Tax Disputes and Litigation

Taxation is a necessary component of any economy. It funds public services and

infrastructure development. However, the complexities of tax regulations can often lead to
disagreements between taxpayers and tax authorities. Tax litigation, the process of resolving
these disputes through legal means, is crucial to maintain the integrity of the tax system.
Tax Litigation in India
Taxes are payments made to the government by individuals or businesses. They're
contributions that everyone is required to contribute, regardless of how much money they
make or how well their business does. These contributions help the government in obtaining
funds for crucial purposes such as boosting the country's economy and people's living
conditions.
Tax litigation is the legal procedure through which taxpayers and tax authorities settle
arguments about tax liabilities. It covers a wide range of tax disputes, including those
involving direct and indirect taxes.

The Various Types Of Tax Litigation

Tax Controversy
This is when there is a tax issue or argument related to tax matters. Individuals or businesses
may disagree with the government on how much tax they must pay.

Civil Tax Controversies

These are tax conflicts that are more about money and tax rules. It's all about calculating how
much tax to pay. It has nothing to do with breaking the code of civil procedure.

Criminal Tax Controversies

This is a more serious matter. It's when someone is accused of doing something extremely
wrong with their taxes. It might be failing to pay when they should or intentionally
defrauding the government. It's similar to a legal issue that might lead to serious
consequences.

Court actions (describe trial court actions in this section)

Competent courts
Which courts have jurisdiction to hear tax disputes?
Typically, the tax dispute first arises before the tax authority, which acts in a quasi-judicial
manner. It acts as both investigator and adjudicator. The powers of the first appellate body are
co-extensive and coterminous to the primary tax authority. The second appellate forum is also
a quasi-judicial one - the Income Tax Appellate Tribunal (ITAT), where the appeal is heard in
a manner like that of a civil court. The next two appellate fora, the High Court and the
Supreme Court, are formal civil courts that deal with only those matters that involve a
substantial question of law.
Lodging a claim
How can tax disputes be brought before the courts?
A tax dispute arises before the tax authority by virtue of a deficiency notice served upon the
taxpayer. The order of the first tax authority is appealable in its entirety before the first
appellate authority. The order of the first appellate authority is entirely appealable before the
ITAT. However, the order of the ITAT is appealable before the High Court only to the extent
there arises a substantial question of law. The judgment of the High Court is further
appealable before the Supreme Court.
A tax dispute can be brought before the Tribunal or court by way of appeal against any final
decision of the tax authorities to levy tax or penalties. There is no minimum threshold
prescribed for the taxpayer to file an appeal before the Tribunal or the court, as the case may
be. However, the tax authorities can only file an appeal before the courts if the tax effect is
more than as per the monetary limits prescribed by the CBDT or CBIC.
In order to bring an appeal before the Tribunal, the taxpayer has to file an appeal in the
prescribed format along with the order against which appeal has been filed. The GST laws
prescribe for a mandatory deposit of 10 per cent of the disputed amount if an appeal is
preferred before the appellate authority; if the appeal is preferred before the Appellate
Tribunal an additional 20 per cent of the disputed amount is to be deposited before filing the
appeal.
An appeal against the order of the Tribunal lies with the High Court, and the time limit for
filing the same is 180 days from the date of receipt of the order of the Tribunal by the
taxpayer. The High Court may admit an appeal even after the lapse of this period if it deems
fit.
Further, an appeal against the order of the High Court lies with the Supreme Court and the
same can be filed only when the High Court grants a certificate stating that a case is fit for
filing an appeal before the Supreme Court. If the High Court refuses to grant such certificate
then an appeal can be brought before the Supreme Court by way of a Special Leave Petition.
The Constitution of India also provides an alternate remedy to taxpayers by way of writ
petition before the jurisdictional High Court. A writ petition can be filed if gross injustice has
been caused to the taxpayer by way of abuse of powers by the tax authorities, or there is
wrongful exercise or excessive exercise of jurisdiction by the tax authorities. A writ can also
be issued to quash an order that is vitiated by an error apparent on the face of the record or
that is passed in violation of the principles of natural justice, or to quash a summons or an
order that has been issued without application of mind. The High Court may issue a writ to
release an assessee from illegal detention by the officer concerned. The Court will interfere
by way of writ if the action is mala fide or arbitrary or does not comply with the statutory
requirements, or if the action amounts to an exercise in futility. A writ petition acts as an
effective tool in the legal system of India, leading to speedy redressal of the grievances of
taxpayers and coming to the rescue of them as an overstepping authority in case of injustice
caused by the tax authorities.

Decision Makers:
In the ITAT, a bench comprises a judicial member and an accountant member.
Appeals in the High Court and the Supreme Court are decided by benches of two or more
judges.

Time Frames:
Tax trials must be completed within two years from the end of the relevant financial year,
extendable to three years for cases involving international transactions.
First appeals are recommended to be disposed of within a year, while second appeals within
four years.
No specific time frames are prescribed for High Court or Supreme Court appeals.

Disclosure Requirements:
Tax authorities possess extensive powers to call for information and conduct surveys at
business premises.
Parties present all documents during the trial, with the Tribunal and courts having the power
to summon additional evidence.

Permitted Evidence:
Both oral and documentary evidence are allowed, primarily based on information furnished
by the taxpayer.
Testimonies of experts are permissible in exceptional cases.
The trial follows a quasi-judicial manner, not bound by strict laws of evidence.
Representation:
Taxpayers can be represented by advocates or certified public accountants before the tribunal
and by advocates before higher courts.
Pro bono legal services are available for those who cannot afford representation.
Tax authorities are represented by officers of the Indian Revenue Services or special
counsels, depending on the complexity of the case.