Alternative Dispute Resolution mechanism Section 134A
Alternative Dispute Resolution mechanism Section 134A: The concept of Alternative Dispute Resolution was introduced through the Finance Act, 2004 by inserting a new section 134A in the Income Tax Ordinance, 2001.
The objective was to provide an alternate channel for expeditious settlement of disputes between FBR and taxpayers and to reduce the pendency of cases at various appellate forums.
However, the existing mechanism for resolution of disputes through Alternative Dispute Resolution Committee (ADRC) had not been entirely successful in mitigating the hardship of taxpayers and therefore section 134A has been substituted with major changes which are mentioned hereunder:-
Prior to the Finance Act, 2018 any aggrieved person could apply to the Board for the appointment of a committee for the resolution of any hardship or dispute in connection with any matter pending before an Appellate Authority.
However, cases where prosecution proceedings had been initiated or where interpretation of question of law having effect on identical cases was involved were ousted from the purview of Alternative Dispute Resolution
(ADR).However, by virtue of amendment made through the Finance Act, 2018 any dispute pertaining to:
- liability of tax against the aggrieved person or admissibility of refunds; or
- extent of waiver of default surcharge and penalty; or
- any other specific relief required to resolve the dispute shall fall within the purview of section 134A of the Ordinance relating to Alternative Dispute Resolution.
An aggrieved person may apply to the Federal Board of Revenue for the appointment of a Committee to resolve any hardship or dispute which is under litigation in any court of Law or an Appellate Authority.
However, instances where criminal proceedings have been initiated or where interpretation of question of law having effect on other cases is involved have been ousted from the purview of the section 134A substituted through the Finance Act, 2018.
Prior to the Finance Act, 2018, the ADR Committee was to be appointed by the Board within 60 days of the receipt of application by an aggrieved person.
Such committee comprised of an officer of Inland Revenue not below the rank of Commissioner and two persons from a panel comprising Chartered or Cost Accountants, Advocates, Income Tax Practitioners or reputable taxpayers for the resolution of the hardship or dispute.
By virtue of amendment made through the Finance Act 2018, the composition of the ADRC has been changed.
The first member shall be an officer of Inland Revenue, not below the rank of Commissioner.
The second member shall be a person to be nominated by the taxpayer from a panel notified by the Board comprising senior chartered accountants and senior advocates having experience in the field of taxation and reputable businessmen as nominated by Chambers of Commerce and Industry.
However, the taxpayer is not allowed to nominate a Chartered Accountant or an Advocate who is or has been an auditor or authorized representative of the taxpayer.
The third member shall be a retired judge not below the rank of District and Sessions Judge and shall be nominated through consensus by the first two members.
Prior to the Finance Act, 2018, the proceedings of ADRC were conducted while the appeal of the taxpayer remained pending before the appellate authority.
After the passage of order by the Board in the light of recommendations of ADRC, the said recommendations were to be submitted before the authority, tribunal or court where the matter was subjudice for consideration and orders as deemed appropriate.
Through the Finance Act, 2018, the aggrieved person or the Commissioner or both as the case may be are required to withdraw the appeal pending before any appellate authority or Court of Law after constitution of ADRC by the Board.
The ADRC shall not commence proceedings unless the order of withdrawal has been communicated to the Board, and in case the decision is not communicated within 75 days of appointment of ADRC, the said committee shall stand dissolved and the provisions of section 134A shall not apply.
The Alternative Dispute Resolution Committee is mandated with examining the issue at hand and may conduct inquiry, seek expert opinion and direct any officer of the Inland Revenue or any other person to conduct an audit if deemed necessary.
Such committee shall be required to decide the dispute by majority within 120 days of commencement of proceedings, however, in computing the aforesaid period of 120 days the period for communicating the order of withdrawal by the court of law or the Appellate Authority shall be excluded.
In case of failure to decide within 120 days, the Board shall dissolve the committee by an order in writing and the matter shall be decided by the Court of Law or the appellate authority which had issued the order of withdrawal.
In such a case, the appeal shall be treated as pending before the Court of Law or the appellate authority as if it had never been withdrawn.
In such a situation, the Board shall communicate the order of dissolution to the court of law or the appellate authority and the Commissioner.
Moreover, upon receipt of the order of dissolution the aggrieved person shall communicate the same to the court of law or the Appellate Authority, which shall decide the case within six months of communication of said order.
Prior to the Finance Act, 2018, the recovery of tax was not automatically stayed during the pendency of dispute before the ADRC.
In order to facilitate taxpayers and alleviate hardship, the recovery of tax in connection with any dispute for which committee has been constituted shall be deemed to have been stayed from the date of order of withdrawal of appeal by the court of law or the appellate authority up to the date of decision by the committee.
Prior to the Finance Act, 2018, recommendations of the Alternate Dispute Resolution committee constituted by the Federal Board of Revenue in pursuance of application filed by an aggrieved person in connection with any matter pending before an Appellate Authority was not binding upon the Board and the Board had the mandate of passing an order as it deemed appropriate within ninety days of the receipt of the recommendations of the Alternative Dispute Resolution Committee.
Moreover, an applicant being dissatisfied with the order passed by FBR also had the option of continuing to pursue the matter at hand before the relevant appellate authority.
Through the Finance Act, 2018, the decision of the Alternative Dispute Resolution Committee has been made binding upon both the Commissioner and the aggrieved person/taxpayer.
Upon decision of the dispute by the Alternative Dispute Resolution Committee the aggrieved person/applicant shall be obliged to make payment of income tax and other taxes as decided by the committee and all decisions, orders and judgments shall stand modified to that extent.
The Board has also been accorded the mandate to prescribe the amount to be paid as remuneration to the members of the Alternative Dispute Resolution Committee for their services except an officer of Inland Revenue (not below the rank of a Commissioner) who is appointed as a member of the committee.