negotiation will happen on the basis of how many cases the department wins in appeals. Say, if the department has on an average won 20 per cent cases in appeals, the department would ask the assessee to pay 20 per cent of the demand and settle the case. If a negotiated settlement is reached, the assessee will only have to pay the tax and interest and no penalty.

If one does not agree with everything (the tax department disputes), he can part agree and part litigate. Even if the assessee loses in appeal, he can still have an opportunity to settle the case.

Dinesh Kanabar, CEO, Dhruva Advisors, a tax advisory firm, says if anything like this is proposed in the Direct Tax Code, it will be landmark change. "Such a dispute resolution mechanism is not unique to India. They have been in many countries but not in India," he says.

Mounting number of tax litigations have been a big issue for the income-tax department and it has been constantly looking to devise plans to bring down the number of litigations.

The Central Board of Direct Taxes (CBDT) in its annual action plan for 2019-20 has recognised the important role of Litigation Management in achieving its 2020 vision of being an efficient and effective tax administration and improving voluntary tax compliance. The steps planned include a steep hike in monetary limit on filing appeals before Income Tax Appellate Tribunal (ITAT)/Courts.

According to the action plan, number of appeals pending with Commissioners of Income Tax (Appeal) at the end of 2018-19 was 3,41 lakh involving Rs 5.71 lakh crore. Tax demand involving Rs 1.15 lakh crore was stayed by Income Tax Appellate Tribunal and higher courts.

Recently, the tax department in order to reduce litigations and help the department focus on litigation involving complex legal issues and high tax effect, increased monetary limits for filing of appeals from Rs 20 lakh to Rs 50 lakh in ITAT, Rs 50 lakh to Rs 1 crore in high courts and Rs 1 crore to Rs 2 crore in the Supreme Court.

Meanwhile, many tax experts who have interacted with the committee drafting the new Direct Tax Code believes that the new code would not have any 'radical' provisions which were part of the DTC draft during the UPA times. The changes would not be drastic but mostly incremental, believes many.

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