CAG slams tax authorities’ weakness for appeals

The Comptroller and Auditor General of India (CAG)
has come down heavily on the Tax Department for fostering “a perception that it
has a tendency to opt for appeals even when it is on a weak wicket” and this “appealititis
is more detrimental when applied on small taxpayers constituting a large chunk
of appellants.” In a first-of-its-kind holistic study of appeals, the CAG report
on the Appeal Process, tabled in the Parliament on Friday, minced no words when
it said point-blank that the proliferation of appeals decisions were prompted by
counsels of Income-tax Appellate Tribunal. They could also be fuelled by the
Assessing Officers (AOs) deciding to play safe “rather than judge a case on its
merits and save the system of the strain that weak cases place on it.”

Stating that the dimensions of disputes in
income-tax remain ‘staggering,’ the report said the aggregate amount locked up
in appeal at various levels is `2.2 lakh crore, which could almost wipe off the
revenue deficit of the Union Government in 2008-09. It said that for the span
2006-09, the audit analysed data and 48% of the demands raised by AOs remain
uncollected with disputes accounting for 45% of the uncollected demands, and 22%
of the demands raised in assessments at disputes by taxpayers. Even as the
implementation of Appellate orders is placed low in the AOs priorities,
inadequate attention on correctness in implementation of Appellate orders led to
mistakes amounting to `1,456 crore in 385 cases, it said, adding that 97% of
these mistakes led to under-assessment of tax benefitting the taxpayer which
“raises doubts on the integrity of the process.”

The audit also highlighted the constraints under
which it had undertaken this study in the absence of a centralised database on
appeals at the State level which hampered the selection of the audit samples.
“Poor maintenance of records across the assessment and judicial wings of the
Department is an area of concern,” it said, adding that the Department produced
only 49% of the records it requisitioned for audit and it was as low as 5% in
the case of Delhi office. Despite a steady reduction in the number of appeals
referred to the Commissioners of Income-tax (CsIT), the inventory of appeals
with CsIT was building up because of low disposal of appeals which was one-third
of the targeted level, it said. At the current levels of disposal, the CsIT
(Appeals) would take 2.4 years to clear the inventory. The average time taken
for disposal of a case is 14 months, which is substantially longer than the
global norms. It further said low-end appeals (with demand less than Rs.1 crore),
constituted 66% of the total appeals. Hence, CAG suggests hiving off of small
taxpayers’ disputes and such segregation would promote greater focus on the ‘big
ticket’ appeals with rationalisation of workload of the CsIT (A). Stating that
the assessment process is evidently unable to satisfy the small taxpayer, the
category which is least equipped to bear the cost of litigation, the CAG said
that this must be viewed alongside the fact that the success rate of the
Department at various levels of appeals is “low and appeals go decidedly in
favour of the taxpayers.” Even as there are some provisions in the Act such as
imposition of penalty that lead to disputes, it said deviations from prescribed
procedures by AOs have also contributed to rows. It also excoriated the tendency
to escalate the disputes to higher levels and “instances of inaction in such
cases where a second appeal would have safeguarded revenue.” There is lack of
consistency while considering a case for second appeal with divergent actions
weakening the Departmental stand in appeals. “The absence of independent
evaluation of decisions for escalation creates unchecked avenues for arbitrary
exercise of discretionary powers by the AOs,” it said, and added that there is a
need to remove ambiguities in the provisions of the Act to reduce the use of
discretion by the AOs. It said the penal provisions of the Act calls for a
relook, since “the deterrent edge to these provisions is being blunted due to
inability to sustain the penalty orders in appeals.”

(Source : The Hindu Business Line, dated 13-8-2010)