Insights into Editorial: Revamping the Income Tax Appellate Tribunal
The recent demonetisation move of the central government has increased the workload of income tax officials in the country. Demonetisation was aimed at reducing the extent of black money—money on which tax should be paid, but is not.
Demonetisation is the first step in the fight against black money in the country. The government seems keen to bring in other stringent measures to address this menace.
What’s the concern now?
Such stringent measures would either result in more people voluntarily paying taxes and assessment volumes rising, or the income-tax department may improve its enforcement capacity to check tax evasion. Either ways, the tax administration and adjudication infrastructure will face increased workload. Additionally, this will increase the workload of Income Tax Appellate Tribunal (ITAI). Unless they are well resourced, the government’s noble initiatives will hit an implementation bottleneck.
ITAT is a quasi judicial institution set up in January, 1941 and specializes in dealing with appeals under the Direct Taxes Acts. It was set up by virtue of section 5A of the Income Tax Act, 1922.
- Starting in 1941 with six Members constituting three Benches – one each at Delhi, Kolkata (Calcutta) and Mumbai (Bombay), the numbers of Benches have progressively increased and presently ITAT has 63 Benches at 27 different stations covering almost all the cities having a seat of the High Court.
- The orders passed by the ITAT are final, an appeal lies to the High Court only if a substantial question of law arises for determination.
Need for reforms:
- More stringent actions by the income-tax department would translate into more appeals to ITAT. If ITAT is not adequately resourced, this potential deluge of cases may affect its performance. This is troublesome as an independent appeals mechanism is necessary to ensure impartial decisions.
- As of July 2016, ITAT had on an average about 880 cases pending per member. In the busier benches (Mumbai and Delhi), the probability that a case will not be solved within one year of filing in Mumbai is 80%, while in Delhi it is almost 95%.
- The ITAT takes on an average 36-48 months to resolve a case. This compares favourably with the five-six years taken on an average across the subordinate courts in the country.
- Cases pertaining to assessments for undisclosed income (search and seizure, block assessment, etc.) are common (12% of all hearings and 9% of rulings). These are the cases where the tax department claims to have unearthed income which was not voluntarily disclosed for taxation. The volume of cases is likely to increase if the government is serious about reducing tax evasion.
- Also, there is no uniformity in solving cases by ITAI benches across the country. Cities with similar numbers of benches and members exhibit very different performance levels.
- Besides, since its establishment, ITAT is functioning more or less on similar lines except for necessary consequential changes introduced on account of its expansion and extension of its jurisdiction. There have been no fundamental changes either in the constitution or the functioning of the Tribunal in the Income Tax Act, 1961.
How can ITAT’s performance be enhanced?
- Commonly suggested remedies include increasing the number of judges or the number of benches to deal with increased caseload.
- Additionally, solutions to delays in ITAT lie in prioritizing and scheduling the workload properly. Although ITAT is a specialized court, there are variations in the complexity and urgency of the cases that come before it. Therefore, it may be useful to frame rules on how different types of cases would be prioritized.
- Qualitative aspects of rulings, factors influencing them and most frequently litigated subject-matters will also be useful in deciding the policy strategy for improving India’s tax environment.
Indian tax administration and adjudication needs urgent reforms. For this, a comprehensive performance analysis of ITAI is necessary. Also, more studies should be conducted to identify the exact institutional weaknesses in tax administration, improving which could help improve India’s abysmally low ranking on the “Paying Taxes” parameter in the Ease of Doing Business Index, and ensuring that citizens have access to an independent and impartial appeals mechanism.