CBDT circular said adverse judgements on specified issues should be ‘contested on merits, notwithstanding that the tax effect entailed is less than the monetary limits specified’

More than a month after saying it will appeal adverse tax verdicts only in cases involving sums of money above certain thresholds, the taxman has diluted the decision.

A central board of direct taxes (CBDT) circular issued to all income tax principal commissioners on 20 August said adverse judgements on specified issues should be “contested on merits, notwithstanding that the tax effect entailed is less than the monetary limits specified”.

Accordingly, taxmen can file appeals in cases that involve foreign black money or accounts, cases challenging constitutional validity of IT Act provisions, where rules issued by the tax department were held to be illegal, cases involving additions based on inputs received from other investigative agencies, or where the tax department has initiated prosecution.

Mint has seen a copy of the note.

In July, the government decided to increase the monetary threshold for filing appeals in tax disputes in various courts and decided to withdraw many pending appeals to reduce litigation and improve ease of doing business.

The monetary threshold for filing appeals in tribunals handling income tax as well as customs, excise and service tax disputes was doubled from ?10 lakh to ?20 lakh.

In the case of high courts, the monetary threshold was increased to ?50 lakh from ?20 lakh and in the Supreme Court, the threshold was increased to ?1 crore from ?25 lakh.

The government expected this to lead to withdrawal of 34% of appeals filed by the income tax department in Income Tax Appellate Tribunal, 48% in high courts and 54% in the Supreme Court.

The total tax amount involved in litigation was expected to reduce by ?5,600 crore, according to government estimates.

The main reason for raising the threshold was to ensure that the resources of the revenue department were utilized more selectively. The success rate of the government in these disputes has been very poor historically.

“These clauses have been inserted to give more importance to the cases involving prosecution or possible prosecution where the tax impact to the exchequer may not be significant but the offence of the person may warrant prosecution like habitual offenders, collusion in evasions, etc,” said Amit Maheshwari, Partner, Ashok Maheshwary and Associates LLP.

There were more than 88,700 cases pending in tribunals and 41,960 cases in high courts as of December 2016, according to a government statement in the parliament. There were 5,272 cases pending in the Supreme Court as of September 2016.