Whenever taxpayers run into a legal dispute with the income tax (I-T) department, it can either lead to a higher tax penalty or rectification of higher amount charged earlier. More often than not, the tax-related disputes used to land up at courts or at least at income tax tribunals.
However, it is vital to note that some of the disagreements between the tax department and tax payers over amount of tax liability can be resolved without having to opt for a legal intervention.
There are, by and large, a few mechanisms to resolve tax-related disputes while avoiding a legal route.
These are the mechanisms that income tax department not only suggests but propagates as well:
Setting up of Dispute Resolution Committee (DRC): In order to reduce litigation, a Dispute Resolution Committee is constituted to offer relief to small tax payers.
This is meant for the taxpayers who have a taxable income up to Rs. 50 lakh whereas the disputed income is up to ₹10 lakh. Also, the committee’s procedure is conducted in a faceless manner to ensure efficiency, transparency and accountability.
Vivad se Vishwas: On March 17, 2020, Direct Tax Vivad se Vishwas Act, 2020 was enacted under which the declaration for settling disputes have been filed.
The need to introduce this policy was felt when a large number of legal disputes related to direct taxes remained pending at numerous levels starting from the level of Commissioner (Appeals) to the Supreme Court of India.
This was passed to give resolution of pending tax disputes aimed to not only benefit the tax department as it ensures timely collection of revenue, but also the taxpayers as it helps them curb their litigation costs.
Repetitive appeals: A new section 158AB was inserted into the Income Tax (I-T) Act while taking forward the policy of litigation management.
As per this provision, when a question of law in the case of an assessee is similar to a question of law that is pending in appeal before constitutional court namely, the High Court or the Supreme Court, then the filing of further appeal will be deferred until the time the question of law is decided upon by the relevant Court.