Direct tax code panel to curb tax lawsuits, modify faceless scrutiny

CBDT expands terms of reference; CEA made part of the panel

The new draft report on the direct tax code will modify five major procedures pertaining to tax litigation, faceless scrutiny, exchange of information, compliance, and financial transactions.

The Central Board of Direct Taxes (CBDT) on Wednesday expanded the terms of reference (ToR) of the expert panel constituted to rewrite direct tax legislation.

The new ToR include faceless and anonymised scrutiny assessment, reduction of litigation, and expeditious disposal of appeals from the Commissioner Income-Tax (Appeals), right up to the Supreme Court (SC).  

The CBDT has nominated two new members — Chief Economic Advisor Krishnamurthy Subramanian and Joint Secretary (Revenue) Ritvik Pandey — to be the part of the direct tax code panel.  

The finance ministry had appointed a task force on the direct tax code after there were disagreements among members in an earlier panel. The task force was first expected to submit its report to the finance ministry on February 28, which was extended to May 31. The timeline for the panel to submit its draft proposal on direct tax code is July 31.

The CBDT has been working on the concept of faceless scrutiny and jurisdiction-free assessment for some months. Faceless scrutiny is a system where a taxpayer need not interact with the tax official. Jurisdiction-free is the mechanism where an assessing officer is not aware of the assessee’s location.

On revamping tax litigation, the direct tax code panel is learnt to have already started working on an alternative way to settle disputes in line with those in many developed countries. This provides the assessee the option to withdraw the appeal in the middle of proceedings. Other measures that could be part of the new mechanism include increasing the monetary limit for filing appeals, making the dispute resolution scheme lucrative, encouraging the use of the National Judicial Reference System by counsels, and launching educational programmes and campaigns about departmental guidelines on the best judicial practices.

As of March 2017, tax disputes worth ~7.6 trillion were stuck in tribunals, high courts, and the SC.

Further, sharing of information between the GST, Customs, and the CBDT teams has been started and needs certain changes to make it hassle-free.  Besides, the current framework on compliance may be further tweaked to make tax filing and return more user-friendly. The new draft will also have a mechanism for cross-verification of financial transactions.