Revamping the Income Tax Appellate Tribunal
The solution to delays could very well lie in prioritizing and scheduling the workload properly
The
recent demonetisation is aimed at reducing the extent of black
money—money on which tax should be paid, but is not. The government
seems keen to bring in other stringent measures to address this menace.
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. Unless they are well resourced, the government’s
noble initiatives will hit an implementation bottleneck.
Indian tax administration and adjudication needs urgent reforms. The
latest World Bank Doing Business Index ranks India 172 out of 190
countries on the “Paying Taxes” parameter. Even this metric is based on
only the first-level appeals—from assessing officers to commissioner of
income tax (appeals) [CIT(A)]. And, as the Parthasarathi Shome Committee
has pointed out, in about 75% of the cases, CIT(A) rules in favour of
the tax department. The mechanism through which citizens have re-course
against excesses of the Indian tax administration is the Income Tax
Appellate Tribunal (ITAT), which is not considered in the World Bank
rankings.
ITAT
is an independent tribunal dedicated to direct tax litigation.
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. To adequately resource ITAT, it is important to first know
what is its current performance. Unfortunately, like most other Indian
courts and tribunals, ITAT’s performance has not been studied in detail.
Our recent study seeks to provide deeper insights on ITAT’s
current performance. We analyse the caseload and disposal rate of ITAT.
We use publicly available data from cause-lists published by ITAT, and
rulings available on Indiankanoon.org. This gave us details of around
500,000 hearings over 39 months (January 2013 to March 2016) of 126,000
cases and around 28,000 rulings. Analysing its workload and functioning
gives us novel insights into ITAT’s performance.
ITAT operates
across 21 cities with 105 members. Each city has one or more benches.
As of July, ITAT had on an average about 880 cases pending per member
(September issue of the journal of the
All India Federation Of Tax Practitioners).
In the busier benches (Mumbai and Delhi), we find that 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%. Focusing only on solved cases, we
find that 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.
Most of the cases
(47% of all hearings and 49% of rulings) pertain to appeals filed
against regular assessment orders under Section 143(3) of Income Tax
Act, 1961. Amongst records where other relevant details are also
available (such as international tax matter, search and seizure), it
appears that 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. Unless ITATs are
resourced to handle this sudden increase in workload, the average time
taken for disposal of cases may see a sudden increase from the current
36 to 48 months.
So
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. However, our analysis suggests that while a
minimum level of infrastructure is important, merely increasing the
number of benches or judges is unlikely to deliver better results, as
cities with similar numbers of benches and members exhibit very
different performance levels.
We also find that cases pertaining
to same sections filed within one or two days of each other end up
having very different time trajectories. We find no noticeable
difference in the time taken for disposal between various subject
matters. An interesting aspect is the fluctuation in ITAT’s activities
across benches across the year. For instance, the highest number of
pronouncements in Mumbai (24% of its yearly pronouncements) happens in
May, while for Delhi it is March (14%). January to March have 30% of the
yearly listings. In Kolkata, about a third of all cases listed in a
year are in March. Clearly, ITAT does not function uniformly throughout
the year (much like many other courts in the country).
This
suggests that solutions to delays in ITAT could very well 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.
This
analysis is just a beginning. Various other parameters need to be
considered. For instance, qualitative aspects of rulings, factors
influencing them and most frequently litigated subject-matters would all
be useful in deciding the policy strategy for improving India’s tax
environment. More studies like these will help 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.
