Disposal Without Justice: Inside India’s ₹25L Cr Tax Appeal Crisis
Image credit X.com Finance Ministry
By P. SESH KUMAR
India’s income tax appellate system is burdened by over 5.39 lakh pending appeals and nearly Rs 25 lakh crore trapped in disputes. The government’s disposal drive may reduce backlog numbers, but critics argue the deeper crisis lies in structural flaws, endless litigation and delayed justice.
New Delhi, May 19, 2026 — India’s income tax appellate system today resembles a vast, slow-moving glacier: majestic in numerical scale, but paralysed in motion and direction. With over 5.39 lakh appeals clogging the first appellate level as of April 2025 and an eye-watering Rs 16.75 lakh crore locked up in disputed tax demand, the Department’s FY26 “litigation cleanup drive” promises an administrative spring cleaning that will dispose of over 2 lakh appeals and restore momentum to a system stuck in reverse. But scratch the surface of these disposal numbers and a more troubling story emerges.
Disposal is not finality. A first appellate order is not the last word but often the first step in a 20–25 year litigation pilgrimage that can run all the way to the Supreme Court. The Revenue’s own success rate, now down to under 15% at the ITAT and barely 12% at the High Courts, reveals a harsh truth: the problem is not only one of capacity or process; it is structural, cultural, and constitutional.
The story of India’s income tax appeal avalanche did not begin with a Central Action Plan (CAP), a Central Board of Direct Taxes (CBDT) letter, or a tweet congratulating the Department on hitting disposal milestones. It began much earlier, in January 1941, when the Income Tax Appellate Tribunal (ITAT) was born out of the simple realisation that allowing the tax department to sit in appeal over its own orders was institutionalised injustice dressed up as procedure. The ITAT was supposed to be a pressure valve; instead, over eight decades, the system grew into a maze in which disputes multiply faster than they can be resolved, and where each new reform promises relief but ends up adding another layer of complexity.
At the heart of this maze lies a statute that seems almost designed to invite litigation. The Income Tax Act, notwithstanding the painstaking pruning ushered in from 01 April 2026 in the form of a new Act, is a dense jungle of provisos, explanations, exceptions to exceptions, and delegated legislation that changes almost every Budget cycle. When we ask two lawyers and one assessing officer what a provision means and get five conflicting answers, we know we have what experts politely call “interpretive uncertainty.” In that environment, an appeal is no longer just a remedy; it becomes a rational business strategy. If a provision can legitimately be read two ways, the taxpayer reads it one way, the assessing officer reads it the other, and the appellate forums are left to referee a contest that the law itself choreographed.
Overlaying this ambiguous legal text is a culture that thrives on high-pitched assessments. After demonetisation, for instance, Section 115BBE was pressed into service to slap penal tax rates on cash deposits with an enthusiasm that would have impressed even the most zealous tax collector of colonial memory. The result was predictable: demands many times the net worth of taxpayers, orders that were factually and legally unsustainable, and a conveyor belt of appeals that had to be filed simply to survive. When the CBDT’s own instructions contemplate administrative action against officers for such high-pitched assessments, it is an admission in bureaucratic prose that bad original orders are the engine that keeps this appeal factory running.
Now add to this concoction the annual drama of revenue targets. Each year, the Budget speech announces a bigger direct tax collection target, and each year field officers go out into the assessment season armed with the knowledge that paper demand, however unreal, looks good in performance charts. If a huge addition survives even for a year or two before being struck down, it still counts towards the officer’s immediate scorecard, even if the money will ultimately never reach the exchequer. The structural perversity is breathtaking: the more exaggerated the addition, the higher the notional demand; the higher the notional demand, the more impressive the short-term numbers; and the more appeals that will inevitably follow once assessees push back.
The result is a numerical universe that seems detached from economic reality. As of FY 2024–25, there were 5,39,863 appeals pending before the first appellate authority alone, with disputed demand of Rs 16.75 lakh crore. If we go up the ladder, the picture darkens further: nearly 23,000 appeals at the ITAT involving Rs 3.64 lakh crore, over 34,000 cases before High Courts involving Rs 5.65 lakh crore, and thousands more before the Supreme Court. Put together, upwards of Rs 25 lakh crore sits frozen in appellate limbo, a staggering sum that would make any Finance Minister’s eyes light up on paper, even though much of it is, as the CAG has politely suggested, unrealisable fiction.
These are not static numbers. Back in 2009–10, the CAG’s performance audit found Rs 2.2 lakh crore locked up in appeals across all levels and sounded the alarm. A decade and a half later, that figure has ballooned roughly tenfold. FICCI now describes the current pendency as “critical” to the success of any faceless or otherwise modern appeal system, and it is hard to disagree. What is striking is that, despite multiple administrative drives, special schemes, and policy dashboards, the directional trend has remained stubbornly upward. The mountain is not being climbed; it is being quarried from beneath and allowed to collapse in slow motion.
Into this crisis walks the FY26 “litigation cleanup drive,” with its promise to dispose of over 2 lakh appeals and its proud claim of 2,22,540 appeals disposed in FY 2025–26, a jump of nearly 30% over the previous year. On the face of it, these are impressive administrative feats. For the first time in years, disposals exceeded new filings, and the Department claims a one-third reduction in legacy pendency. There is no reason to deny that this demands effort, coordination, and political will. Yet the question that refuses to go away is embarrassingly simple: disposed into what?
In the peculiar vocabulary of Indian tax administration, “disposal” is a wonderfully elastic word. A disposed appeal could mean full relief to the assessee, partial relief, complete dismissal, remand back to the Assessing Officer, an ex-parte order passed because the taxpayer did not appear, or an order that exists chiefly to meet a monthly target and is then itself appealed. All of these count as “disposal” and look identical in the statistics that make their way into official press releases. For the taxpayer, for the system, and for the exchequer, they could not be more different.
The deeper problem is that disposal at the CIT(A) level does not mean finality, either in fact or in law. In India’s four-tier hierarchy, an order of the first appellate authority is merely the opening act. It can be challenged before the ITAT, whose decision can in turn be taken to the High Court on a substantial question of law under Section 260A, and from there, by special leave, to the Supreme Court. NASSCOM has dryly observed that this journey from CIT(A) to final Supreme Court disposal can take 20 to 25 years, and nothing in the recent cleanup drive fundamentally alters that timeline. The mountain, in other words, is being reshaped, not reduced. Cases are being shifted upward like luggage on a conveyor belt; they are not being unpacked and closed.
The Revenue’s litigation performance at the higher levels only sharpens the sense of unease. The Economic Survey had earlier revealed that around 80–85% of all appeals in tax matters are initiated by the Department itself. More recent data from the Standing Committee on Finance paints an even bleaker picture: the Department’s success rate at the ITAT has slumped to 14.5%, and at the High Courts to just over 12%. In plain language, this means the Department insists on fighting cases it chose to file and then loses nearly seven out of eight of those battles at the High Court level. It is difficult to maintain that the primary villains in this drama are recalcitrant assessees when the numbers point so clearly towards a trigger-happy appellant that rarely wins when tested.
Meanwhile, the CAG has played the role of an unrelenting Cassandra, flagging the same structural ailments year after year. A special audit in 2009–10 showed that nearly half of tax demands remained uncollected and that disputes accounted for almost 45% of this uncollected pool. Fast forward to Report No. 14 of 2024, and the picture turns from worrying to surreal: of Rs 14.41 lakh crore in outstanding demand as of March 202, Rs 10.58 lakh crore-about 73%-was classified as “under dispute.” The CAG documents delays of up to seven years in giving effect to appellate orders and even finds a case where consequential orders are pending for more than eleven years. Somewhere between the order being passed and the order being implemented, the system goes into a kind of administrative amnesia.
Along the way, the Department manages to commit the kind of procedural errors that would be comic if their consequences were not so serious. Cases are closed without verifiable records; credits for tax already paid are denied, inflating demands; and when appeal effects are eventually given, the mistakes reverse themselves into inflated refunds with interest, hurting the exchequer while harassing taxpayers. In over 42% of the cases the CAG sought to verify, the Department simply could not provide the required details. When the constitutional auditor of the Republic cannot be sure whether appeals classified as “disposed” are in fact correctly closed, the word “disposal” begins to sound less like an achievement and more like an act of faith.
If one wants a more cinematic illustration of how this machine works-and fails-one need look no further than the Harshad Mehta and Sahara sagas. In the Harshad Mehta securities scam, the Department once claimed tax dues of around Rs 20,000 crore against Mehta and his associates, with Rs 2,014 crore added as income for a single assessment year. After 27 years of litigation, the ITAT Mumbai Bench, in a 297-page order in 2019, deleted almost the entire addition, effectively wiping out the bulk of the tax claim. By then, Harshad Mehta had been dead for seventeen years, and whatever had been distributed to banks and the tax department out of asset auctions stood in stark contrast to the grandiose figure that had once adorned the Department’s books. The end result, as commentators noted with dry understatement, was “virtually nil revenue for the exchequer.”
The Sahara story is no less haunting. Here, the tax claims and the securities law disputes intertwine in a labyrinth of overlapping proceedings, with the Supreme Court, SAT, SEBI, and the Department all circling around a pot of money that stubbornly refuses to find its way to investors or the Treasury in full. The Supreme Court has upheld SEBI’s directions on refunding Rs 14,106 crore raised through OFCDs, and yet, more than a decade after the saga erupted, the money remains largely locked in a legal purgatory, while the Department’s own income tax claims continue their journey through the appellate hierarchy. Together, Harshad and Sahara are less case studies than cautionary epics on what happens when enforcement zeal is not matched by legal rigour and institutional discipline.
It is against this backdrop that the Faceless Appeal Scheme made its dramatic debut in 2020. On paper, it was a reformer’s dream: automated case allocation, elimination of geographic proximity between taxpayers and appellate commissioners, e-hearings, and e-orders routed through a centralised National Faceless Appeal Centre (NFAC). The objective was clear and commendable-to destroy the cosy local nexus where familiarity and influence could do what facts and law could not. For a while, the numbers seemed to validate the experiment. With 282 faceless appeal units and additional JCIT(A) posts, disposals climbed from around 1.25 lakh in FY 2022–23 to over 2.22 lakh by FY 2025–26.
Yet, once again, the lived experience of taxpayers tells a more complicated story. One of the most widely reported pathologies of the faceless regime is the phenomenon of identical notices being issued again and again, sometimes five times over, even after detailed submissions have been filed and acknowledged. The NFAC’s central systems and the action points of individual CIT(A)s appear to be poorly integrated, so that the transfer or reassignment of a case triggers fresh notices without any institutional memory of prior compliance. For the taxpayer, each new notice reopens the wound, erodes faith in the process, and creates a genuine fear that complaining about the glitch may invite vindictive outcomes.
Capacity is another sobering constraint. With around 279 sanctioned faceless CIT(A)s and 100 JCIT(A)s, even a fully staffed cadre faces a backlog that would require each officer to dispose of roughly 1,400 cases a year just to clear the existing pile, assuming no fresh appeals were filed. In practice, this means something closer to a siege than a caseload. When an officer is expected to decide two or more appeals every working day, the question is no longer whether each case will be decided on its merits, but how much boilerplate reasoning can be sustained before natural justice gasps for breath.
Courts have not remained silent on this erosion of due process. High Courts have repeatedly set aside faceless assessments, and by implication appeals, where effective hearing opportunities were denied. The principle of audi alteram partem-hear the other side-is not a decorative Latin phrase; it is the thin line that separates adjudication from administrative fiat. When virtual hearings exist in theory but are rationed in practice, or are denied in complex factual situations crying out for oral clarification, the faceless scheme risks acquiring a new, unintended meaning: a system where the taxpayer cannot see who is judging them, but feels very clearly that they are not being heard.
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As if this were not enough, reports have emerged of regional officials informally “screening” appellate orders under the guise of quality control, asking officers to submit their draft or “quality” orders to ad hoc committees. This strikes at the core premise of the faceless architecture, which was designed precisely to prevent local hierarchies from exerting shadow control over quasi-judicial decisions. When an anonymous digital process has to look over its shoulder at anonymous offline oversight, we are not building a brave new world; we are recreating an old one behind a digital curtain.
Hovering over all this is the question of targets. The Central Action Plans (CAP) for successive years, including FY 2025–26, openly prescribe disposal targets-over 2 lakh appeals in the current drive alone. These targets are then fed into performance appraisals, promotions, and postings. The Bombay High Court has already made it clear that incentivising “quality orders” that favour the Revenue, or pushing for unnatural speed that compromises hearings, would be unconstitutional. The Finance Ministry itself, during deliberations on the proposed Income Tax Bill, 2025, took the position that statutory time limits for disposal of appeals would be undesirable because appellate proceedings are judicial in nature and must accommodate complexity. There is, therefore, an uneasy truce between what the law allows in principle and what the Department pursues in practice through its administrative targets.
So where does this leave the taxpayer, the exchequer, and the idea of justice? One response is to throw up hands and say that a system this large and this old cannot be transformed; it can only be managed. Yet the very data that exposes the problem also hints at possible solutions. If the first appellate authority were made structurally independent-perhaps brought under the Ministry of Law and Justice on the ITAT model, or reconstituted as a separate appellate body-the current tension of officers judging the orders of their own department might begin to ease. If the NFAC were equipped with robust case management tools that prevent repeated notices, mandate disposal within a reasonable time once submissions are complete, and seamlessly follow officers when they are transferred, facelessness could begin to feel less like distance and more like fairness.
On the litigation side, a disciplined screening mechanism for departmental appeals, as recommended by the Standing Committee on Finance, could cut the appellate load by more than half. When a department that wins only around 12–15% of its appeals continues to file in almost every adverse case, the problem is not lack of courage but lack of curation. A legal vetting panel empowered to say “no” to appeals where the law is settled or the facts are well-found would do more for pendency reduction than any disposal drive at the bottom of the pyramid.
Special fast-track lanes for high-value legacy disputes and a permanent, predictable version of the Vivad Se Vishwas settlement framework could together drain the swamp of ancient cases that clog every level. If assessees know that there is always a standing, fair exit route where they can cut their losses and move on, and if the Department knows that it cannot indefinitely flaunt paper demand as a sign of strength, the incentives on both sides begin to shift.
In the final analysis, the FY26 litigation cleanup plan is not a bad idea. It is simply an incomplete one. Disposing of 2.22 lakh appeals in a year and beating new filings for the first time deserves acknowledgement as an administrative feat. But it is a bit like draining water from the middle of a lake while fresh streams keep flowing in and an underground spring keeps bubbling up from below. Until the law is simplified, the culture of high-pitched assessments is curbed, appellate independence is strengthened, and the Revenue learns to lose gracefully instead of appealing reflexively, each new cleanup drive will merely rearrange the debris on an ever-growing mountain.
The phrase “disposal of appeals” sounds, at first blush, like a promise of closure. In India’s income tax universe today, it is more often a way of saying that a case has been moved from one file, one forum, and one statistic to another. Relief, in the sense of final determination of liability and release from uncertainty, lies much further down the road-sometimes decades away.� Until policy-makers resist the seduction of headline disposal numbers and focus instead on the harder, slower work of structural reform, the taxpayer will continue to live in a world where appeals are plentiful, justice is scarce, and the only thing truly faceless about the system is accountability itself.
(This is an opinion piece. Views expressed are the author’s own.)
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