Talking Point: Budget must have steps to speed up dispute resolution

A simple, predictable and litigation free tax environment involving quick and efficient resolution of disputes is crucial for improving tax compliance and releasing resources, hitherto locked up in disputed tax demand, for further economic activity. Chandrajit Banerjee, Director General CII, says the Government has no doubt taken commendable initiatives and made fair provisions to minimise and reduce unnecessary litigation. But, much more needs to be done to further strengthen the dispute resolution mechanism in the area of both direct and indirect taxes. In direct taxes, CII is of the view that there is need for strengthening the dispute resolution panel since these panels have not functioned as independently as they should have been and almost every dispute has to be taken up before the Tribunal. 

The upcoming Budget should amend the existing constitution of Dispute Resolution Panel, to include at least one member (retd.) from ITAT, so that the panel can make assessments or pass orders independent of the apprehensions regarding tax consequences. Secondly, the Government should, in Budget 2017, ensure that the time limit prescribed for passing orders is adhered to by the Authority for Advance rulings (AAR), which continues to have a significant backlog of cases. 

CII suggests that since the objective behind AAR is to provide faster dispute resolution mechanics, a specific provision should be made in the law to the effect that mere filing of income tax return should not debar the taxpayer in approaching the AAR.

Thirdly, CII recommends that India may introduce a clarification in the Budget to enable taxpayers from the countries like Germany, France, Singapore and Italy to file for bilateral Advance Pricing Agreements (APAs). This becomes important since the Indian APA authorities have been refusing to accept applications for bilateral APAs from countries like Germany, France, Singapore and Italy as the Double Taxation Avoidance Convention (DTAC) of India with these countries do not contain Article 9(2) which provides for corresponding adjustment to be allowed to the taxpayer for any economic double taxation that arises due to transfer pricing adjustments.