Dynamic Jurisdiction of ITAT, Simpler Compliance Window Being Considered

A dynamic jurisdiction of the direct tax tribunal allotting cases for Income Tax appeals to various benches without human intervention, and a new compliance window to regularize technical lapses relating to fillings and disclosures by tax payers are understood to have figured among the proposed revenue- neutral changes in tax regulations that have been examined by the government.

A random, automated process to distribute cases – where an appeal of a Mumbai-head-quartered company is heard by the Chennai or Hyderabad or any other bench of the Income Tax Appellate Tribunal (ITAT) instead of the Mumbai Tribunal members as is the practice now – could reduce the scope of corruption, lessen the influence that some of the senior lawyers may exercise on ITAT members, along with the preference and attachment to postings in some of the large cities. ITAT is a quasi-judicial body, dealing with appeals under the direct tax laws. The tribunal rulings can be challenged before the high court, particularly if there is a substantial question before the law.

“This was discussed at the Central Board of Direct Taxes. Such a move would have no impact on revenue and would be in tune with the faceless assessment scheme. While ITAT proceeding would naturally have virtual or physical interactions, the assesse would have no clue which bench in which city hears the case,” said a senior official in the tax administration. However, the person said he was not aware whether the proposal would be announced in the FY23 Budget.

Some tax professionals think a plan on random allocation of ITAT cases must be viewed with an open mind.

According to Hitesh Gajaria, Senior Partner, KPMG, “The questions that crop are: Will Transfer Pricing and International Tax Cases also be randomly allotted by such a system or will there be a carve out of such cases? What happens to matters requested to be referred to a Special ITAT Bench if there are apparently contradictory ITAT rulings currently? Which jurisdictional High Court will apply to the ITAT Benches? Will these be the Courts where the Taxpayer is located, or will these be those where the ITAT Bench is located?”

In the tax appellate hierarchy, ITAT is the second appellate authority. Assessment have already become faceless and Commissioner (Appeals), the first level of appeals, in one city is deciding matters concerning tax payers based in various cities – a departure from the territorial jurisdiction for appeal progression would be a dynamic jurisdiction for Tribunal matters. While there would be pros and cons for each such change, since the Tribunal is the final fact-finding authority, it is imperative that this change be well thought out and implemented in a phased and guarded manner. The Tribunal benches while dealing with the appeals, will need to be mindful of the decisions of the jurisdictional High Court governing the tax- payers whose matters are being heard and this aspect needs to be properly incorporated in the scheme prescribing for dynamic jurisdiction. Given the importance of this forum, the scheme should provide for sufficient opportunities of a virtual hearings,” said Ashish Mehta, partner at the law firm Khaitan & Co.

On the issue of simpler compliance, Gajaria said a scheme to regularize past non-filings of tax returns without harsh penalties would help taxpayers.

On many occasions taxpayers come across mistakes and omission, erroneous claims in tax returns while filing returns. These could be in the nature of arithmetical errors, adjustment related to ICDS (income computation and adjustment standards) incorrect mark to market claims, or something as simple as ticking a certain box, filing an additional form in support of a claim.

“Even if they suo moto intend to rectify these mistakes, they may not be able to do so as the time limit to file revised returns may have lapsed by the time such mistakes are spotted. In such situations a lot of times it is seen that due taxes are voluntarily paid and tax authorities are intimated of such payment through requisite explanatory letters, though there is no formalized mode of dealing with such situations. It would be great if there is a scheme to regularize such bonafides mistakes so that chances of litigation when such return are picked for scrutiny are reduced,” said Mehta.

In recent times many taxpayers have been pulled up by the tax office under the harsh Black Money Act for failing to disclose foreign bank accounts even though funds were transferred abroad under legitimate, RBI-approved routes.

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