CBDT hikes upfront payment in tax disputes, experts term move 'harsh'

New Delhi: The CBDT's decision to increase upfront payment to 20 percent of the disputed tax demand before the disposal of appeal at the level of Commissioner is harsh on taxpayers, although it will reduce frivolous cases, say experts.

In a case where the outstanding demand is disputed before Commissioner of Income Tax (Appeals) or CIT (A), the Assessing Officer can grant stay of demand till disposal of first appeal on payment of 20 percent of the disputed amount, as per a recent circular of the Central Board of Direct Taxes (CBDT).

Earlier, the threshold for obtaining a stay on outstanding demand was 15 percent of the disputed tax demand.

"The increase in the threshold of payment of tax from 15 percent to 20 percent for giving a stay on tax demand pending appeal, has come as a bit of surprise from the revenue department," said Amit Singhania, Partner, Shardul Amarchand Mangaldas and Co.

Giving rationale behind increasing the threshold, the CBDT said after a review it was found that the standard rate of 15 percent of the disputed amount was on "the lower side" and hence, it was decided to increase it to 20 percent.

Naveen Wadhwa, DGM, Taxmann.com opined that the hike in deposits is aimed at reducing the frivolous appeals by taxpayers.

"However, this might affect the cash flow position of taxpayers and is harsh on taxpayers disputing big tax payments and filing appeal before Commissioner (Appeal)," he said.

Tax expert with PwC India Abhishek Goenka said the increase in the quantum does not augur well for taxpayers and "if the intention" is indeed to move to a non-adversarial tax regime, then if anything the quantum should have been reduced.

"In any case, where the taxpayer loses on appeal, he is liable to pay interest, and asking for a higher up front payment will cause hardship to many taxpayers, particularly, since there continue to be assessments that are high pitched," Goenka said.

In view of the mounting tax effect locked up in appeals before CIT (A), the finance ministry had informed Parliament that special attention was accorded to the disposal of cases having disputed tax effect in excess of Rs 100 crore.

During the 2016-17 fiscal, it resulted in disputed tax effect of Rs 1.92 lakh crore being unlocked in 362 cases, it said.

As per the ministry, the appeals having tax effect of less than Rs 10 lakh amount to around 66 percent of the pendency of the appeals before CIT (A) and only 1.6 per cent in disputed tax effect.