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This article has been written by Avinash Kumar, a 3rd-year law student from School of law, UPES Dehradun. In this article, he has discussed the different forums available in India to settle tax disputes.  

Introduction

Tax disputes arise in every country. It depends on how administrative authorities settle the tax disputes between the taxpayer and tax authority. It is the responsibility of the government to settle the tax dispute. It is also the responsibility of the government to establish a different forum to decrease the burden of tax cases on the judiciary. As there is already a huge burden of pending cases on the Indian judiciary. 

You will be shocked to know that as per the economic survey in India, the Income Tax Department is the biggest litigant but they lose 85% of their cases. Day by day the number of tax litigants is increasing.

The reason behind the increase in tax litigants in India is a mismatch between government intent and interpretation of the law. It is difficult to deny the fact that a lack of transparency between the administration and the taxpayer is a big reason behind the increase in tax litigation cases. In India, settling tax disputes is a time-consuming exercise. However, the government has come up with many platforms to settle tax disputes with the tax authorities. 

How can tax disputes be brought before the courts?

If any dispute arises regarding tax, then a notice issued by the tax authority has been served upon the taxpayer. A taxpayer can appeal against the order of the tax authority before the first appellate authority.

If the first appellate authority passes any order, then an appeal can be filed by the taxpayer before the Income Tax Appellate Tribunal (ITAT). If any substantial question of law arises against the order of the Income Tax Appellate Tribunal, then an appeal can be filed before the High Court. The judgment of the High Court is appealable before the Supreme Court. 

If a taxpayer is filing an appeal to the tribunal, the taxpayer has to file an appeal in the prescribed format.

Against the order of the tribunal, the taxpayer can file an appeal in the High Court of their jurisdiction within 180 days from the date of the receipt of the order of the tribunal. If you can not file an appeal within the time period, you will have to give a valid reason to the High Court.

When the High Court says that case is fit for filing an appeal in the Supreme Court, then the taxpayer can file an appeal in the Supreme Court against the judgment of the High Court. A taxpayer can also file a special leave petition to the Supreme Court when the High Court refuses to issue a certificate.

If the action of the tax authority is malafide, illegal or arbitrary, then in such a situation the High Court or Supreme Court can issue a writ against the tax authority to quash the decision.

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Forums available to settle tax disputes

These following forums are available which settle the dispute between the taxpayer and the tax authority. 

Dispute Resolution Panel (DRP)

The international business started to come into the Indian market and that’s why the collection of revenue increased. When revenues increases, the number of disputes related to the tax litigants will also increase. 

Keeping this in mind, The Finance Bill came up in 2009 with a new objective to resolve the tax disputes which are related to the transfer pricing matters. In the year 2009, the government established the new mechanism that is Dispute Resolution Panel to settle the disputes which is related to the transfer pricing in international transactions.   

The main objective of the dispute resolution panel is to provide speedy disposal of cases. The body of the Dispute Resolution Panel is constituted by the Central Board of Direct Taxes (CBDT) and its body constitutes three commissioners from the Income Tax Department. The panel of Dispute Resolution Panel is situated in Delhi, Mumbai, and Bengaluru. The Dispute Resolution Panel has the power to make any inquiries.

They can also direct the Income-tax authority to do an inquiry and submit the inquiry results. If a transfer pricing officer passes an order against foreign companies that is unfavourable, these companies can directly approach the Directive Resolution Panel.

If an assessee has any issue related to the tax assessment, then they can approach the Dispute Resolution Panel. After hearing both sides, the Dispute Resolution Panel will give direction to the tax authority. The tax officer is bound to follow the direction of the Dispute Resolution Panel.

Income Tax Settlement Commission

The Income-tax settlement commission works under the Ministry of Finance. It is a quasi-judicial body. The settlement commission gives the opportunity to the assessee to disclose the income which he has not disclosed before the Income Tax Department and settles the tax dispute. If the case of an assessee is pending before the tax authority, then he can directly approach the Income-tax Settlement Commission.

When your case is pending before the tax officer, you can file a settlement application to the Income-tax Settlement Commission. This is different from when an assessee can file an appeal only after the end of the proceeding against an order of the assessment. The settlement order passed by the settlement commission is final and binding. But, an appeal against the order of the settlement commission can be filed to the High Court through a writ petition.

Advance Pricing Agreements

The Ministry of Finance started the advance pricing scheme. Advance pricing provides a framework in which the taxpayer can make an agreement with the Central Board of Direct Taxes. Taxpayers and tax authorities enter into agreements to avoid future transfer pricing disputes. Advance pricing agreements reduce the possibilities of double taxation. 

There are four phases of advance pricing agreements:

  1. Pre-filing meetings
  2. APA application
  3. Preliminary processing of the APA applications 
  4. Negotiation
  5. Finalization

However, Indian tax laws allow only three types of APAs. These are unilateral, bilateral and multilateral. The agreements between the taxpayer and tax authorities are binding upon both of them.

Authority for Advance Ruling (AAR)

Section 245N(a) of the Income Tax Act, 1961 defines the advance ruling. Authority for the advance ruling was introduced by the Finance Act in the year 1993. Chapter XIX-B of the Income Tax Act, 1961 deals with the Advance Ruling Authority. Under the advance ruling, power has been given to independent adjudicatory who has the power to make a binding decision. A retired judge of the Supreme Court is the head of the advance ruling body. The time limit of the pronouncement of the advance ruling is within six months of the receipt of an application. The taxpayer and tax authorities will be bound by the decision of the advance ruling of the authority.

A resident taxpayer can also approach the Advance Ruling Authority. The question raised by the applicant must not be pending before any tax authority, tribunal or any other court. The decision of the Advance Ruling Authority will be binding on the taxpayer and tax authority. The decision of the authority will be non-appealable. However, in certain circumstances, taxpayers can appeal to the High Court through the writ petition and the Supreme Court through the Special leave petition.   

Who can be the applicant?

  • A non-resident.
  • Any resident who does a transaction with non-resident can obtain an advance ruling in respect of any question of law or fact arise. 
  • A resident who has undertaken or proposes to undertake one or more transactions of value Rs.100 crore or more in total. 
  • A public sector company.
  • Any person being a resident or non- resident can obtain an advance ruling to decide whether an arrangement proposed to be undertaken by him is an impermissible avoidance.
  • An applicant as defined in Section 23A(c) of the Central Excise Act, 1944
  • An applicant as defined in Section 28E(c) of the Customs Act, 1962, which means if a non-resident setting a joint venture in India in co-partnership with non-resident or resident.
  • An applicant as defined in Section 96A(b) of the Finance Act, 1994.

Mutual Agreement Procedure (MAP)

India has entered agreements of double taxation avoidance with many countries. If any disputes arise regarding double taxation avoidance, then competent authority consults the Mutual Agreement Procedure (MAP) to resolve the dispute.

Mutual agreement procedure helps the competent authority to resolve the dispute of international taxation. Double taxation comes under the disputes of international taxation where the same profits have been taxed in two countries. So, if any application of mutual agreement procedure is made by the taxpayer then the competent authority of the country take-up matter and discuss the matter with the competent authority and give the solutions. 

Income Tax Appellate Tribunal (ITAT) (Section 255)

Income tax appellate tribunal is a quasi-judicial body. It specializes in dealing with direct tax matters and the order passed by the Income-tax appellate tribunal is final. However, an assessee can file an appeal in jurisdictional High Court only if a substantial question of law arises. Article 227 of the Indian Constitution says that the Income-tax appellate tribunal will be subordinate to the High Court and is bound to follow the judgment of the High Court.

Income tax appellate tribunal is a second appeal, the first appeal lies under the Commissioner of Income Tax. Against the order of the commissioner of the income tax, you can file an appeal in the income tax appellate tribunal. The time limit of filing an appeal before the Income-tax appellate tribunal is within 60 days from the date on which the order sought to be appealed against is communicated to the taxpayer or the Principal Commissioner of Income Tax or Commissioner of Income Tax.

However, if you cross the time limit of filing an appeal then tribunal may admit your appeal but you will have to give the valid reason for not filing an appeal within the time period. 

Appeals to the tribunals mainly relate to: 

  • Excessive assessment
  • Search and seizure
  • Disallowances and additions
  • Interest 
  • Levying of penalties under chapter VIA of Income Tax Act, 1961 

Appeal to High Court 

If a case involves a substantial question of law, the assessee can file an appeal against the order of the appellate tribunal under Section 260A of the Income Tax Act, 1961. An assessee can file an appeal against the appellate tribunal within 120 days from the order to the High Court. 

The High Court shall formulate the question of law. If the appellate tribunal has wrongly determined the case then High Court has the power to determine any issue which has not been determined or wrongly determined by the appellate tribunal.

Section 260B of the Income Tax Act, 1961 says that if an appeal is filed in the High Court under Section 260A then such appeal shall be heard by a bench of not less than two judges of the High Court and shall be decided in accordance with the opinion of such Judges or the majority if any.

Appeal to the Supreme Court (Section 261)

Under Section 261 of the Income Tax Act, 1961, an aggrieved party can file an appeal in the Supreme Court against the judgment of the High Court. The High Court could certify the case as fit for an appeal if a substantial question of law is involved. The case will also be fit for an appeal if the question is likely to come up in a successive year or if the question is otherwise of great public or private importance. 

An aggrieved party can file an appeal in the Supreme Court within 60 days from the High Court’s judgment. While filing the appeal in the Supreme Court, the aggrieved party will exclude the time period for taking a certified copy of the High Court’s judgment.

However, if the High Court refuses to certify the case to be fit for appeal, then they can file a special leave petition in the Supreme Court under Article 136 of the Indian Constitution. If the Supreme Court reverses the judgment of the High Court under Article 141 of the Indian Constitution, the judgment of the Supreme Court will be binding on all the Courts.          

Conclusion 

There are many forums available in India where a taxpayer can settle the disputes with the tax authority. A taxpayer can file an appeal in Income Tax Appellate Tribunal and if he is not satisfied with the order then he has a right to appeal in the High Court. A taxpayer can settle the dispute by filing the special leave petition in the Supreme Court as well. The court can also issue the writ petition when the intention of the tax authority is malafide or arbitrary in nature. Still, there is a need for reforms in Indian tax administration and adjudication. 


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