CA Paras Dawar has taken strong exception to the CBDT castigating CsIT(A) for giving relief to taxpayers “on legal grounds“. He has also condemned the CBDT’s offer of “incentives” to CsIT(A) to enhance assessments. He has argued that by dictating CIT(A)s to carry out appellate proceedings with a preconceived notion and in a prejudiced process, the CBDT has crossed the ‘lakshman rekha’ by compromising a fair and unbiased trial promised by our Constitution
Introduction
Independence of appellate authorities is the foundation for free and fair judicial process. An unbiased mind is a pre-requisite for impartial adjudication by any judicial / quasi-judicial authority. The adjudication of appeals under Income Tax Act, 1961 (‘Act’) are no different. The appellate authorities under the Act comprise of Commissioner Appeals at the first step of the appellate ladder, followed by Income Tax Appellate Tribunal, the High Court and finally the Supreme Court.
Through this article, an attempt has been made to highlight recent attempts by Central Board of Direct Taxes (‘CBDT’) which vitiates and gravely prejudices adjudication of justice by completely eroding independence of Commissioner-Appeal (First Appellate Authority).
Background
Section 246A of the Income Tax Act, 1961 (‘Act’) grants an assessee right to file an appeal before the Commissioner of Income Tax – Appeals [hereinafter referred to as ‘CIT(A)’] if the assessee is aggrieved by any ‘appealable orders’ of lower authority. The list of such ‘appealable orders’ has been illustrated under sub-section (1) of section 246A of the Act.
The CIT(A) shall then fix a day and place for the hearing of the appeal and make such further inquiry as he/she deems fit. After giving opportunity of being heard to both the assessee and the assessing officer and after duly applying his / her mind, the CIT(A) shall proceed to ‘confirm, reduce, enhance or annul’ the order under appeal.
The Hon’ble Supreme court in the case of Sirpur Paper Mills Ltd. vs. The Commissioner of Wealth Tax, Hyderabad (20.04.1970 – SC) : MANU/SC/0295/1970 while adjudicating on powers conferred on Commissioner under section 25 of Wealth Tax Act, 1957 held that :
“The power conferred by Section 25 is not administrative it is quasi-judicial. The expression "may make such inquiry and pass such order thereon" does not confer any absolute discretion on the Commissioner. In exercise of the power the Commissioner must ring to bear an unbiased mind, consider impartially the objections raised by the aggrieved party, and decide the dispute according to procedure consistent with the principles of natural justice he cannot permit his judgment to be influenced by matters not disclosed to the assessee. nor by dictation of another authority. Section 13 of the Wealth Tax Act provides that all officers and other persons employed in the execution of this Act shall observe and follow the orders, instructions and directions of the Board. These instructions may control the exercise of the power of the officers of the Department in matters administrative but not quasi-judicial. The proviso to Section 13 is somewhat obscure in its import. It enacts that no orders, instructions or directions shall be given by the Board so as to interfere with the discretion of the Appellate Assistant Commissioner of Wealth Tax in the exercise of his appellate functions. It does not, however, imply that the Board may give any directions or instructions to the Wealth Tax Officer or to the Commissioner in exercise of his quasi-judicial function. Such an interpretation would be plainly contrary to the scheme of the Act and the nature of the power conferred upon the authorities invested with quasi-judicial power.” (Emphasis Supplied)
Reference is also drawn to the judgement of Hon’ble Supreme Court in the case of Union of India (UOI) and Ors. vs. Madras Steel Re-Rollers Association (11.02.2011 – SC) : MANU/SC/0453/2011 where the Hon’ble Court held that :
“Considering the facts and circumstances of the case and relying on the aforesaid decision of this Court, we hold that the Assessing Authorities as well as the Appellate and the Revisional Authorities are creatures of the Act and they perform the functions of the quasi judicial authorities and the orders passed by them are also quasi judicial orders. Therefore, such orders are required to be passed by exercising independent mind and without impartiality and while doing so, such Authorities are required to consider various evidences made available to them.” (Emphasis Supplied)
In light of law and judicial precedents stated hereinabove, it can be concluded that CIT(A) while adjudicating an appeal before him / her, acts as a ‘quasi-judicial authority’ and is bound to dispose off the appeal with complete impartiality and unbiased mind.
Attempts by CBDT to stifle CIT(A) from acting impartially
In last 6 months, the CBDT in the veil of administering the appellate process and managing litigation under the Act, has issued the following two instruction / policy which wholly compromise the impartiality of CIT(A) while adjudicating an appeal before him / her.
1. “Litigation Management” under Central Action Plan 2018-19
The Central Action Plan 2018-19 issued by CBDT and freely accessible on the website of ‘INCOME TAX GAZETTED OFFICERS’ ASSOCIATION (ITGOA) DELHI UNIT’ under the link https://itgoadelhi.org/upload/8a65fb0e52648b55d37dd2ea077e04c5118072018181918.pdf has a special Chapter titled ‘Litigation Management’. While on one hand this Chapter discusses speedy disposal of appeals pending before CIT(A)s, on the other hand this Chapter incentivises passing of ‘quality orders’ by CIT(A)s.
However, what is shocking and defies conscience is the definition granted by CBDT to a ‘quality orders’, which non-only prejudices the appellate process, but also penalises an unbiased officer in adjudication of a case on its merit. Relevant extracts from the said Chapter have been reproduced below:
“(3) Incentive for quality orders:
(i) With a view to encourage quality work by CITs(A), additional credit of 2 units shall be allowed for each quality appellate order passed. The CIT (A) may claim such credit by reporting such orders in their monthly DO letter to the CCIT concerned. Quality cases would include cases where-
(a) enhancement has been made,
(b) order has been strengthened, in the opinion of the CCIT, or
(c) penalty u/s 271(1)I has been levied by the CIT(A).
(ii) The concerned CCIT shall examine any such appellate orders referred to him by the CIT(A), decide whether any of the cases reported deserve the additional credit and convey the same through a DO letter to the CIT(A), which can be relied upon while claiming the credit at the year end.”
It is very respectfully submitted that by incentivising a ‘quality order’ which includes cases enhancing / strengthening the addition made by Assessing Officer (‘AO’) or levying penalties, the CBDT has covertly forced the CIT(A)s to pass orders favouring the revenue.
A ‘quality order’ is one where the adjudicating authority takes into consideration law and facts of the case, apply his / her mind to peculiarities of such case, considers precedents of higher judicial authorities and on the basis of such analysis, proceeds to issue a well-reasoned and speaking order. Where a tax addition is warranted, ‘quality order’ by CIT(A) must uphold the order of assessing officer. Whereas, where a tax addition is ought to be deleted, a ‘quality order’ by CIT(A) must delete the said addition.
By limiting a ‘quality order’ to cases where CIT(A) merely enhances or strengthens the order of assessing officer, CBDT has grossly prejudiced the impartial and unbiased approach required by a CIT(A)s in adjudication of an appeal before him / her. This further infringes upon the principles of natural justice, which also constitutes a direct attack on the sacrosanct fundamental rights conferred by the Constitution of India.
2. Instruction No. F.No. DGIT(Vig.)/HQ/SI/Appeals/2017-18/9959 dated March 8, 2018
In an Instruction No. F.No. DGIT(Vig.)/HQ/SI/Appeals/2017-18/9959 dated March 8, 2018, the CBDT, in the garb of issuing administrative instructions for proper dispatch of appeal orders, criticised and castigated the CIT(A)s for giving relief to assessee’s on legal grounds. The relevant extract of said instruction is reproduced below:
“4. Many technical and legal lapses have also been noticed during vigilance inspections of CIT (Appeals). For instance in some cases the Assessing Officers made additions towards unsecured loans and/ or share application money after detailed inquiries and bringing clear facts on record that either the creditor was not traceable or had no or meagre source of income or could not produce bank account details or could not explain the source of deposits just before advancing loan. The CsIT (Appeals) gave relief primarily on legal grounds without considering the facts on record and without making any further inquiry in the matter. In one case, the CIT (Appeals) accepted the explanation that cash deposits in bank account which were added by the Assessing Officer as unexplained, represented the business receipts of the assessee, despite the fact that no books of accounts were maintained by the assessee for this business activity. In some other cases, the additions were deleted in a summary manner solely on the ground that opportunity of cross examination was not given to the assessee. The CIT (Appeals) could have given the opportunity of cross examination to the assessee rather than summarily deleting the additions in such cases since it has been held by Hon’ble Apex Court in a number of cases that the scope of power of CIT (Appeals) is coterminous with that of the Assessing Officer.”
It is pertinent to mention that CBDT in the aforementioned instruction has rebuked CIT(A)s for granting relief primarily of ‘legal ground’. It is submitted that the so called ‘legal grounds’ are well reasoned and universally accepted principles enunciated by Hon’ble Supreme Court and Hon’ble High Courts in catena of judgements. One wonders that if the CBDT does not want CIT(A)s to grant relief on ‘legal grounds’, whether they wish that relief be granted on ‘illegal grounds’.
By dictating CIT(A)s to carry out appellate proceedings with a preconceived notion and in a prejudiced process, CBDT has crossed the ‘lakshman rekha’ by compromising a fair and unbiased trial promised by our Constitution.
Conclusion
Orders of CIT(A)s are heavily relied upon by Income Tax Appellate Tribunal (‘ITAT’), which is the final fact finding authority under the Income Tax Act, 1961. Hon’ble Supreme Court and Hon’ble High Courts give due respect to the opinion of CIT(A)s while adjudicating appeals before them. Where the fairness of first appellate authority is compromised, the entire chain of justice administration would be gravely hurt.
Orders of CIT(A)s are not final. Remedy of filing appeal before ITAT lies with both the tax payers and the Income Tax Department. Where the Income Tax Department is aggrieved by an order of CIT(A), they should consider approaching the ITAT rather than issuing instructions and policies which prejudices the independence of the office of CIT(A).
In a democratic setup like India where there is a balanced distribution of powers between executive, legislature and judiciary, policies that vitiates the independence of quasi-judicial authorities have been frowned upon by the Constitutional courts. The Income Tax Department must suo moto take appropriate action and forthwith withdraw the aforementioned instructions / policies.
(The author is a practicing Chartered Accountant and a law graduate. He can be reached at paras@parasdawar.com or +91 9711107317)
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The instruction issued by the Board is violation of the proviso (b) to section 119(1) of the Income Tax Act. No one is above the statue. Such instructions should be challenged in the court of law.
Dear Mr Waghela let me tell you that I am a Chartered Accountant practicing tax laws for the last 53 years i.e. right from 15th April,1965 when I was enrolled as a member of the Institute. I have myself fought many battles with authorities and I still stand tall. I firmly reiterate my stand about the CBDT proposal. You have already admitted that’Regarding CBDT it is BLANK BLACK BOARD, it does not even acknowledge receipt.’
Thank you Mr. Gupta for the reply in a decent language. You thought me to be a Incometax Practitioner; but it is not so. I am a Retired Additional Commissioner of Incometax ; who retired in July, 2002. I appeared before the CIT(A)s in almost all the cases where I had passed asstt. orders. What I wrote earlier was out of my first hand experience. I have worked under dozens of CCITs/CITs and most of them were non-corrupt and well versed with Incometax Law; some of them Retired as Chairman, CBDT Members and members Settlement Commission. It is only during the last 20 years that some Officers have brought bad name to the Department, by turning the department a Business Enterprise. Majority are still honest, otherwise the Department would have crumbled. I am sorry if I have hurt your feelings; forget.
Yes Sir, by such kind of interference and influence by CBDT to this quasi judicial forum, then there is no purpose for having this forum itself, it is a dummy forum without any teeth. It is better to file appeal straight to Tribunal against the assessment order.
The learned Mr Vaghela has tried to justify the CBDT attempt on the ground that most of the CITs(A) were found by him as unaware of the law but pliable to corruption in collusion with tax practitioners. I am sure that during his 40 years of illustrious practice he has not once brought this blatant wrongdoing either to the (ACB) CBI or the Bar Council of India. It is not enough to be honest but as a vigilant practitioner he was duty bound to report such misconduct to the authorities concerned. CBDT, as a supervising authority over the departmental appellate authorities has miserably failed in its duty and now is making a feeble attempt to correct its course. I still hold with conviction that this attempt by CBDT would not withstand a legal scrutiny.
Mr.Gupta , what is your Qualification ? What is your Age? If you go on making complaints to the CVC your practice may be RUINED and your family may have to starve. Most of the officers are vindictive and I have seen some CAs/Advocates out of practice who made complaints. Regarding CBDT it is BLANK BLACK BOARD, it does not even acknowledge receipt. I am aged 78 years and I have right to say that the way you have given sermon, I can say that you are too young to know every thing or rather not practicing on IT side.
Dear Mr Waghela let me tell you that I am a Chartered Accountant practicing tax laws for the last 53 years i.e. right from 15th April,1965 when I was enrolled as a member of the Institute. I have myself fought many battles with authorities and I still stand tall. I firmly reiterate my stand about the CBDT proposal. You have already admitted that’Regarding CBDT it is BLANK BLACK BOARD, it does not even acknowledge receipt.’
Very informative Article by Mayank. By issueing Circular the CBDT has not done any thing wrong. It has attempted to cure the decease prevailing in the Department. I have worked for more than 40 years in the Department, and my experience about the CIT(A) was very disappointing. Most of the CIT(A) are not well versed with the IT Law. Majority of them are pocketed by the Tax Practitioners. Some have made the CIT(A)’s post a lucrative-business. Some CIT(A)s before whom I appeared were simply reading Demand Notices and not the Grounds of Appeal.After paying them 20% of the demand raised, every thing was OK and there was no need to argue on the Grounds; CIT(A)s took care of the Law/facts. If any one wants to know I can give names of such Learned CIT(A), who have since became CCITs/Pr.CCITs and/or have since retired. You put this to any Retired Incometax Officer (ITO/ACIT/JCIT/CIT/CCIT) they may agree with my views. Once my CIT told me -AAP CIT(A) KE GHAR KYO BHARTE HO (meaning do not make unnecessary additions). Once upon a time ITAT was called INCOME-TAX ASSESSEES’ TRIBUNAL.So Mr.Gupta be careful before blaming the CBDT; no one has curtailed the idependence of CIT(A).
Shri Vagela ji has made a generalised comment on the quality of Commissioners-Appeals. A few of the CIT(A) committing mistakes or being corrupt doesn’t justify CBDT issuing such instructions. I have seen many very good CITs who are knowledgeable. Of there are more orders in favour of Assessees by CIT(A) or ITAT only indicate the poor quality of Assessment orders passed by the AOs. Most of the AOs today pass blatantly wrong orders ignoring basic principles or even ignoring Supreme Court judgements. CITs cannot rectify the mistakes of AOs at Appeal stage. Blaming CITs for the Assessees getting away is incorrect. CBDT should strive to strengthen thee assessment system rather than blaming Commissiner-Appeals
In short the CBDT is attempting to make the remedy of appeal non est. The appellate authority cannot improve upon the failings of the AO or substitute his own judgment to that of the AO. The lawyers Association must legally challenge such attempt to deny justice to the aggrieved assessees.
My Previous Article Addressing the Same Issue:
Analysis of the CBDT’s Recent Instruction bearing F.No. DGIT(Vig.)/HQ/SI/Appeals/2017-18/9959, dated 8.3.2018 On Plenary, Coterminous & Co-extensive Powers of First Appellate Authority!!!
The CBDT has very recently issued an Instruction bearing F.No. DGIT(Vig.)/HQ/SI/Appeals/2017-18/9959, dated 8.3.2018, to the Chief Commissioners and CIT(Appeals), wherein, apart from the disciplinary code of conduct, the CIT(Appeals) have been instructed not to give appellate reliefs to assessees on mere legal and technical grounds especially in relation to addition u/s 68 of the Income Tax Act, on account of unexplained cash credits in the form of unsecured loans and share application money. In the captioned Instruction, it has been stated that in view of several judgements of the Hon’ble Supreme Court, the First Appellate Authority i.e. CIT(Appeals) are vested with plenary powers in disposing of an appeal, and that the powers of CIT(Appeals) are coterminous and coextensive with that of the Assessing Officer, and as such the CIT(Appeals) are expected to rectify/cure the technical and legal defects being made by the Assessing Officers, in the assessments. One particular instance has also been specifically quoted that in the absence of opportunity of cross examination being provided by the Assessing Officer to the assessee, instead of summarily deleting the additions on this account, the opportunity of cross examination, should be provided by CIT(Appeals) to the assessees.
In the aforesaid backdrop, it will be desirable and worthwhile to consider and analyse the judgements of the Hon’ble Supreme Court, wherein it has been held that the CIT(Appeals) have plenary powers in disposing of an appeal, and that the powers of CIT(Appeals) are coterminous and coextensive with that of the assessing officer. Accordingly, the under-mentioned, landmark judgements of the Hon’ble Apex Court are being analysed, viz.
CIT, U.P vs Kanpur Coal Syndicate, (SC) 53 ITR 229: In the said case, the assessee contended that it should not be assessed to tax as an association of persons, but the proportion of the income in the hands of each of the members of the association might be assessed to tax instead. In the appeal before the Apex Court, the Revenue Authorities, argued that even if the Income-tax Officer has the option to assess to income-tax the association of persons on its total income or the individual members thereof in respect of their proportionate share of the income, if he had exercised the option in one way or other, neither the Appellate Assistant Commissioner in appeal nor the Income- tax Appellate Tribunal in further appeal has power to direct the Income-tax Officer to exercise his discretion in a different way.
However, the Hon’ble Supreme Court, held in the favour of the assessee as under:
“….If an appeal lies, s. 31 of the Act describes the powers of the Appellate Assistant Commissioner in such an appeal. Under s. 31 (3) (a) in disposing of such an appeal the Appellate Assistant Commissioner may, in the, case of an order of assessment, confirm, reduce, enhance or annul the assessment; under cl. (b) thereof he may set aside the assessment and direct the Income-tax Officer to make a fresh assessment. The Appellate Assistant Commissioner has, therefore, plenary powers in disposing of an appeal. The scope of his power is coterminous with that of the Income- tax Officer. He can do what the Income-tax Officer can do and also direct him to do what he has failed to do. If the Income-tax Officer has the option to assess one or other of the entities in the alternative, the Appellate Assistant Commissioner can direct him to do what he should have done in the circumstances of a case.
We, therefore, hold, agreeing with the High Court, that the Appellate Tribunal has jurisdiction to give directions to the appropriate authority to cancel the assessment made or the association of persons and to give appropriate directions to the authority concerned to make a fresh assessment on the members of that association individually. The answer given by the High Court to the question propounded is correct. In the result, the appeal fails and is dismissed with costs. Appeal dismissed.”
Jute Corporation of India Ltd vs CIT and Anr (SC) 187 ITR 688:
In the said judgement, the Hon’ble Supreme Court had observed and held as under:
“The question is whether the Appellate Assistant Commissioner while hearing an appeal under s. 251(1)(a) has jurisdiction to allow the assessee to raise an additional ground in assailing the order of the assessment before it. The Act does not contain any express provision debarring an assessee from raising an additional ground in appeal and there is no provision in the Act placing restriction on the power of the Appellate Authority in entertaining an additional ground in appeal. In the absence of any statutory provision general principle relating to the amplitude of appellate authority’s power being coterminous with that of the initial authority should normally be applicable.”
…….The declaration of law is clear that the power of the Appellate Assistant Commissioner is coterminous with that of the Income Tax Officer, if that he so, there appears to be no reason as to why the appellate authority cannot modify the assessment order on an additional ground even if not raised before the Income Tax Officer. No exception could be taken to this view as the Act does not place any restriction or limitation on the exercise of appellate power. Even otherwise an Appellate Authority while hearing appeal against the order of a subordinate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations if any prescribed by the statutory provisions. In the absence of any statutory provision the Appellate Authority is vested with all the plenary powers which the subordinate authority may have in the matter. There appears to be no good reason and none was placed before us to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income Tax Officer.
CIT vs Shapoorji Palloonji Mistry, 44 ITR 891:
In the said judgement, the Hon’ble Apex Court, while adjudicating the question as to whether in enhancing the assessment for any year, the Appellate Assistant Commissioner, can travel outside the record, that is to say, the return made by the assessee and the assessment order passed by the Income-tax Officer with a view to finding out new sources of income, not disclosed in either, had categorically held that in view of the provisions of sec. 34 and 33B by which escaped income can be brought to tax, the power of the Appellate Assistant Commissioner is limited. He has no power to travel beyond the record to enhance the assessment of any year by discovering new source of income not mentioned in the return of the assessee.
Interestingly, all the landmark Supreme Court Judgements, as mentioned supra, which are very often quoted in support of the view of the CIT(Appeals)’s coextensive and coterminous power with that of the Assessing Officer, had been rendered in favour of the assessee. The principal ratio emerging from all the aforesaid judgements of Hon’ble Supreme Court, that the powers of CIT(Appeals) are plenary and coterminous with that of the Assessing Officer, has been rendered in the context of providing appropriate relief to the assessees, and not to cure the legal or technical defects being committed by the Assessing Officers, in the assessments, so as to provide the Revenue Authorities, with a second opportunity of further strengthening the case of Revenue Authorities, at appellate levels.
In other words, in all the above judgements, the Hon’ble Supreme Court has held that the first appellate authority is vested with the plenary powers which the assessing authority has, in judicious disposal of appeals, and interestingly in all the said judgements, the exercise of such plenary, coterminous and co-extensive powers by the appellate authorities, has resulted in grant of appropriate appellate reliefs to the assessees.
In the judgement of CIT vs Kanpur Coal Syndicate, as mentioned supra, the Hon’ble Supreme Court had observed that the “Appellate Tribunal has jurisdiction to give directions to the appropriate authority to cancel the assessment made or the association of persons and to give appropriate directions to the authority concerned to make a fresh assessment on the members of that association individually.” Therefore, the Hon’ble Apex Court, held in favour of the assessee.
In the judicial pronouncement of Jute Corporation of India Ltd vs CIT, as mentioned supra, the Hon’ble Supreme Court had observed that, “…In the absence of any statutory provision the Appellate Authority is vested with all the plenary powers which the subordinate authority may have in the matter. There appears to be no good reason and none was placed before us to justify curtailment of the power of the Appellate Assistant Commissioner in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the Income Tax Officer.”
In the judgement of CIT vs Shapoorji Palloonji Mistry, as mentioned supra, the Hon’ble Supreme Court had observed that, although the Appellate Assistant Commissioner has the powers to enhance the assessment, but he has no power to travel beyond the record to enhance the assessment of any year by discovering new source of income not mentioned in the return of the assessee.
In the present legislative framework, the assessees, on becoming aggrieved with the additions or disallowances, done by the assessing officer, in the assessments, have been vested with an appellate right to appeal before the jurisdictional appellate authorities viz. CIT(Appeals), ITAT, High Court and the Supreme Court.
The exercise of this appellate right by the assessees, at various levels of appellate authorities especially at the higher levels of appellate authorities, i.e. High Courts and Supreme Court, has resulted in the emergence and establishment of several well-settled principle ratios regarding certain legal propositions in the form of legal and technical grounds, which over a period of time have mustered the test of Law.
So, when a particular legal or technical ground, becomes a Rule of Law, by way of a Supreme Court judgement, or becomes binding in nature, by the majority view of the High Courts, then in respect of such legal issues, the assessees, as a matter of their appellate right, are fully entitled to obtain appropriate appellate reliefs at all appellate levels, including the first appellate level of CIT(Appeals).
In such cases, it will not be justifiable and lawful to deprive the assessees of their appellate right of the availment of the appropriate relief in respect of such well settled and well established legal or technical propositions, even at the first appellate authority level.
However, the captioned CBDT Instruction, surprisingly, is amenable to form the same impression and perception, of putting restrictions and limitations on the independence and discretion of the first appellate authorities i.e. CIT(Appeals), by indirectly dictating them, to rectify or cure the legal or technical defects being committed by the AOs, in the assessments, through exercise of their plenary and coterminous powers, and thus, not to give appellate reliefs to the assessees, on legal and technical grounds.
However, it will be interesting to know that whether all such legal and technical defects, being committed by AOs in assessments, can be cured by the first appellate authorities, through the exercise of their plenary, coterminous and co-extensive powers, as that of the AO, so as to deprive the assessees of their lawful entitlement of appropriate appellate reliefs.
For the sake of better understanding and ready reference, a few instances of such legal and technical defects being committed by AOs in assessments, resulting in entitlement of lawful availment of appellate reliefs by the assessees, are being discussed as under:
(i) Non recording of satisfaction about the failure on the part of the assessee in disclosing fully and truly, all material facts, necessary for assessment, by the AO in case of Reassessment u/s 147 of the Act, beyond a period of four years, renders such reassessment, a nullity in the eyes of Law, as per numerous binding judgements. So, going by the dictum of the captioned CBDT Instruction, if the AO has not recorded his satisfaction in this regards, then could it be recorded by the CIT (Appeals), in the appellate proceedings, through the exercise of his plenary powers, so as to rectify this fatal defect of AO?
(ii) Non recording of satisfaction by the AO of the searched person as well as by the AO of any third person, in respect of whom, proceedings u/s 153C of the Act, have been initiated, that the seized material doesn’t belong to the searched person and it belongs to the third person, also renders the assumption of jurisdiction by the AO of such third person, u/s 153C of the Act, a complete nullity in the eyes of Law. So, could the required satisfaction, be recorded by the CIT (Appeals), in the appellate proceedings, through the exercise of his co-extensive powers with that of the AO powers, so as to rectify this technical defect of AO?
(iii) Non recording of satisfaction by the AO u/s 14A read with Rule 8D: As pronounced in numerous judgements, it has become a well settled and well-established Rule of Law that for making any lawful disallowance u/s 14A, the AO has to record his satisfaction in the assessment order, regarding his disagreement with the assessee’s claim of non-incurring of any expenditure in earning any exempt income. Therefore, going by the idea of the captioned CBDT Instruction, if the AO has not recorded his satisfaction in this regards, then could it be recorded by the CIT (Appeals), in the appellate proceedings, through the exercise of his coterminous powers with that of the AO, so as to rectify this technical defect of AO?
(iv) Non formation of a reasonable belief that any income of the assessee has escaped assessment, by the AO, renders the entire reassessment u/s 147 of the Act, a nullity, so could the required reasonable belief about escapement of income, be formed by the CIT(Appeals), in pursuance of his plenary powers, in the appellate proceedings?
(v) Failure to issue Notice u/s 143(2) of Income Tax Act, within the stipulated time period, by the AO, also vitiates the entire assessment and makes it null & void. So again going by the philosophy of the captioned CBDT Instruction, could it be construed that the CIT(Appeals) can use his plenary and co-extensive powers with that of the AO, to rectify this defect.
(vi) Failure by the AO, to specifically mention the particular reason i.e. either the failure to disclose fully and truly all material facts, or the concealment of particulars, by the assessee, in the Notice u/s 274 of the Act, for the purpose of levy of penalty u/s 271(1)(c) of the Act, results in quashing of the entire penalty proceedings. So could the said fatal defect be rectified by the CIT(Appeals), through the use of his coterminous powers, in the appellate proceedings?
The crucial question in this regards, is, as to whether the plenary, coterminous and co-extensive powers of the CIT(Appeals), with that of the Assessing Authority, are to be exercised in judicious disposal of appeals in order to provide appropriate appellate reliefs to the assessees or these are to be exercised with a mindset of curing the technical and legal defects of the Assessing Authorities, in the assessments, so as to provide second opportunity to the Revenue Authorities, in further strengthening their assessments, with a view to deprive the assessees of their appellate reliefs. In answering this question, one most important parameter concerning the Legislative Intent of providing the assessee with an opportunity of appeal on becoming aggrieved by the assessment done by the assessing authority, needs to be rationally and objectively viewed and it needs to be appreciated that it’s the assessee who has been vested with the appellate right at the First Appellate Authority Level and not the Assessing Authority, notwithstanding that the first appellate authority is fully empowered to enhance the assessment also.
It is interesting to note that in the case of “CIT vs Hardeodas Agarwalla Trust”, 198 ITR 511, the Hon’ble Calcutta High Court, has observed and held as under:
“19….Where an assessee, in compliance with the provisions of the Act, cures the defect in the return by filing the audit report before the completion of the assessment, the Assessing Officer cannot ignore such audit report or the return in completing the assessment. 20. In our view, the result of ignoring such return or the audit report will be denial of exemption to the trust although the income has been spent for charitable or religious purposes. This was not intended by the legislators. If an assessee fails to obtain the audit report in the prescribed form before the assessment is completed, he may not, ordinarily, be entitled to get the benefit of exemption. In this case, however, as we have indicated, the assessee was not given an opportunity to file the audit report in the prescribed form which was available with the assessee before the assessment was completed. In such a case, the appeal being a continuation of the original proceedings, the appellate authority has the power to accept the audit report and direct the Assessing Officer to redo the assessment. The appellate authority has plenary powers in disposing of an appeal and the scope of his power is coterminous and co-extensive with that of the Assessing Officer. He may, therefore, consider and decide any matter arising out of the proceedings in which the order appealed against is passed. He can do what the Assessing Officer can do and direct him to do what he has failed to do. Such powers are, however, subject to the limitation that what an Assessing Officer could not do validly, the first appellate authority also cannot do in appeal.”
In all its fairness, it needs to be mentioned here, that in the captioned CBDT Instruction, a one particular instance of providing the opportunity of cross-examination to the assessee, of the third party on whose statement, an adverse inference is being drawn against the assessee, by the CIT(Appeals), in exercise of his plenary and co-extensive powers, instead of summarily quashing the entire assessment, has been mentioned. However, having said that, it is equally true that the language of the captioned CBDT Instruction, is definitely amenable to be misunderstood and misconstrued, so as to form an impression and a perception, that restrictions and limitations have been imposed, on the independence and discretionary powers of the First Appellate Authority, i.e. CIT(Appeals), and no appellate reliefs on legal and technical grounds, are expected to be granted by the First Appellate Authority, in the appellate proceedings. Therefore, in view of the principle of natural justice, equity and fair-play, the captioned CBDT Instruction, needs to be reviewed and reconsidered in a more rational, pragmatic and lawful manner.