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Brace for more ‘insignificant’ tax disputes

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MUMBAI: The Central Board of Direct Taxes has expanded a list of exceptions for filing of appeals by I-T department with tax tribunals and courts, allowing appeals to be filed even for ‘insignificant’ sums, according to a recent circular.

CBDT

has, however, maintained the

threshold limits

for filing appeals.
The exceptions include matters related to bogus capital gains/loss from

penny stocks

and cases of accommodation entries, disputes concerning various aspects relating to TDS or TCS, tax assessments based on information from law enforcement and intelligence authorities, regarding

tax treaty

applicability and

equalisation levy

(dubbed as Google tax).

Tax experts

view that a wait-and-watch approach is needed, but the broad list of exceptions could lead to increased

litigation

for individuals, Indian corporations, and overseas entities.

Screenshot 2024-03-20 050604

In August 2019, CBDT had revised the limits to Rs 50 lakh, Rs 1 crore and Rs 2 crore for filing of appeals by the I-T department with the

Income-tax

Appellate Tribunal, high courts, and the SC, respectively. Barring the now expanded list of exceptions, the I-T department can file appeals at higher judicial forums only if the ‘tax effect’ exceeds these thresholds.
In simple terms, ‘tax effect’, means the difference between the tax on the total income assessed by the I-T department and the tax levy without considering the disputed income. Govt officials, that TOI spoke with, contend that the existing thresholds are reasonable and that expanding the list of exceptions was necessary.

A taxpayer points out that there is a proliferation of WhatsApp groups that draw innocent investors into buying and selling stocks of certain companies — which may transpire to be penny stocks. The capital gains/loss made by them are genuine and they are not part of any organised tax evasion activity. However, now even for insignificant gains or losses, the I-T department can appeal and prolong the litigation. Matters related to statutes that no longer exist such as wealth tax, fringe benefit tax are included in the exception list, as is equalisation levy.
Gautam Nayak, tax partner at CNK & Associates points out that litigation has a cost for the taxpayer and the department. It also has a bearing on investor sentiment. “Litigation on insignificant sums could send the wrong signal. Perhaps, issue-based limits could have been set.” Nayak noted that some exceptions carved out could impact India Inc and its international business partners.

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