Evolving ADR Mechanisms in Indian Taxation : Clause 379 of the Income Tax Bill, 2025 Vs. Section 245MA of the Income Tax Act, 1961

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....tion of the DRC mechanism in Indian tax law. Objective and Purpose The legislative intent behind Clause 379 and Section 245MA is rooted in the policy objective of minimizing litigation and providing small taxpayers with a non-adversarial, expeditious, and cost-effective forum to resolve tax disputes. Historically, protracted litigation has burdened both taxpayers and the tax administration, often involving relatively minor tax demands or adjustments. The DRC mechanism is designed to: * Facilitate early resolution of disputes for eligible taxpayers; * Reduce the backlog in appellate forums and courts; * Encourage voluntary compliance by offering relief from penalties and prosecution; * Promote transparency, efficiency, and taxpayer confidence in the tax administration. The DRC is not intended as an appellate forum but as an alternative to litigation, specifically for cases involving limited tax disputes and compliant taxpayers. The eligibility criteria, nature of disputes covered, and powers of the DRC are carefully delineated to balance administrative efficiency with the need to prevent abuse of the process. Detailed Analysis of Clause 379 of the Income Tax Bill, 2025 ....

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.... must be in conformity with the directions of the DRC and completed within one month from the end of the month in which the DRC's order is received. This ensures prompt implementation and closure of the dispute, preventing unnecessary delay. 4. Definition of "Specified Order" and Eligibility Criteria Clause 379(4) defines "specified order" and sets out the eligibility conditions for a dispute to be taken up by the DRC: * Monetary Limit: The aggregate sum of variations proposed or made in such order must not exceed ten lakh rupees. This ensures that only minor disputes are covered. * Nature of Order: The order must not be based on search or survey proceedings or on information received under tax treaties (sections 247, 248, 253, and section 159(1)/(2)). This excludes cases involving serious tax evasion or international tax issues. * Income Threshold: Where the assessee has filed a return for the relevant tax year, the total income as per the return must not exceed fifty lakh rupees. This targets the mechanism at small taxpayers. These criteria are intended to focus the DRC's resources on cases where the cost and complexity of litigation would be disproportionate to....

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....ill. The substance of the exclusions remains the same, targeting only non-serious, non-evasion-related cases. * Specified Conditions-Disqualifications: * Section 245MA contains a detailed explanation of "specified conditions," including disqualifications for persons subject to detention under COFEPOSA, those convicted under various penal statutes, and those notified under the Special Court Act. Clause 379, in its current text, does not reproduce these detailed disqualifications, instead referring generally to "specified conditions, as prescribed." It is likely that these will be incorporated by reference in the rules under the new Act, but the lack of explicit mention in the clause itself may create interpretive ambiguity unless clarified in subordinate legislation. * Scheme-making Power: * Section 245MA(3) and (4) empower the Central Government to make a scheme for dispute resolution, including provisions for technological interface, dynamic jurisdiction, and functional specialization, and to modify the application of the Act to give effect to the scheme (with sunset clauses on such powers). Clause 379 does not contain express scheme-making provisions within the clause, th....

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....void arbitrariness. * Overlap with Other Remedies: The relationship between the DRC process and other dispute resolution or appellate mechanisms (e.g., traditional appeals, the Dispute Resolution Panel u/s 144C) requires careful management to prevent forum shopping or duplication. * Scope of "Modification" Power: The extent to which the DRC can modify assessment orders may require clarification, especially in cases involving mixed issues of fact and law. * Implementation Timelines: While the one-month timeline for AO action is welcome, practical challenges in implementation may arise, particularly if the DRC's order requires complex recomputation. * Exclusion of High-Value or High-Risk Cases: The exclusion of cases involving searches, surveys, or international information may be justified, but may also leave certain genuine small taxpayers without access to the DRC if they are inadvertently caught up in such actions. Practical Implications 1. For Taxpayers * Access to a Speedy and Less Adversarial Remedy: Eligible taxpayers gain access to a forum that promises quicker and less confrontational dispute resolution. * Potential for Substantial Relief: The possibility ....