Fe Exclusive: Income Tax Act needs complete rewrite: ITAT president Dev Darshan Sud

A thorough rewrite of the Income Tax Act was highly needed, justice Dev Darshan Sud, president of the Income Tax Appellate Tribunal, told FE in a tacit call for the revisiting of the direct taxes code (DTC).

A brainchild of the UPA government, the code was meant to consolidate, amend and simplify all laws relating to direct taxes based on “the best international practices”. However, the Modi regime has developed cold feet on the DTC, even as it is implementing many of its features, one piece at a time.

Constant tinkering and haphazard revisions — in response to a court order favourable to the assessee, for instance — has over the decades rendered the I-T Act abstruse, heavy and prone to conflicting interpretations and litigation, Sud said. “You must repeal the entire Act and have a new one. It will bring clarity, reduce litigation, introduce certainty… and once all this happens, investors’ confidence will increase and they will start investing. At present, people are not sure where they will be taxed.”

While being committed to cut down the backlog of cases before the tribunal — 95,000 at last count — Sud wants the government to help it with clearer tax circulars, enhanced manpower and infrastructure. “We intend to start the system of e-filing and the fledgling practice of hearing of appeals via video-conferencing will be improved and regularised,” he said, on the occasion of the 75th anniversary of ITAT, India’s pioneer tribunal, which heralded a string of such quasi-judicial set-ups in the country for faster justice delivery.

Asked whether the revenue department acted promptly on its recent promise to withdraw scores of appeals of high “tax effect” on the basis of the principles of Advance Pricing Arrangements for transfer pricing, he said unless the Central Board of Direct Taxes (CBDT) issues clear-cut instructions to the field formations, such things might not work. “It is important that the assessing officer (AO) acts in full faith and without the fear of prosecution whether or not her decision favours the revenue,” he said.

Last month, the finance ministry raised the monetary limits for the tax department’s filing of appeals to the ITAT and high courts to Rs 10 lakh and Rs 20 lakh, respectively, from Rs 4 lakh and R10 lakh earlier. Tax effect is the gap between the tax liability estimates made by the department and assessee.

The tax department has already signed 39 (38 unilateral and one bilateral) APAs for valuation of different kinds of cross-border transactions and has set a target to conclude a total of 150 such deals by the end of the current fiscal year.

Also, it promised to extend the APA principles to cases from the past four years and withdraw the appeals before the tribunal if the assessees agreed to meet the norms.

However, Sud is not in favour of doing away with the current practice of AOs and commissioners referring the international transactions above Rs 5 crore automatically to the transfer pricing officer. “Let the area of law develop. Once you have reached certain level of development, then you can think of such limits,” Sud said. The ITAT had in November last year asked AOs to be more diligent and choosy in referring cases to the TP officers. Sud agreed that discretion left with the assessing officers and commissioners needed to be “curbed”, but was against abolishing the same.

The ITAT chief saw no visible let-up in the TP adjustments (income suppression notices) sought by the tax department, described by most tax experts as “high-pitched” if not aggressive. He saw merit in the Shome committee’s recommendation that appeals to ITAT must follow an appraisal by a panel or board. “The government has to take a call on this. It can have a kind of arrangement (that) before approaching the tribunal, it is ensured that it is a very important (and complicated) matter and not a case of normal assessment,” he said, adding: “Clear and specific legislation and defining the limits of what is assessable to tax, and what is exempt are the ways to bring down litigation.”

Bunching of cases of similar import and involving the same substantial question of law could also help. “After this platinum jubilee celebrations, we will be in the job of bunching cases involving particular points of law. If a case was already dealt with by the high courts or Supreme Court, that will provide the guiding light.”

Sud said the four-year miscellaneous appeal window available to the assessee after an ITAT order was too long and being misused and so, it should be reduced drastically.

To drive home the point that ITAT orders have generally been of high quality and non-adversarial to the taxpayer, he said that roughly 75% of these have gone in favour of the assessee and 80% have been upheld by the high courts.
Disputes relating to direct taxes have crossed Rs 5 lakh crore.