The Comptroller and Auditor General (CAG) report for the year that ended in March 2016, mentioned that the amount locked in pending tax cases is close to INR 8 trillion, and it is estimated that the government pays INR 50 billion as interest on the disputed tax deposited by the assessee in ITAT. An overwhelming statistic, isn’t it?
In 2015 alone, 40,000 cases were filed across the 28 Income Tax Appellate Tribunals (ITAT) and as per April 2016 data, more than 90,000 cases overall, were still pending. So, if disputes are expensive, not only for the parties involved but also on the government, a question that comes naturally to the mind is what is being done about it?
Some initiatives but what was their effect?
The government has been trying to deal with the burden of disputes in various ways, two of which we would like to highlight:
- In December 2015, it set the minimum amount in dispute to be at 10 lakhs for filing appeals in ITAT.
- In 2016, it introduced the Direct Tax Dispute Resolution scheme, where the taxpayer can settle the disputed by payment of the disputed tax and 25% of the penalty amount.
While the income tax department has recently commenced with the issuance of Income Tax Return Statistics, however, there is no such data available for specific ITAT’s especially to gauge the success of these initiatives.
So we decided to look for answers within, that is on our database of income-tax cases.
ITAT Mumbai – The Bellwether
We believe that the disputes at Mumbai ITAT are a good representation of the bigger problem and its data over the years can be used to check the success or failure of these initiatives. Most number of cases are filed in this forum, and it is the source for some of the most significant tax disputes.
The data presented here is from financial year 2010-11 to 2016-17. We have downloaded this data from the ITAT Mumbai website. For our analysis here, we have ignored 2017-18 data as the year is still in progress.
First the Good News!
The graph shows that the disputes being filed show a downward trend, and initiatives of the government are paying off to an extent. Also, ITAT Mumbai has disposed more cases in FY 2015-16 and 2016-17 compared to the earlier period. Tax litigants should take heart from this trend, especially because Mumbai ITAT deals with several high value and complex tax appeals.
Yes, there is a big but here, the cases from earlier years are piling up. Approximately 20% of cases (2000 cases) filed in 2010-11 are still pending. And cumulatively, until 2016-17, more than 26,000 cases were still pending in the Mumbai ITAT, which are almost 30% of the cases for all ITATs.
To analyze the timeline of disposal of cases on a more granular level, we have mapped the data of the disposed cases, to show the period of time of disposal.
The data in the box plot indicates that the number of outlier cases was very high in the 2011-12, 2012-13 and 2013-14 at 9.8%, 10.5% and 7.5% respectively. The number of outlier cases has reduced over the years indicating that ITAT in recent years has started fast-tracking long pending cases. This also makes predicting the timeline of a case easier. While the number of outlier cases has reduced, the overall duration of disposal for most cases has increased.
Overall the average time for disposal of a case is still very high especially since this is not the first forum for redressal of dispute but a forum for appeal.
(Written by Anuj Sharma, Product Counsel, & Rutuja Udyawar, VP Analytics, @ Riverus.)
How to read the box plot?
We’ll take the example of the year 14-15 in the above box plot to explain.
A. Of all cases decided in 14-15, the blue box represents the time taken in years for the mid-50 percent of cases, here it spans from 1.5 to 3 years. The horizontal line inside the box indicates the median.
B. The vertical line below the box represents about 25 percent cases that have taken less than 1.5 years.
C. The vertical line above the box represents cases, that have taken more than 3 years, (here it is about 20% as there are many outliers).
D. The stars represent cases that are outliers, cases which do not follow the normal trend.