Can the Budget Tackle Tax Appeal Delays and Ease Taxpayer Burden?

Government must address the growing backlog of tax appeals and impact of prolonged litigation on taxpayers

- Shipra Singh

The central government's efforts to reduce tax-dispute litigation seem to be falling short even after the measures proposed in the previous four budgets.

According to Central Action Plan data, about 550,000 appeals were pending for disposal as of 31 March 2024 at the level of the Commissioner of Income Tax (Appeals) CIT(A), the first level of challenging tax demands. That's an increase of 64% since FY19, when 335,000 appeals awaited disposal at the end of the year, according to data from EY India.

The numbers are especially of concern because the faceless assessment at the CIT(A) level rolled out in 2020 was meant to quicken the process by eliminating the human interface, but the number of pending appeals has only increased since then (see graphics). Year after year, the number of new appeals lodged surpassed the number of appeals disposed of, adding to the backlog.

The main reasons are limited staff and technological limitations, stakeholders said. According to Ajay R. Vaswani, founder of Aras & Company, chartered accountants, it can take over a year to receive the notice for the first hearing in many cases.

"Despite the introduction of the faceless assessment scheme aimed at expediting the tax litigation process, the backlog and procedural inefficiencies have resulted in significant delays," Vaswani said.

"This delay could be attributed to the high volume of cases and limited capacity of the appellate authorities to handle them promptly."

Even before an appeal is filed, the faceless assessment process is saddled with challenges that result in increased appeals.