Parliamentary panel recommends 'paradigm shift' in Income Tax Dept's litigation mechanism

New Delhi: A Parliamentary panel has asked the income tax department to set up an 'Expert Litigation Committee' to vet tax dispute cases before filing appeals at the High Courts or Supreme Court, and called for a "paradigm shift" in the department's approach to litigation.

Expressing concern over the I-T department's dismal litigation success rate at a mere 12.07 per cent at the High Court level and 14.50 per cent at the ITAT level in 2024-25, the Standing Committee on Finance, in a report, said that repeated adverse outcomes point to "systemic weaknesses" rather than isolated legal contests.

"There is a need to address the issue of filing of appeals in a mechanical manner simply because the disputed amount exceeds the prescribed pecuniary limit to avoid personal responsibility or vigilance inquiries," the panel, headed by BJP MP Bhartruhari Mahtab, said in its report tabled in Parliament last week.

As many as 23,230 I-T cases involving a disputed amount of over Rs 3.64 lakh crore are pending before the Income Tax Appellate Tribunal (ITAT) as of the 2024-25 fiscal. 41,321 cases involving Rs 5.65 lakh crore are pending before the High Court, and 6,880 cases with disputed income tax demands of Rs 25,403 crore are pending before the Supreme Court.

The tax department, in its presentation before the Committee, had said it treats litigation as a measure to "uphold principles to safeguard the interests of revenue".

The panel, however, said that persisting with legally unsustainable appeals actually drains the public exchequer through mounting litigation costs and clogs the national judicial infrastructure. The taxpayers also face years of unwarranted harassment.

"The Committee, therefore, desire a paradigm shift whereby decisions to file appeals are based on sound legal interpretation and the strength of the case, rather than being guided solely by the monetary threshold," it said.

Data showed that the success rate of the income tax department in litigation cases at various fora has declined over the last three years. At the ITAT level, the success rate has declined from 18.40 per cent in 2022-23 to 14.50 per cent in 2024-25. In HC cases, it has dipped from 26.45 per cent to 12.07 per cent, while for cases before the Supreme Court, the success rate has fallen from 31.12 per cent to 26.34 per cent.

The panel recommended that appeals before the High Courts and the Supreme Court should be reasonably confined to matters involving substantial questions of law and should not be pursued merely on the basis of pecuniary limits.

"For this purpose, the committee recommend that an Expert Litigation Committee be constituted to examine the cases and recommend to the Department before filing appeals to avoid unnecessary litigation and reduce the workload of the department," it said.

It also desired that an accountability mechanism be instituted to deter Assessing Officers from passing untenable, high-pitched and arbitrary orders so that honest taxpayers are not unnecessarily drawn into costly and prolonged litigation, the report said.