121690 Income Tax Dispute pending in courts during last 3 years

The Minister of State in the Finance says that income tax dispute resolution has been simplified through digital systems and special settlement schemes, and further reforms are proposed in the Finance Bill 2026.

In a written response to questions raised in the Lok Sabha regarding lengthy procedures of resolving income tax disputes, the Minister of State in the Finance, Pankaj Chaudhary, replied on Monday, March 9, 2026.

The following are the questions raised in the Lok Sabha:

“(a) whether it is a fact that there are several lengthy procedures still involved in resolving disputes regarding income tax charged from the taxpayers; if so, the details thereof.

(b) whether the Government is considering making any changes in its dispute resolution mechanism; if so, the details thereof; and

(c) How many cases are involved in the court of law in respect of payment of Income Tax during the last three years?”

Below are the responses to all the questions, as provided by Shri Pankaj Chaudhary:

(a) Pankal Chaudhary added that the process for solving income-tax disputes is not very long and has been simplified over time. The following are the measures introduced by the government to simplify dispute resolution:

Faceless Appeals Scheme, 2021: Appeals can now be handled online without visiting tax offices, making the process easier and more convenient for taxpayers.

Advance Pricing Agreements (APA): This system allows companies involved in international transactions to decide the Arm’s Length Price (ALP) with the tax department in advance, which helps avoid future tax disputes.

Mutual Agreement Procedure (MAP): This is an alternative dispute resolution method under Double Taxation Avoidance Agreements (DTAAs). It helps resolve cases where income is taxed twice or not taxed according to the agreement between countries.

Direct Tax Vivad se Vishwas Scheme, 2024:  This was a one-time scheme to settle pending income-tax disputes. It helped to clear old tax cases, collect government revenue faster, provide relief and certainty to taxpayers, set higher limits for filing departmental appeals, and increase the minimum tax amount required for the department to file an appeal to ensure that only important cases with significant tax impact are pursued.

(b) New measures introduced in the Finance Bill, 2026

i. Immunity extended to cases of misreporting of income

Section 270AA provides an option for taxpayers to get immunity from penalty and prosecution in certain cases of underreporting of income. However, this immunity was allowed only when the income was underreported due to omission or understatement and not when it involved misreporting of income.

The Finance Bill, 2026, proposes to expand the scope of this provision. Under the proposed change, taxpayers will be able to seek immunity even when the underreporting of income arises due to misreporting. This change will allow a larger number of taxpayers to resolve disputes arising from errors or discrepancies in their tax filings without facing a penalty or prosecution.

But, to get this immunity in cases involving misreporting, the taxpayer will have to pay an additional income tax equal to 100% of the tax payable on the misreported income in lieu of the penalty.

ii. Increase in scope of Updated Return

The Finance Bill, 2026, has expanded the scope of filing an updated return under the Income-tax Act. Now, taxpayers are also allowed to file an updated return in response to a reassessment notice issued under Section 148.

This change makes the system more flexible and helps taxpayers settle disputes easily without going through lengthy reassessment procedures.

iii. Imposition of Penalty as part of Assessment Order

The Finance Bill, 2026, has also proposed that penalties will be imposed along with the assessment order itself. Under the proposed change, penalty decisions will be included in the same assessment order. This new system will be applicable from April 1, 2027.

It will reduce the compliance burden for taxpayers because assessment and penalty matters will be merged into a single proceeding instead of two separate litigations.

(c) Number of income-tax cases pending in courts during the last 3 years: