Addressing Tax Litigation - Suggestions for effective representation before Revenue Authorities

January 07,2016
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Sanjay Sanghvi (Partner, Khaitan & Co)
Ankit Namdeo (Associate, Khaitan & Co)

With the rise of cross border trade and investments, taxation has assumed significance for both multinationals and domestic companies. Due to expansion of business, companies find themselves exposed to various tax risks and disputes, in newer geographies which have different taxation systems than their home state. Consequentially, there has been unprecedented surge in tax litigation before tax authorities, and the courts. It is in this context, that identifying and adopting appropriate strategy, is crucial to handling tax litigation matters effectively and efficiently for an early disposal.

It is relevant to note the observation of Late Mr Nani A Palkhivala, where he described Churchill's art of persuasion, “For something to be convincing, it must in the first place, be simple”. Hence, it is important that all key facts and arguments are lucidly put before the concerned authorities and courts. Set out below are some key factors that may help in reducing risk of tax litigation and handling tax disputes efficiently.

Factors to consider at the time of transaction

It is important that precautions are taken to avoid tax disputes later on. This can be done by drafting the transaction documents appropriately and vetting the legal documents from a tax perspective to ensure that the documentation captures the intended structures. While undertaking transactions such as acquisitions, mergers, slump sale, share sale, etc. taxpayers should ensure that all relevant documents and evidences are preserved, including supporting evidences with respect to the valuation of the assets involved.

Documentation for share application money

Recently, the Tax Department has been invoking section 68 of the Income Tax Act to tax share application money in the hands of a private company, where the Assessing Officer was not satisfied with explanation of the ‘nature’ and ‘source’ of such share application money.

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