Dr. K. Shivaram, Sr Advocate, has taken strong exception to the move of the CBDT to set up a committee to examine “perverse orders” of the ITAT. He argues that such a move is not justified given that a bulk of the orders of the ITAT are approved by the Higher Courts. He also argues that this move interferes with judicial independence because it may instill fear in the minds of the ITAT Members that deciding matters against the department may attract adverse action against them. The author has advised the department to set its own house in order first and has offered several practical suggestions in that behalf
Tax litigation – Committee of Commissioners of Income tax to examine aspects of tax litigation is a welcome move, however the term of reference being “To examine the cases where ITAT has passed perverse or irregular orders or where the submission of DRs have not been recorded by ITAT to be appropriately taken up with President, ITAT/Ministry of Law”,is highly opposed by the tax professionals across the country – Can a litigant allege the orders of the Quasi judicial Body to be perverse when 80% of orders of the Appellate Tribunal are accepted by the parties and where 81.85 % of the orders of the Appellate Tribunal are upheld by the High Courts.
The Judiciary and the various quasi-judicial forums like Appellate Tribunal together are one of the pillars of our democracy. In Ajay Gandhi v. B. Singh (2004) 265 ITR 451 (456), the Apex Court held that “The Income-tax Appellate Tribunal exercises judicial functions and has the trapping of a Court“.
In ITAT v. V. K. Agarwal (1999) 235 ITR 175 (SC) the Apex court held that interference with administration of justice of the Income Tax Appellate Tribunal would amount to contempt of Court. In a historic judgement, the then law Secretary was held up for contempt. In UOI v. Kamlakshi Finance Corporation Ltd AIR 1992 SC 711 (712) the honourable Court observed that
“The order of the Appellate Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities.
The mere fact that the order of the appellate authority is not “acceptable” to the department – in itself an objectionable phrase – and is the subject matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. If this healthy rule is not followed, the result will only be undue harassment to assessees and chaos in administration of tax laws.”
In taxation matters the Income tax department is one of the biggest litigants before the various benches of the Appellate Tribunal and various High Courts and Apex Court.
According to India‘s Annual Economic Survey – 2018 Chapter 09 “Ease of Doing Business Next Frontier : Timely Justice”., the Department is the largest litigant which constitute nearly 85% of total number of appeals filed in the case of direct taxes . survey also observed that para 9.23
“What is interesting is that the success rate of the Department at all levels of appeal -Appellate Tribunals ,High Courts and Supreme Court– and for both direct and indirect tax litigation is under 30%.In some cases it is as low as 12%. The Department unambiguously loses 65% of its cases. Over a period of time , the success rate of the Department has only been declining while that of the assesses has been increasing“
The souvenir published on the occasion of the platinum jubilee celebration of the Appellate Tribunal on 24th January 2016 (P. No. 38 Appendix-10), shows that a staggering 81.85% of the orders of the Appellate Tribunal referred to various High Courts are up held by the High Courts.
It is for the first time in the 78 years of the history of Appellate Tribunal that the Income tax department is making an allegation that the orders passed by the Tribunal are perverse and their submissions are not recorded. A possible consequence of this could be that an ITAT Member may be reprimanded or transferred.
Such an approach has the potential of creating an inherent fear in the mind of an ITAT Member when he is of the opinion that a particular issue needs to be decided in favour of the assessee. This would not only affect the Member while adjudicating an issue but also affect all future decision making on the administrative side when a particular ITAT Member or his colleagues have met with a negative consequence in their career.
It is moot that no litigant can be given a ‘carte blanche’ to made a general complaint of perversity against an institution exercising quasi judicial function especially when the said litigant is a party in every proceeding before the said forum. If any orders are found to be perverse or arguments are found not to be properly recorded, the Income-tax Act provides an Appeal procedure as well as a procedure for Rectification of mistakes in respect of the same.
We hope that the CBDT will take appropriate remedial measures to withdraw the blatant accusation towards the integrity of the ITAT. The AIFTP has made a representation to the CBDT to withdraw the terms of reference in respect of perversity of any order of the ITAT.
Tax consultants and honest payers of this country have a right to know and understand that only whatever rightful tax is due to the Govt in accordance with the law is being collected and used for the welfare of the State and not for frivolous litigation.
The AIFTP has suggested from time to time that there should be a centralized Legal Cell of the Income Tax Department to deal with tax litigation. The AIFTP has also brought to the notice of the tax administration and has from time to time requested them to introduce a mechanism to find out whether effect has been given to the orders of Supreme Court or the various High Courts. A detailed representation was handed over by the AIFTP to the then Chairman of the CBDT.
The Bombay High Court in CIT v. TCL Ltd. (2016) 241 Taxman 138 (Bom.)(HC) has passed a detailed order stating that all orders admitted and accepted by the Income Tax Department should be published on the website of the department. The Department has filed the affidavit stating that they will host the orders, the implementation is still lacking. There are instances where the Special Benches orders of the Tribunal have not been challenged but orders where the Tribunal has followed the same have challenged.
In UOI v. Prithwi Singh and others (2018) 16 SCC 363, the Hon’ble Apex Court dismissed the appeal of the Union of India by levying a cost of 1 lakh for filing frivolous litigation, wherein 10 counsels were engaged in one matter. The Hon’ble Court had questioned as to when the Government will wake up to its duties and responsibilities towards the justice delivery system.
We are of the considered opinion that the following suggestions can be implemented for better tax management:-
1. Accountability in tax administration
In many cases the additions made by the Income Tax Authorities are redundant and made with the knowledge that additions may all probabilities be deleted by the Appellate Tribunal. The reasons for passing such orders could possibly be the fear of audit and investigation. Assuming all the additions are deleted, no question is asked to the Assessing Officer who has made such additions about why such additions were made in the first place. Recently the revenue has filed an appeal before the Bombay High Court wherein the addition was only of Rs.20,13,185/- and tax effect was only Rs.6,84,280/-.
Moreover, there was a delay in filing the appeal and when the Notice of motion was taken, the delay was condoned and it is highly possible that the said matter may come for admission-hearing after 4 more years. The issue involved is estimation of profit, where the AO estimated profit at 5%of the turnover whereas the Tribunal restricted the estimate to 3.39% of the total turnover. The only reason for filing the appeal was due to the reason that information was received from the investigation wing of the Sales Tax department. One has to debate how much of taxpayers’ money will be spent for contesting the tax in dispute of Rs.6,84,000/-considering the cost of time and infrastructure. This shows the appeals are filed mechanically without no cost-benefit analysis. It is highly desirable that there has to be an accountability provision as suggested by Dr. Raja Chellia in his committee report which is reported in (1992) 197 ITR 99(St) (112).
2. Culture of tax service.
The AIFTP has made representations from time to time to educate tax officials to develop the culture of providing a‘tax service’ rather than ‘tax collection’. One may be surprised to know that this year (Financial Year 2018-19) a few tax officials have forced certain assesseees pay to pay excess advance tax and if any assessee didn’t pay, the Department would conduct a survey.
Similarly, it is by not well settled that the when the first appeal against the Assessment order is pending, the Department can recover only 20% of the tax in dispute, however there are instances 100% tax was forcibly recovered. Recently the Hon’ble Bombay High Court in Milestone Real Estate Funds v. ACIT (Bom.)(HC),www.itatonline.org made the following observation
“we have to express our dismay at the conduct of the Officers of the Revenue in this matter. We pride ourselves as a State which believes in rule of law.Therefore, the least that is expected of the Officers of the State is to apply the law equally to all and not be over zealous in seeking to collect the revenue ignoring the statutory provisions as well as the binding decisions of this Court”.
The Revenue was also directed to pay costs of Rs. 50,000/- to the Petitioner for the unnecessary harassment.Unless the Tax Officials develop the culture of providing ‘tax service’, tax collection shall manifest itself as tax terrorism to meet the target of collection of tax revenue and shall increasingly alienate the general populace and the honest tax payers.
3. Training of Departmental Representatives:
The role of a departmental representative is to assist the court to correctly determine the tax which is due to Government. The Departmental representatives are officers of the Income tax Department who may be well conversant with taxation provisions, however may fall short on the knowledge of general laws and the various established aspects of principles of natural justice, binding precedents etc. Though it is common knowledge that production of records is very essential in matters where the reassessment proceedings are challenged, in Mumbai it is often observed that unless the Tribunal directs, the assessment records are not produced, which leads to a number of adjournments.
Precious time and resources of the Court as well as the litigants are wasted by the delays the disposal of matters. In some of the cases, it is observed that the ‘Grounds of appeal’ are not as per Rules, which result in further adjournments. In most of the appeals of the Department, it is the Respondents who file the paper book to assist the Court to decide the matter in accordance with law though the primary duty vests with the Department.
If departmental representatives are better trained in the rules and procedure of the Appellate tribunal, the improved representation shall automatically assist the Tribunal in rendering quality judgments. One must also acknowledge that some of the departmental representatives make effective representations before the Appellate Tribunal.
4. Pendency of tax Appeals before Bombay High Court and Mumbai Tribunal.
In Mumbai, appeals pending for admission before the High Court since 2016are nearly 5,600and appeals pending for final hearing are nearly 6,000 since 2002. One must acknowledge that the Bombay High Court is making all possible efforts to reduce the pendency per day where on an average, at least20 matters are disposed off at the admission stage itself after effective hearing. The total working days for High Court in a year are only 216 days. If only tax matters are taken on all days, it will take at least three years to clear the pendency of the Appeals filed until March 2019.
For final hearing, the High Court may not be able to dispose more than five matters per day where all matters require detailed arguments on substantial questions of law. It follows that it may require considerable amount of time for the disposal of 6,000 matters. Therefore, for disposal of appeals already filed and admitted, it can be estimated that at least nine years shall pass if one tax Bench takes up the matters regularly.
No doubt by increasing monetary limit for filing appeals before Appellate Tribunal, High Court and Supreme Court more than 50% of appeals of the revenue have been disposed off.
However, in the case of Assessee appeals, due to the fear of prosecution proceedings being initiated against the Assessee, appeals may be filed even though the tax in dispute is minimal. There are instances where the Assessees have not filed the appeal before Tribunal as the quantum of tax effect and penalty is very small and the revenue has still launched prosecution.
The total pendency before the ITATas on 1-4-2019 is only 92,205 and in Mumbai it is only 14,714, where 11 Benches of the ITAT are constituted. (AIFTPJ April P.53In most of the benches of the ITAT, the SMC matters are taken up within six months of filing which is a welcome move. It is also noteworthy that appeals from the 11 Benches of the ITAT in Mumbai, 2 Benches in Pune and other benches of the ITAT are funneled into a single benches in the Bombay High Court which may or may not be hearing Direct tax matters exclusively, effectively creating a bottleneck which greatly affects the disposal of tax issues in the so called commercial capital of India.
For reducing the pendency of tax appealsbefore High Court, following suggestions may be considered:
(1) Filling up of vacancies as well as appointment of judges so that there could be at least two tax Benches in Bombay High Court only to adjudicate Direct taxes matters.
(2) Increase the retirement age of judges of the High Courts from 62 to 65 years as suggested by the Parliament Committee report.
(3) Elevation of the Judicial Members of the Appellate Tribunal who are known to be persons of integrity and knowledge to the High Courts for effective disposal of cases.
(4) More than 70% matters pending before the High Court are of the Revenue authorities. A list of such cases can be prepared by the Revenue authorities and common issues can be ‘tagged’ together for faster and more effective disposal.
(5) Appeals of the Revenue filed only on peculiar facts which do not have recurring nature may be withdrawn.
(6) If common pressing issues are involved in a large number of direct taxes across the country, they can be ‘referred’ directly to the Supreme Court on a ‘out of turn’ basis, which will help reduce the pendency before various High Courts and lead to positions of law being settled more efficiently.
(7) The CBDT can prepare a list of cases and issues pending before the Hon’ble Supreme Court and various High Courts. Once the Hon’ble Supreme Court decides a particular issue, the matters can be taken out of turn and disposed by the respective High Courts.
(8) It is worth considering that as soon as an appeal is filed before the ITAT, one should be able to identify the nature of litigation and number of matters pending on a particular issue. This may help the legislature to find out the reasons for large quantity of tax litigation.
(9) The AIFTP has made strong recommendation that the E. Benches of the Supreme Court may be linked to various High Courts so that matters can be heard across the Country in respect of tax appeals at least at the admission stage.
(10) In most of the cases it is observed that appeals are filed where the amount involved is large, due to the fear of audit and investigation. It is desired that a Committee may be appointed headed by a Retired Supreme Court or High Court judge who had experience in deciding the tax matters. The order of the Appellate Tribunal along with a brief note about the issue involved may be put before him.
By reading the order the judge may be able to advice whether it is worth filing an appeal or not. If this process is followed the revenue will be able to succeed in a greater number of matters and this shall substantially reduce the wastage of public money on frivolous litigation.
(11) In the earlier days, a senior Official who had experience of arguing before the Appellate Tribunal was deputed to High Court to note down the matters argued before the High Court and co-ordinate before various commissioners when the tax Bench used to sit. This highly desirably practice has however been discontinued and merits reconsideration to avoid duplicity and get prompt instructions for effective disposal. This may help the Court in saving time.
(12) Suggestions made by various High Courts and various benches of the Appellate Tribunal may be considered and remedial actions may be posted on the website of the CBDT so that the citizens are made aware that the CBDT is taking remedial measure to streamline tax administration.
(13) One of the road blocks of the ‘Ease of doing business’ in India is the non-finality in taxation matters. If the Assessing Officer accepts the computation made by the Assessee, the order may be revised u/s 263 and also the order may be reassessed under section 148 of the Income tax Act. The way we are functioning it will take at least six years from today for getting decisions from the Appellate Tribunal and even longer if the Appeals are preferred to the High Courts and the Supreme Court after reassessment. Assuming that the Assessee succeeds, the revenue will take up the matter to the High Court and Supreme Court.
Mr. Palkhivala, an eminent jurist in his article titled “Maddening instability” (www.itatonline.org) stated as under “A telling example of the total absence of a sense of time in our tax administration is afforded by the Supreme Court decision rendered last November in the case of Sutlej Cotton Mills v. CIT(1990) 2 SCALE931. It was a case under the Business Profits Tax Act, 1947. The accounting period was 1946-47. The amount involved was a paltry of afewlakhs of rupees. The High Court’s judgement was rendered in 1965. The Supreme Court sent the matter back to the Income -tax Appellate Tribunal to re-hear the appeal 44 years after the close of the accounting period. Is there any other civilized country where the tax-payer would not know the quantum of his liability for 44 years? “
5. Vision – 2022 tax law and tax administration :-
In the proposed National convention to be held at Mumbai in the month of December 2019 the AIFTP may propose to publish various conceptual and research articles on various issues of tax law and tax administration which promise to be useful for the Government to prepare the vision of tax law and tax administration of our country.
For better administration of tax law and tax compliance, the new Ministry may have a meeting with voluntary organizations like AIFTP, the Chamber of tax consultants, Bombay chartered accountant society etc. who send representations objectively without any fear or favor only in the interest of the nation.
There could be number of suggestions which can help reduce the tax litigation and lead to finality in tax matters within a reasonable timeframe which may help in achieving the vision of ‘Ease of doing business’ in India. An appeal is made to readers to send their objective suggestions which would assist the AIFTP to take up issues with the Government and assist in their resolution.
Chairman Editorial Board AIFTP