TARC TRACKS THE BEHAVIOUR OF TAX ADMINISTRATION RELEASES FIRST

REPORT
1.

INTRODUCTION

The Tax Administration Reforms Commission (TARC or Commission) was constituted under
the chairmanship of Dr. Parthasarathi Shome with a mandate to review the application of tax
policies and tax laws in the context of global best practices and to recommend measures for
reforms required in tax administration to enhance its effectiveness and efficiency. For this
purpose, the TARC identified the following four terms of reference:

To review the existing organizational structure and recommend appropriate enhancement.

To review the existing business processes of tax administration including the use of
information and communication technology and recommend measures best suited to the

Indian context.
To review the existing mechanism of dispute resolution, time involved for resolution, and

compliance cost and recommend measures for strengthening the process.

To review existing mechanism and recommend measures for improved taxpayer services

and taxpayer education programme.

However, the focus of this article is limited to the last two terms of reference viz. dispute
resolution and taxpayer services. It is pertinent to note that extensive meetings were held and
views were sought from different stakeholders including both the tax administration and the
taxpayer. The TARC came out with its first report on May 30, 2014.
2.

IDENTIFYING THE GROUND REALITIES

The taxpayers and tax practitioners have to face the tax administration day in and day out. There
is a feeling of uneasiness while dealing with the department. The approach is not as if two
stakeholders are discussing a way forward, rather it is a very hostile environment. The 87 th report
of the Public Accounts Committee (PAC) on tax administration tabled in Lok Sabha on August
29, 2013 notes that the pendency rate for disposal of refund claims had increased to 32.6% in
2010-11 from 24.1% in 2006-07. In this backdrop the Commission studied the ground realities
and became well versed with few fault lines plaguing the tax administration. Some of them have
been noted in the report:

The TARC has done well to point out that the taxpayers are often helpless while facing
rude or arbitrary behaviour of tax officers. It went on to state that such a situation is
unprecedented internationally. Unlike other modern tax administrations, there is no
customer focus strategy developed in India. The professionals would agree that taxpayers
are subjected routinely to arrogant and egregious behaviour while appearing before the
tax officers. This is despite the existence of the vision and mission statements of the
departments that pronounce their intention to care for the taxpayer by incorporating
taxpayer perspectives to improve service delivery. The condition is so grave that the

TARC has opined that there is a likelihood of a tax revolt in the not so distant future!
The Commission noticed that the Indian tax policy is based on fixed or static revenue
target. Furthermore, revenue target is the sole criterion that is effectively used to assess
the performance. Hence, irrespective of the prevailing economic environment the tax
officers are under constant stress to fulfill the pre-decided revenue targets. They, in turn,
pressurize even the good taxpayers to contribute more revenue or postpone making due

refunds.
Transfer pricing has been a contentious issue for the last couple of years. It has been
noted by the TARC that in India, transfer pricing measures are used for revenue
generation which is entirely a wrong approach. Instead of using tax avoidance provisions
for obvious purposes, they have been used as means of generating revenue. Tax
practitioners shall note that sometimes orders are passed without any basis at all. The
Secretary (Revenue) has deposed before the PAC there is a need to put a system in place

so as to ensure that there are disincentives for adventurous orders.

Filing of frivolous appeals by the department is a major issue. This not only wastes
resources and costs the public exchequer but also wastes the precious judicial time. Very
recently the Honble Bombay High Court in CIT v. Sairang Developers and Promoters
Pvt. Ltd.1 imposed a cost of Rs 50,000 on the AO for filing frivolous appeal. The court
observed that :
The tendency not to accept any adverse verdict on facts results in frivolous appeals
being filed in this Courta routine exercise and by people who do not wish to take any
responsibility, results in number of appeals being filed and pending. This benefits no one
and rather defeats larger public interest.

This ruling was followed in ITO v. Growel Energy Co. Ltd2 wherein the Bombay ITAT
issued strictures against AO and CIT and also fined them for filing frivolous appeals. The
Delhi ITAT in Bharti Airtel Limited v. ACIT3 observed that in case of frivolous addition,
someone should be accountable for the resultant undue hardship to the taxpayer...
The PAC has noted that the success rate of the department with regard to appeals filed
ranges nearly 25%-35% which shows that the mostly the appeals are filed without merit.
3.

TARC RECOMMENDATIONS

In view of the above, the TARC has recommended, inter alia, the following steps which need to
be taken so as to make the tax administration more taxpayer friendly:
First and foremost, TARC has drived home the point that a taxpayer is the entity that
approaches the tax administration and thus comprises its customer. Hence, the
Commission has recommended that there should be a dedicated organization for delivery
of taxpayer services with customer focus for both the CBDT as well as CBEC. The
officers need to be trained for customer orientation in areas such as customer relationship,

measurement of customer satisfaction, taxpayer education, etc.

Sufficient funds should be made available to conduct customer research. A minimum of

10% of tax administrations budget must be spent on taxpayer services.

Retrospective amendments should be avoided as a principle. A permanent body for

stakeholder engagement should be formed for the purpose of consultations.

Furthermore, dispute management should be made a functionally independent structure.
The current practice of raising demands irrespective of merits should be discontinued.
Ordinarily appeal should not be filed against appeals of CIT(A), except where the orders

are ex-facie perverse.

Another welcome recommendation is regarding the introduction of pre-filled tax returns
and system of online tracking of dak/grievances/applications for refund etc.

4. CONCLUSION
The report states that the recommendations should be considered as a package and not on a pickand-choose mode. These recommendations are most welcome considering the practical
difficulties faced by the taxpayers on an ongoing basis. The crucial deficiency of lack of
customer focus has been identified. Treating taxpayers as partners and customers is a fresh
approach which is unseen and unheard of in the Indian tax administration experience. There is no

apprehension over raising demands but it is expected that infructuous demands ought to be
punished. The PAC has already suggested that the AO should be held accountable for such
assessments.
The report should not be seen as invasive by the department, rather the purpose shall be fully
served if it is considered as a mere corrective measure. It is expected that the Honble Finance
Minister Mr. Arun Jaitley will pay heed to the recommendations of the TARC while preparing
the upcoming budget. Only such a fundamental reform can ensure that the objective of
benefitting the taxpayers in terms of transparent relationship and enhanced communication, ease
of compliance and quicker dispute resolution is achieved.

ITA No. 2603 of 2011

ITA No. 338/Mum/2011

[2014] 43 taxmann.com 150 (Delhi-Trib.)