Tax dispute resolution window has few takers

Barely four per cent of direct tax litigation cases pending with the income tax department came under the Dispute Resolution Scheme (DRS) of 2016, with total taxes to the tune of ~1,250 crore. Extension of the scheme by a month till January 31 failed to elicit much response, resulting in 10,500 applications under the scheme making up for only two per cent of the disputed amount at the level of the Commissioner of Income Tax (Appeals).

Among the total applications, the government has received ~250 crore so far from the orders passed in 4,100 cases. The applicants will get about two months to pay the tax amount, interest and penalty from the date of orders.

The response suggests only small-value cases came under the scheme, with an average tax incidence of ~11 lakh.

“The scheme got a very poor response compared to what was expected. The scope of the scheme was very limited. Those hopeful of getting a favourable verdict at the appeals commissioner-level did not apply. But the response is less than a fifth of what was expected,” said a government official.

The one-time settlement scheme, announced in the Budget for 2016-17 by Finance Minister Arun Jaitley, commenced on June 1, 2016, and was originally till December 31, 2016, but was extended by a month later.

Close to 250,000 cases are pending at the appeals commissioner stage, with ~5 lakh crore locked in.

The government is targeting a 14.3 per cent growth in direct taxes at ~8.47 lakh crore for the current financial year. Till February, the government collected about ~6.7 lakh crore, a growth of 10.7 per cent.

The Direct Tax DRS, 2016, allowed taxpayers

DISPUTES

whose appeal was pending as of February 29, 2016, to settle cases by paying the disputed tax and interest up to the date of assessment. For a disputed tax amount of up to ~10 lakh, the penalty would be forgone. In cases where the disputed amount was above ~10 lakh, a minimum penalty of 25 per cent would be levied. For penalty appeals, the scheme allowed the assessee to pay a minimum penalty of 25 per cent.

The scheme also sought to settle the retrospective tax disputes by waiving interest and penalty if the companies agreed to pay the principal amount of the tax demand. However, neither Vodafone, nor Cairn came forward.

Meanwhile, the Income Tax Appellate Tribunal in a judgment last week upheld

DIRECT TAX COLLECTION

the tax department’s capital gains demand of ~10,247 crore from UK energy giant Cairn in an acquisition deal in 2006. But, the tribunal gave relief on the ~18,800-crore interest for non-payment of advance tax on the ground that since it was a retrospective levy, it could not have been anticipated by the assesse. The department will shortly carry out penalty proceedings against the company, which could range from 100 to 300 per cent.

UK-based telecom company Vodafone is also locked in a battle with the tax department in international arbitration since 2007 for the $11-billion acquisition of Hutchison Essar. The tax demand, which was initially around ~8,000 crore, has now more than doubled.