Tax disputes pile up in absence of authorities

Nearly 3,000 cases under the ITSC and over 700 under the AAR are pending, and the lack of clarity in the absence of an advance ruling authority may lead to further increases in litigation with businesses and private tax consultants interpreting tax laws in their own way, they added.

“Pending cases with the AAR were supposed to be transferred to the Board but are yet to see any movement. It is impacting business decisions and is creating a lot of uncertainty. The idea of setting up an alternative advance ruling mechanism was to provide upfront the thinking of the government, whether the transactions are taxable or not. But there is a lack of certainty today,” said Neeru Ahuja, partner at Deloitte.

The ITSC was disbanded on 1 February 2021, with the budget proposing the constitution of an interim Board of settlement (IBS). Subsequently, the settlement of the pending cases was notified and 21 chief commissioners were assigned, but the rules are yet to be framed. More than 300 writ petitions have been filed in various courts against the abolition of the ITSC.

Similarly, an “underperforming” AAR was replaced with a two-member Board for Advance Ruling (BAR), chaired by an officer not below the rank of a chief commissioner. However, this, too, is yet to become functional.

“The lack of clarity on tax treatment at the beginning of a transaction due to non-functionality of AAR mechanism may lead to increase in litigation. However, the government’s intent has been to cut litigation. Faceless assessment is expected to reduce litigation to a great extent over a period of time,” said Vikas Vasal, national managing partner, Tax, Grant Thornton Bharat.

The AAR was set up with the sole aim of providing clarity on contentious tax issues, especially for foreign businesses. “However, over a period of time, applications piled up and delivery became low. Cases are pending for years,” Vasal added.

Akhilesh Ranjan, former member, central board of direct taxes, said while there was a problem of vacancies on the AAR benches, replacing the authority with a board may not be the solution. “The problem was that retired judges were not coming and joining. While chief commissioners may be senior officers who know the law, they are ultimately revenue officers. So the taxpayer is not going to feel that he is going to get an objective opinion. So, most cases may reach high courts,” Ranjan, who is also a tax policy adviser at PwC India, said.

“A lot of assesses relied on ITSC for the settlement of disputes with income tax department, but after it was wound up, there is no update on the pending cases that were to be transferred,” said an income tax official, seeking anonymity.

“In the absence of notified rules, this is leading to uncertainty for the taxpayers,” said Sandeep Sehgal, partner, tax, AKM Global.

Queries emailed to a CBDT spokesperson remained unanswered till press time.