Finance minister Arun Jaitley would do well to settle larger chunks of relatively smaller tax disputes within the revenue department instead of letting them reach tribunals and courts, leading to an accumulation of tax disputes.

Another way, experts said, to reduce time-consuming litigation that impacts businesses is to make the department appeal against judicial orders much more infrequently than now.

Appeal
The present thresholds of disputed tax amount, above which assessment officers concerned can appeal against the decisions taken by the Commissioner (Appeals), are Rs three lakh without interest and penalty in the case of direct taxes and Rs five lakh with or without interest and penalty in the case of indirect taxes.
Appeal

Raising these thresholds two or three-fold would prevent a large number of disputes from reaching tribunals and from there courts, experts said, adding that there could also be similar increases in the monetary limits set for the department to challenge the orders of tribunals at courts.

The current monetary limits (for appeals) were decided in 2011, when the government revised the limits set in 2008 for direct taxes and in 2010 for indirect taxes. For both direct and indirect taxes, the current monetary limits for filing appeals at High Courts and Supreme Courts are Rs 10 lakh and Rs 25 lakh, respectively. When constitutional question is there, no monetary threshold is applicable.

“If the current monetary limits are raised by two to three times, it would give relief to small tax payers and help in substantially reducing litigation,” said SP Singh, senior director, Deloitte, Haskins & Sells.

As per official estimates released last June, tax disputes of more than Rs 4.82 lakh crore of direct taxes and over Rs one lakh crore of indirect taxes were at various stages. Direct tax disputes cover transfer pricing too, on which India has the largest number of disputes by volume.

Another way to cut down avoidable dispute is to effectively use the feedback from High Courts. “If on one issue, there are multiple decisions by the tribunal favouring the taxpayer and High Courts refuse to admit an appeal, then it would be prudent to issue an internal circular to direct officers not to make (income) additions on the same issue in the case of other tax payers,” said SP Singh.