The new scheme is meant to be faster and easier than filing an appeal with the Commissioner of Income Tax (Appeals) – CIT(A) – but one particular condition makes it the less attractive option and begs the question: is this just another toothless provision from the tax department?
What is e-DRS?
Until now, when a taxpayer received an assessment order demanding unpaid tax, interest or penalties on their additional income, they could file an appeal and make their case to avoid paying the penalty, if any. If they had a genuine case and documents to prove it, they could even contest the tax demand.
The new e-DRS system has been touted as a quicker alternative to this.
Mayank Mohanka, founder, TaxAaram India, and a partner at SM Mohanka & Associates said, “The appeals process is also online and faceless, but takes longer. When an application is admitted under e-DRS, the committee has six months from the end of that month to pass its order. CIT(A), on the other hand, has a year from the end of the financial year in which the appeal is made to pass an order.”
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Apart from the ₹50 lakh income cap, the other condition for using e-DRS is that the aggregate amount of variation should be less than ₹10 lakh. ‘Aggregate amount of variation’ refers to the total addition/disallowance by the income tax office that results in higher income and therefore a higher tax liability, said Prakash Hegde, a chartered accountant and principal consultant of direct taxation at Acer Tax & Corporate Services LLP.
For instance, let’s say a salaried individual claims a house rent allowance of ₹5 lakh and the IT department disputes it as bogus and disallows the exemption. Or, say the IT department adds interest income which is reflected in the Form 16 but has not been reported by the assessee, and raises a tax demand.
With the amount of variation capped at ₹10 lakh, this scheme targets small taxpayers.
The big drawback
The big downside of choosing e-DRS is that you forfeit your right to appeal, said Mohanka. The frequently-asked-questions section of the tax department’s website says the assessee cannot go back to CIT(A) once their e-DRS application is accepted, even if they are not satisfied with the committee’s order.
This is a major drawback as it leaves small taxpayers with no recourse. “If CIT(A) rejects an appeal, taxpayers have the right to go to ITAT (the Income Tax Appellate Tribunal), then to the high court and finally the Supreme Court. The e-DRS committee’s order, as per the CBDT’s guidelines, seems like it will be set in stone,” said Mohanka.
“Since such orders are not appealable, taxpayers may prefer to wait and watch to see how balanced the initial orders are before opting for DRS.”
If a taxpayer has already filed an appeal and wants to use the e-DRC route instead, he will need to withdraw the appeal within a month of filing an application under the new scheme.
This condition could make e-DRS toothless and largely unused.
The only recourse to an order by the DRS committee is a writ petition, but these can cost ₹3-5 lakh and may not be feasible for most small taxpayers.
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“Another thing to note is that the DRS committee has two retired tax commissioners and one serving commissioner. Tax officers, serving or retired, are likely to have a pro-revenue bias, and their orders may reflect that bias, as seen in the case of the dispute resolution panel for non-resident cases,” said Gautam Nayak, partner at CNK & Associates LLP.
Taxpayers are advised not to file applications under e-DRS yet, Nayak said. “Since such orders are not appealable to the tribunal, taxpayers may prefer to wait and watch to see how balanced the initial orders are before opting for DRS.”
How to file an e-DRS application
Mohanka said e-DRS may still be suitable for a small taxpayer with a small tax demand or a weak case. “The committee also has the power to reduce the amount of variation, i.e. the additional income on which tax is demanded. Where there is no penalty levied but only a small tax demand with interest, and the assessee has a watertight case, they can seek resolution under the e-DRS as it has a shorter timeline,” he said.
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“Alternatively, if the taxpayer has a weak case with no supporting documents and has a slim chance of winning, he too can try to get relief under e-DRS. The shorter timeline ensures your interest doesn’t keep compounding,” Mohanka added.
Assessees can apply for e-DRS using Form 34BC on the income tax portal. Here’s how to do it:
- Log in to your account using your PAN/TAN as user ID
- Under the Dashboard tab, select e-File
- Select Income Tax Forms → File Income Tax Forms. Under the tab ‘Persons not dependent on any source of Income (Source of Income not relevant), select ‘Dispute Resolution Committee in Certain Cases (Form 34BC)’.
- Fill in Form 34BC
- Review and e-verify the form using Aadhar OTP, EVC or DSC
Applications cannot be filed under e-DRS in cases where the order is under the Black Money Act or the case is being scrutinised under the Narcotics Act or any law other than the Income Tax Act. Mohanka said even under the I-T Act, applying under e-DRS is not allowed if a search order has been passed or in cases where the TDS was not deposited and the prosecution order has already been passed.