He said the department was filing appeals in a routine manner, without careful thought and examination, leading to the department earning the dubious distinction of being the biggest litigant in the government.
"One area of concern is litigation with taxpayers. . .I have noticed some of the appeals filed by the department have been dismissed by courts on account of gross delays.
"These issues require a relook at system of legal and judicial management," Mukherjee said. He was speaking at the 150th anniversary of the Income Tax in India.
The finance minister said a lot more remained to be done as the department needed to reinvent itself to meet the challenges of the next 50 years.
He said it should concentrate on its core functions of data mining, risk profiling and risk-assessment, tax enforcement and recovery, dispute resolution and grievance redressal, taxpayer awareness and education, and other administrative, judicial, audit and Parliament-related functions.
"The department also needs to strengthen its administrative structure, including its headquarters, to enable it to undertake greater responsibilities. It needs to evolve functionally to cater to highly specialised and new areas of work," he said.
The finance minister acknowledged that the I-T department, with a customer base of 3.5 crore (35 million) taxpayers and 10 crore (100 million) Public Index Number holders, needed huge resources for manpower, infrastructure and communications systems.
He agreed there was a strong case for increasing the manpower and material resources of the department.