Why you haven’t received your income tax refund

The reason could be that your current year’s refund may have been adjusted against your old income tax demand, embroiled in any long-pending appeal, before the commissioner (appeals).

A big elephant is roaming in the income-tax department’s brainstorming room, well noticed yet unaddressed. The issue in point is the pendency of 580,000 income tax appeals before the commissioner (appeals) for disposal. This serious problem has been highlighted by the Gujarat high court in a recent judgement in the case of ‘Om Vision Infraspace Pvt. Ltd vs. ITO’.

The high court, unable to get any concrete action plan from the revenue side concerning the large pendency of appeals, has stayed the recovery of outstanding income tax demands from the respective petitioners until the pendency of their appeals. Their appeals before the commissioner (appeals) had been pending for more than five years without any fault of theirs.

The faceless appeals system

Our Prime Minister Narendra Modi launched the faceless appeals scheme in 2020. However, even after five long years, a majority of such appeals are still pending, undisposed by the National Faceless Appeal Centre. An additional cadre of JCIT (appeals) has also been created to ensure faster disposal of small-value appeals. But the pendency of appeals looms large.

In many cases, the appellants have even filed their appeal submissions multiple times in the appeal filing window but with no response from the concerned appellate authorities. Even the mandatory opportunity of being heard through video conferencing (VC) is not being granted to the appellants. 

In other cases, where the VC has been granted, but even after the lapse of a substantial time period after the VC hearing, no orders have been passed by the first appellate authority. This is leading to undue financial hardships for the appellants because there are many cases of high-pitched assessments wherein at least 20% of the demand has been coercively recovered, but the appellate relief is still not coming.

In view of a Central Board of Direct Taxes (CBDT) instruction, the taxpayers can get a stay of demand on paying 20% of such demand till the pendency of their appeals before commissioner (appeals). But, since such appeals have been pending for the last four or five years, the department is adjusting the entire demand stuck up in such appeals by way of adjusting the subsequent year’s refunds against such demands. 

The department has to grant an opportunity to the concerned taxpayers to agree or disagree with the proposed adjustment of their refunds against their old outstanding demands. But at the ground level, in view of the discretion available with the jurisdictional assessing officer, refunds are frequently getting adjusted, despite the taxpayers filing their disagreements with such adjustment. Thus, one of the prominent reasons for the substantial growth in the direct tax collections in recent years is such adjustment of refunds of subsequent years with old outstanding demands embroiled in appeals.

Another injustice the taxpayers face is that interest of 18% per annum keeps on adding up on their unadjusted tax demands until the pendency of their appeals. If taxpayers win their appeals, then they are entitled to interest on their refunds at just half the rate of 9% per annum.

Though amnesty schemes like ‘e-Dispute Resolution’ and ‘Vivad se Vishwas’ have been brought up by the legislature aimed at reducing the pendency of appeals, there is an urgent need to hammer the very root cause of such piling up of appeals before the commissioner (appeals). 

A simple solution could be to convert the existing discretionary adjudication of appeals within a period of one year by the commissioner (appeals), into the mandatory requirement of law. The currently flawed ‘incentive points’ system of awarding higher grading points to commissioner (appeals) for disposing of higher-value tax demand appeals and lower points for adjudicating lower-value appeals also needs to be streamlined in the central action plan.

To achieve a permanent solution to this problem, the necessary supporting infrastructure should be ensured, along with the filling of vacancies and new appointments of the requisite number of competent commissioners (appeals).

It’s high time now that this giant elephant of 580,000 pending appeals is sent gracefully from its home place, the jungle.

Mayank Mohanka is the founder of TaxAaram India and a partner at S.M. Mohanka & Associates.