Tax experts call for quicker disposal of appeals, settlement
October 28, 2024
These demands have been made in the context of the ongoing comprehensive review and re-drafting of the Income Tax Act, 1961.
Tax experts have pitched for a mechanism for quicker disposal of pending cases with commissioner (appeals), reduction in compliance burden for companies in MSME-related payments, and allowing taxpayers to settle select cases under litigation.
These demands have been made in the context of the ongoing comprehensive review and re-drafting of the Income Tax Act, 1961.
In a notification earlier this month, the finance ministry said the government’s policy with reference to direct taxes in the medium term is to phase out tax incentives, deductions and exemptions, while simultaneously rationalising the rates of tax. It specifically asked the industry to recommend how to “reduce compliances”, provide “tax certainty”, and “reduce litigations”.
According to official sources, the total cases pending at the Commissioner of Income Tax (Appeals) level is over 580,000. This is way higher than about 530,000 cases pending at the start of 2024.
There has been a huge delay in the fixing of hearings and passing of orders by the commissioner appeals both online and in person, say experts. In-spite of repeated reminders and requests there is no revert or action from the department on these long pending cases (some are pending for over 6 years), they say
It is suggested that all the pending cases with CIT(A) are cleared in a phased and time bound manner with proper action plan in next one-two years post which all the regular matters should be closed quickly, said Yogesh Kale, executive director, Nangia Andersen India. “If required, the strength of commissioners adjudicating these matters can also be increased in due course for this purpose.”
Sanjay Sanghvi, partner at Khaitan & Co said that the government should consider introducing a provision for time bound disposal of appeals at least under the faceless appeal regime. “Amongst others, this will surely help medium and small enterprises since payment of tax demand (typically 20% of disputed tax demand) during pendency of appeal hampers their working capital resulting in undue hardship,” he added.
On the contentious “45-day” payment rule to MSMEs, experts say that the Central Board of Direct Taxes (CBDT) should come up with a set of FAQs, which covers various situations (under which the rules are flouted) and their subsequent tax implication. As presently, this norm has increased the compliance burden enormously on large businesses, which has also led to disputes.
The Finance Act 2023 had inserted Section 43B(h) in the I-T Act, which stipulates if payment to micro and small enterprises is not made within the prescribed time, i.e. 45 days, then businesses will not be able to claim tax deduction on such payments. The timeline of 45 days stems from Section 15 of the Micro, Small and Medium Enterprises Development Act 2006, which mandates payments to micro and small enterprises within 45 days in case of written agreement and 15 days in case of no-written agreements.
Under Section 43B, deduction on expenditure on an accrual basis is permitted for the previous year if the payment has been made before the due date of filing of return of income by a firm in the subsequent year. However, the clause (h) states that deduction is on payment and not on the accrual basis subject to the time limits specified in Section 15 of the MSME Act.
Further, to ease burden on taxpayers, tax experts suggest an amendment in Section 270AA, which allows assessees to settle disputes. Currently, if an assessee has been issued, for instance, five orders from authorities, he/she has the right to either seek immunity on all those orders, or contest them. Nangia’s Kale said the section should grant an opportunity to choose which ones of the five should be settled, and which should be contested. “This would give taxpayers a much needed flexibility, and free up capital,” he said.
Other suggestions included allowing carry forward of tax losses for all sectors. At present, section 72A allows carry forward of accumulated tax losses only where the transferor company owns an ‘Industrial Undertaking’. That means transferor companies, inter-alia, engaged in the service sector are not eligible for carry forward of accumulated tax losses pursuant to amalgamation.
“This differential treatment should be done away with and the benefit of carry forward of accumulated tax losses should be allowed across all sectors and industries,” noted Dipesh Jain, partner at Economic Laws Practice (ELP).
[The Financial Express]
