HW English
Taxation

The Mindless Tax Litigation

A news item says that ahead of the union budget presentation, the chairman of the Central Board of Direct Taxes (CBDT) raised a pertinent issue in a meeting of the top officers of the Income Tax Department. He raised a serious concern over the success rate of the Department in its cases pending before the Supreme Court, which has been a mere 2.54% in the past ten years. That is almost like a total failure, and shows that the Department incurs huge litigation cost and inflicts immense harassment on the tax payers, only to win about 2.5% of its cases. This is just not surprising and confirms the passion of the ITD to pursue baseless and unjust litigation, which results in injustice and untold harassment to the hapless tax payers. It reflects very poorly on the intent and competence of the Department and mirrors the indiscriminate tax demands raised by tax officers, forcing the assessee into litigation and the indifferent tax department instead of accepting and closing litigation at the level of the lower judicial authorities such as the ITAT, chooses to drag the assessee right upto the Supreme Court in mindless litigation.

And in this wanton zeal of the Department, not only is the assessee denied justice, but he also faces unending harassment by way of forced coercive recovery of a baseless demand, which erodes his scarce working capital cashflows, inflicts a huge uncertainty and cost of litigation on the tax payer, due to which his business suffers or even closes down, none of which is in the interest of the nation. The cavalier tax department drags the tax payers into senseless and expensive litigation, notwithstanding its pathetic success rate in courts.

Such troubling tax litigation undermines justice and it is not the first time that the issue of substantial avoidable litigation in the tax arena has been raised. In its Economic Survey last year, the CEA pointed out that the litigation rate of the tax departments is very high, even though its success rate in courts is low and is declining year after year. The governments unreasonable passion to dispute is so high that 66% of the pending cases (each less than Rs.10 lakhs demand), accounted for merely 1.8% of the disputed demand, with a mere 13% success rate in the High Courts. In other words, it harasses the small tax payers the most, through such adventurous, frivolous and high handed litigation. The huge failure of the Department to defend its position in courts, reflects on the kind of baseless tax demands raised by the assessing officers. Illegal high pitched demands are often raised by untrained officers, with poor accountability. In fact, the way in which the Department is administered, its officers prefer to raise these huge bogus demands, since there is premium on demands raised by them, due to the very fact that if no additions are made to the total income of an assessee, it is presumed that the officer is corrupt or is incompetent. To top it the appellate authorities at the first level, who are officers of the Department and not judges, are compelled to confirm these baseless tax demands, as a parameter to judge their performance and to decide their postings and promotion.

It is due to such mindless litigation pursued by the tax department that our tribunals and courts are clogged, with a huge pendency of cases. The pendency of cases has been consistently rising with Tribunals, with a 25% increase in the size of unresolved cases since 2012. With the average pendency of economic cases before the Tribunals at 3.8 years, it shows that uncertainty faced by tax payers and its adverse impact on their business. There were 3.5 mn cases pendingĀ  in High Courts, with tax cases having an average disposal period of 6 years and the success rate of the ITD therein, being a mere 13%.

It is often seen nowadays in tax cases in particular, that irate courts have levied personal penalty on the officers who have passed spurious orders or have filed such appeals. But till officers are not made to personally compensate tax payers for the damages and loss that they suffer, due to indiscriminate demands, baseless litigation and coercive recovery, the tax departments will continue to litigate, unmindful of the fact that the Department loses most of its cases. If the CBDT chairman is worried about such a pathetic success rate of the ITD, he should put a stop to such litigation and punish the officers who do so.

Related posts

The Harshad Mehta Tax Story

Akhilesh Bhargava

The harassed taxpayer and tax man too

Akhilesh Bhargava

GST mop-up rises to Rs 1.02 lakh crores in January

PTI