The Central Action Plan 2018-19 provides that CsIT(A) will receive incentives if they enhance assessments, strengthen the assessment order and/or levy penalty u/s 271(1)(c). This move has been condemned by leading representatives of Industry and also by top tax professionals.
Y. P. Trivedi, Senior Advocate and past President of Tax Bar Association, was vehement in his criticism of the CBDT. He described the move as a “shocker“.
The learned jurist issued a statement which reads as follows:
“The latest diktat of CBDT to CIT appeals is a shocker. The Supreme Court in no unmistakeable language has directed CBDT not to interfere even in the decision making power of assessing officers, who are quasi-judicial officers.
The hierarchy of Assessments and appeals under the Income Tax Act is very well defined and judicially settled. The CIT appeals previously Appellant Assistant Commissioners were discharging their duties independently without interference from any higher authority.
It is true that quite a few CIT appeals were hesitant to take risk and grant large reliefs but there were some who were bold enough to decide the cases before them regardless of the amount or personality involved.
To give a mandate to them to act in a particular manner is defeating the very basis of justice before the first Appellant authority. Their promotion should not be hampered because of the reliefs given by them or they should not be preferred in promotion because they make huge enhancements. Their orders should be judged by how they are viewed by tribunal or the higher appellant authorities, like High Court and Supreme Court.
If the CBDT wants the CIT appeals to act according to their wishes, then it is better that the provisions of first appellant authority should be deleted and there should be first appeal provided straight to Income Tax Tribunal. In order to remove small and obvious anomalies, the assessing officers may be given larger powers for rectification.
But if the institution of CIT appeals is to be retained, then they should be allowed to act freely and independently without any shackles.”
Arati Vissanji, Advocate, President of Tax Bar Association, was equally critical of the misconceived move.
“While on the one hand the Income Tax Dept. is sought to be projected as a fair tax administrator the recent Instruction issued by the CBDT strikes a discordant note. Performance of appellate officers must be judged not by the enhancements made or assessments strengthened but by the number of their orders that are upheld by the ITAT and the High Court,” she stated.
Ganesh Purohit, Senior Advocate, President of AIFTP, pointed out that the CBDT’s directive may cause perversity in as much as it shifts the role of the CIT(A) from an impartial and just adjudicating authority to that a second authority to conduct assessment.
“A fair and reasonable hearing before a prescribed authority is the cornerstone of any legal / quasi-legal proceeding. It is manifestly clear that the criteria for ‘quality orders’ where either the assessment has been enhanced or strengthened or penalty proceedings have been initiated against the appellants is a marked departure from the role of the CIT(A) as the first appellate authority that is to conduct itself fairly and in an unbiased manner in order to better dispense justice. The said instructions therefore, perhaps inadvertently may cause a perversity in as much as it shifts the role of the CIT(A) from an impartial and just adjudicating authority to that a second authority to conduct assessment. AIFTP has made representations to CBDT to withdraw the instruction given to CIT(A),” he stated.
Dr. K. Shivaram, Senior Advocate, also slammed the move. He warned that taxpayers will have no option but to challenge the misconceived directive of the CBDT by way of a PIL in the High Court.
(i) Editorial by Dr. K. Shivaram in the AIFTP Journal
(ii) Representation by All India Federation of Tax Practitioners
(iii) Representation by the Chamber of Tax Consultants 07/08/2018
(iv) Representation by IMC and other Associations 08/08/2018
(i) Has the CBDT exceeded its jurisdiction by issuing instructions stating that performance of CIT(A), who will be judged on the basis of enhancements made and on issue of penalty notices? The instructions are contrary to the basic principles enshrined within constitution of India.
The Article 265 of the Constitution of India states that “No tax shall be levied (or) collected except by authority of law“. Under the Income-tax Act, the CIT(Appeals) is a quasi-judicial authority. He has the power to do what the assessing Officer failed to do including the power of enhancement. Para 4.Of the Instruction [Letter F.No. DGIT (VIG) /HQ/SI/Appeals/ 2017 -18/9959] dt. 8-3-2018, reads as under:-
“Many technical and legal lapses have also been noticed during vigilance inspections of CIT(A). For instance in some cases, the AOs 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 ormeagre source of income or could not produce bank account details or could not explain the sources of deposits just before advancing loan.
The CIT(A) 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(A) 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 account 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, it has been held by the Hon’ble Apex Court in a number of cases that the scope of power of CIT(A) is coterminous with that of the AO“.
Incentives to CIT(A) for Quality orders: (www.itatonline.org)
CBDT in the Central Action Plan 2018 has sought to offer incentives to CITs(A) for passing “quality” orders. The incentives have been offered where the CIT(A) in appellate proceedings, passes an order where :-
(a) enhancement has been made,
(b) order has been strengthened, in the opinion of the CCIT, or
(c) penalty u/s 271(1) has been levied by the CIT(A)
(ii) The concerned CCIT shall examine any such appellate orders referred by him by the CIT(A), decide whether any of the cases reported, deserves 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.
The above instruction and Central Action plan is directly interfering with independence and unbiased decision making process of the CIT(A), which may be struck down by the Courts. It is to be appreciated that if the AO is not satisfied with the order of CIT(A) appeal can be filed before the Tribunal against the order of CIT(A).
A valid parameter to judge the performance of the CIT(A),is to verify as to how many of his orders are affirmed by the Income Tax Appellate Tribunal. This is the easiest way to measure the performance of the CIT(A). As the order of CIT(A) is not available in public domain, the CBDT may find out through an internal mechanism as to how many orders of the CIT(A) are approved, how many are set aside and how many are reversed.
The Hon’ble Bombay High Court in CIT v. TCL India Holdings (P) Ltd (2016) 241 Taxman 138 (Bom.) (HC) (www.itatonline.org), while dealing with the guidelines made by the CBDT for reducing tax litigation referred the Instruction No 3./2012 dated 11th April 2012 of the CBDT of the CBDT that set out parameters of appraisal of performance of the Counsel for the Department for renewal of appointment. One of the criteria mentioned in the said Instruction is the number of cases won by the counsel for the Income tax department. The Hon’ble High Court observed that “This can never be a measure of competence of an advocate i.e. an officer of court. In fact, the quality of the Advocate would be best judged by his performance and not in the result of the litigation“.
According to us ratio should apply to even the CIT (Appeals) in the discharge of their duty as quasi-judicial authority in as much as their primary function is to uphold the rule of the law in a fair and unbiased manner.
Various business and professional organisations have sent detailed representations to the CBDT requesting them to withdraw the instructions. We hope the CBDT will heed those representations and withdraw them. If the CBDT does not withdraw the said notification, professional organisations may have to knock the door of Judiciary in search of justice.
Tax payers and tax practitioners are both very concerned with the implications of this instruction to the CIT(A) to pass ‘qualitative orders’. Sacrificing the basic yardstick of a free and fair hearing untainted by any ‘incentives’ is a basic human right of all Assessees. For a better manner to assess the performance of CIT(A) the CBDT may consider the following suggestions.
1. Before being posted as a CIT(A), a mandatory posting as a Departmental representative before the Income-tax Appellate Tribunal at least for one year may be considered for all the CITs(A). This will help them in understanding the basic principles of natural justice, the importance of the opportunity of cross examination, violations of Rule 46A etc. For example, there are number of reported cases where one will find that the CIT(A) has enhanced Assessment without the issuance of the mandatory notice for enhancement.
2. Orientation course for new CIT(A): The ITAT conducts a training course for newly appointed Members and a yearly orientation course is also held to update the Members on various points of law and to find out how to perform better. It is desired that a similar training course for CIT(A) may be designed that can be addressed by the Judges of the High Court on basic principles of law.
3. There has to be training imparted to the CIT(A) as to how to write the orders. eg: facts, contention of the AO, submission of Assessee. Case laws relied upon by the AO, case laws relied upon by the Assessee, finding of CIT(A) on each and every point, etc. In some of the orders of CIT(A) it is observed that all the grounds of appeal are not dealt with and many a times they just copy the submissions and render their finding which often does not exceed even one paragraph. Such orders are set aside by the Tribunal on the ground that the order is not a speaking order causing wastage of valuable time and taxpayer’s money.
4. While hearings conducted by the ITAT across the country starts sharp at 10.30AM, there is no time schedule for the CIT(A) hearings. If due to any reason, the CIT(A) is not able to conducted the hearing at the scheduled time, his office should inform the assessee or consultant that the hearing can be rescheduled.
5. In the year 1992, the then Chief Commissioner of Income tax Mumbai on the request of the Chamber of tax Consultants Mumbai and BCAS, had organized a half day interactive meeting with all CIT(A) of Mumbai at Hotel west End. The minutes of the meeting were also circulated and the meeting helped the department as well as assesses to achieve quicker disposal of matters.
It is desired that such meetings may be held with professional organisations every year and the minutes on administrative issues discussed may also be circulated. This will help the CIT(A) to deliver qualitative orders.
Guidance on launching of prosecution proceeding vide Letter dt. 7 March 2018.
In March 2017, the CBDT Chairman had addressed a letter dt. 7 March 2017 to the PCIT’s (www.itatonline.org), in which he had observed that the work relating to the filing of prosecution complaints and disposal of compounding applications “is not up-to the mark”. CBDT Chairman had opined that prosecution proceedings can be successfully initiated in several cases and he had directed the officers to put in their best and expedite filing of prosecution complaints and disposal of compounding applications.
In view of this instruction, several prosecution notices were issued and a number of prosecution cases were launched by PCIT’s and AO’s without considering the “merits” or “making a qualitative analysis of defaults”, just to meet their targets of launching prosecutions.
This has led to a large number of prosecution notices being mechanically issued and prosecution proceedings being launched for the smallest of TDS defaults or additions to income, non-filing of Return of Income or non-payment of taxes on time.
As per a reliable source, the intimation received in response to a RTI query shows that around 1 lakh notices have been issued to show that action had been taken in response to such instruction by the CBDT. Unfortunately, there is a paucity of designated special courts to deal with the prosecution matters launched.
In many cases in Mumbai, the notice for first hearing of the prosecution matters are received only after one year of filing. As per guidelines issued by the CBDT vide notification no.F.No. 285/35/2013 IT(Inv. V), Dt: 23rd Dec, 2014, the assessee cannot approach the concerned authority for compounding of offenses after one year of the launching of prosecution.
In such a situation, the Commissioner cannot accept the compounding application due to no fault of the assessee. In Mumbai, there have been instances where though prosecution has been launched; even charges have not been framed for more than 15 years. One fails to understand as to what the tax administration desires to achieve by indiscriminately launching prosecution?
We hope that the Honourable Finance Minster will interact with the tax professionals to better appreciate the harassment caused to the tax payers.
These various developments have led to an increased fear in the mind of taxpayers, as they are being prosecuted for even small additions without considering the legal position of the claims made by them. Many notices were also issued to non-resident directors of Indian companies or Indian subsidiaries of Non-resident companies. Recently in Kalannithi v. UOI (2018) 256 Taxman 260 (Mad) (HC), the Hon’ble High Court of Madras has quashed the prosecution proceedings launched against a non-executive chairman as he was not in charge of day-to-day affairs of company for the offense related to a default of tax deduction at source committed by the Company.
The Federation has made many representations from time to time stating that prosecution proceedings should not be launched for technical offences and also that prosecution should not be launched till the penalty appeal is decided by the Tribunal, (www.itatonline.org). This message of the Federation finds special relevance given that now the CIT(A) are incentivised to make enhancements, levy penalties and ‘improve upon’ the orders passed by the Assessing officers.
Measures to reduce litigation
We are highly appreciative of the Circular No. 3 of 2018,dt. 11th July 2018 (2018) 405 ITR 29 (St) (www.itatonline.org), of the CBDT – Revision of monetary limits for filing of appeals by the Department before Income-tax Appellate Tribunals, High Courts and SLPs/appeals before the Supreme Court for withdrawal of appeals where the tax effect is less than prescribed limits-Measures for reducing litigation.
The ITAT Mumbai and ITAT Ahmadabad have disposed off a number of matters resulting in a great reduction in litigation. However, the same cannot be said in as far as the withdrawal of appeals pending before the Bombay High Court is concerned.
As per the instruction of the Chief Commissioner, the appeals can be withdrawn only after getting a certificate from the concerned Assessing Officer. Accordingly these matters are adjourned from time to time in the absence of such certificate.
In a number of cases, the records are not available before the Assessing Officer due to change of jurisdiction or the Assessing Officer may not be aware that appeal is pending before the Court.
These matters are adjourned from time to time only for the purpose of getting instructions frustrating the very purpose of the decision to withdraw appeals in low tax effect cases. The precious time of the Court is lost and considering the infrastructure cost and time, the estimated cost to the tax payers can be at least Rs. 50,000.
It is desired that the there should be one nodal officer who can co-ordinate with all the Commissioners, prepare the list of cases which are to be withdrawn and move the Hon’ble High Court to fix all the cases on one day.
In Mumbai, at least 3,500 cases can be withdrawn due to the said notification and the High Court may be then free to pursue the remaining matters instead of giving adjournments due to paucity of instructions to the Departmental Representatives from the Assessing Officers.
The tax Bar of Mumbai is always ready and willing to help the administration if any assistance is desired.
Readers may send objective suggestions to render qualitative orders by CIT(A).
Dr .K Shivaram, Editor-in-chief. Source – All India Federation of Tax Practitioners( 2018) August AIFTPJ
(ii) Representation by All India Federation of Tax Practitioners 14/08/2018
1. You may be aware that the All India Federation of Tax Practitioners (the Federation in short) is perhaps the largest professional body of tax practitioners, advocates and chartered accountants – both of direct and indirect taxes. It was set up 42 years ago in 1976 and has a membership of over 7000 individuals and about 120 Tax Bar Associations in 27 States of India.
It is not at all a lobbyist group and examines the problems of tax administration in a fair and judicious manner and seeks to recommend reasonable and practical solutions. Among other activities, it holds National Tax Conferences at different places in the country every 2-3 months and also publishes a monthly newsletter and a monthly Journal which contains articles on technical aspects of tax laws and periodically include digest of cases reported in practically all the magazines and journals of the country.
2. The members of the Federation are greatly concerned at the Central Action Plan 2018-19 dated 21.07.2018 issued by the Central Board of Direct Taxes (the Board) for the Commissioners of Income-tax (Appeals) (CsIT(A) in short). It fixes the annual target of disposal of each CIT(A) at a minimum 550 appeals or a minimum of 700 units.
In calculating the units, additional credit of two units will be given to the CsIT(A) for passing a quality order which means(a) Enhancing the income assessed by the Tax Officer or (b) Levying a penalty for concealment of income u/s 271(l)(c) of the Income-tax Act, 1961 (the Act).
3. Requiring the CsIT(A), who are judicial officers to hear and decide appeals against the orders of the Tax Officers, to enhance the assessed income or levy penalty for concealment of income is an interference in their judicial discretion and is violative of the explicit legal mandate whereby proviso (b) to section 119(1) of the Act specifically prohibits the Board from issuing any order, instruction or direction which will interfere with the discretion of the CsIT(A) in the exercise of his appellate functions.
Evaluating the performance of the CsIT(A) by allocating the higher units of work for enhancement of income or levy of penalty is a direct and unlawful interference in their judicial discretion.
4. The CsIT(A) will thus cease to be the judicial officers and will lose the public confidence in their integrity and judiciousness.
5. The Federation, therefore, requests Your Honour to require the Board to withdraw the said instructions immediately as they are also contrary to law and not in public interest. In our opinion, the performance of a CIT(A) needs to be judged by the:-
(i) Number of disposal of appeals;
(ii) Orders being well reasoned and
(ii) The quantification of the amount of relief allowed in appeal for ease of giving effect to his order by the Tax Officer.
6. The Federation shall be highly obliged for favourable consideration of our request made above.
(iii) Representation by the Chamber of Tax Consultants 07/08/2018
1. The Chamber of Tax Consultants (CTC), Mumbai was established in 1926. CTC is one of the oldest (92 years) voluntary non-profit making organizations in Mumbai formed with the object of educating and updating its members on Tax and other laws. It has a robust membership strength of about 4000 professionals comprising of Advocates, Chartered Accountants, Company Secretaries and Tax Practitioners.
2. We understand that every year CBDT comes out with a Central Action Plan, the primary purpose of which is to codify the vision and mission of the Income-tax Department for a particular financial year and to highlight all the current priorities in a holistic manner. We also understand that targets and action plans for various internal departments and various departmental authorities are set out in such Central Action Plan.
3. CTC has obtained a copy of Central Action Plan for Financial Year 2018-19. A copy of the said document is also
available on the website https://www.itgoawbunit.org/cfcbdt.php, which we understand is the website of the Income tax Gazetted Officers Association – West Bengal Unit. Further, a mention about the said document is also found in
a news article on the website of Economic Times at
In the said article it has been mentioned that “The Central Action Plan (CAP) for 2018-19 acts as the policy action vision document for the Income Tax Department and is unveiled by the CBDT annually.” Further, reference of the said document is also found in news articles of other reputed newspapers like Business Standard and Financial Express.
4. In the said action plan, we refer to Para (3) of the Action Items dealing with ‘Incentive for quality orders’ under Part A- ‘Target for CIT(Appeals)’ of Chapter III dealing with Litigation Management. The same is reproduced
hereunder for easy perusal:
“(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)(c) 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.”
5. From the above action item, it can be discerned that the Commissioner of Income-tax (Appeals) [CIT(A)] shall be given additional credit of 2 units for each quality order and such quality cases would include cases where enhancement has been made by the CIT(A) or where the order under appeal has been strengthened by the CIT(A).
To put it simply, incentives are proposed to be provided to CIT(A) for either enhancing the assessment or for strengthening the order of lower authority. Further, such incentive is highlighted in bold in the Action Plan.
6. This, in our opinion, amounts to interference in the work of CIT(A), a quasi-judicial authority, which is likely to create prejudice and bias in the approach of such quasi-judicial authority while exercising appellate functions. The same is highlighted in the ensuing paragraphs.
7. Firstly, it would be pertinent to note that Chapter XX-A of the Income-tax Act, 1961 (‘the Act’) deals with the appeals to CIT(A). An assessee can file an appeal against the order of the assessing officer before the CIT (Appeals). Section 251 deals with the power of CIT(A) wherein clause (a) of sub-section (1) of section 251 empowers the CIT(A) to either confirm, reduce, enhance or annul the assessment.
8. The Courts, including the Hon’ble Apex Court, have in many cases held that CIT(A) is a quasi-judicial authority. As late as on 20 July, 2018, the Hon’ble Supreme Court in case of PCIT vs. LG Electronics India Pvt. Ltd. (Civil Appeal No. 6850 of 2018) has held that “administrative Circular will not operate as a fetter on the Commissioner since it is a quasi-judicial authority, we only need to clarify that in all cases like the present, it will be open to the authorities, on the facts of individual cases, to grant deposit orders of a lesser amount than 20%, pending appeal”.
Thus, the Courts have repeatedly recognized the fact that the CIT(A) is a quasi-judicial authority.
9. Also, the Apex Court has time and again dealt with the powers and duties of a quasi-judicial authority and has time and again held that there can be no interference of any superior authority in the judicial work of a quasi-judicial authority. We would like to draw the attention of the Board to some of the important rulings of the Apex Courts as enumerated hereunder and a brief summary of the findings of the Court is given in the Annexure attached to the present application:
a. Sirpur Paper Mill Ltd. vs. Commissioner of Wealth Tax [(1970) 77 ITR 6 (SC)].
b. CIT vs. Simon Carves Ltd. [(1976) 105 ITR 212(SC)]
c. Manek Lal vs. Dr. Prem Chand (1957) SCR 575
d. CIT vs. Greenworld Corporation [(2009) 314 ITR 81 (SC)]
e. R.S. Joshi vs. Ajit Mills Ltd. &Anr. etc. [1977 CTR 0354 (SC)]
10. From the above referred judgments, it can be deduced that the Courts have repeatedly held that the tax authorities have quasi-judicial role and in discharge of such role they must adopt an impartial, objective and unbiased approach. No superior authority can interfere, whether directly or indirectly, in the judicial function of such quasi-judicial authorities.
In fact, the Courts have even held the assessing officers to be a quasi-judicial authorities.
11. Further, even the Act recognizes the same fact. Reference is made to section 119 of the Act which is reproduced hereunder for easy perusal:
“119. (1) The Board may, from time to time, issue such orders, instructions and directions to other income-tax authorities as it may deem fit for the proper administration of this Act, and such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board:
Provided that no such orders, instructions or directions shall be issued—
(a) so as to require any income-tax authority to make a particular assessment or to dispose of a particular case in a particular manner; or
(b) so as to interfere with the discretion of the Commissioner (Appeals) in the exercise of his appellate functions.”
Section 119 empowers CBDT to issue orders, instructions or directions to other IT Authorities for proper administration of the act and such orders, instructions or directions are binding on all. However, the proviso to section 119(1), in no uncertain terms, provides that no such order, instruction or directions shall be issued so as to interfere with the discretion of the CIT(A) in exercise of his appellate function.
Thus, even the Legislature prescribes that the Board cannot interfere in the appellate functions of the CIT(A). The relevant portion of the action plan dealing with CIT(A) as mentioned in para 4 above, stands in the face of the said proviso to section 119(1) and runs the risk of being constitutionally invalid.
12. We perceive that the said portion of the Action plan would certainly prejudice the mind of the CIT(A) while exercising their appellate functions. Our apprehensions are reproduced hereunder:
a. The CIT(A), in order to earn more credit units, instead of adjudicating the appeal before him/ her in a fair and unbiased manner, would be more interested in strengthening the order of the lower authority.
Thus, in such a scenario, the dismissal of appeals of the assessees is a foregone conclusion, as, to strengthen the order of the lower authority, the CIT(A) would have to necessarily dismiss the appeals filed before him. This clearly amounts to interference with the judicial work of the CIT(A).
b. To earn more credit units, CIT(A) would indulge in making fishing and roving enquiries to make enhancement of income. Of course, the power of CIT(A) includes power of enhancement, however, nonetheless the said power has to be exercised in a judicial, fair and unbiased manner.
There has to be a difference between the first appellate proceedings and the assessment proceedings. There would be no end to the assessment proceedings if this power of enhancement is not exercised in a fair and unbiased manner but in a wholesale manner.
13. The CIT(A) have the power to confirm or enhance the assessment. It is their duty to do so even without extra credit points being made available to them. The Action plan however has highlighted in bold about the availability of extra credit units to the CIT(A) in case of quality orders.
Further, such additional credit of 2 units is even more than the basic units available in 5 category of cases out of 7 (please see Table 4 on page 13 of the Action Plan). The fact that the availability of additional credit is highlighted in bold and the quantum of extra credit units also speaks about the motive or intention of the Action Plan.
14. It is known that the CIT(A) fall directly within the jurisdiction of Chief Commissioner of Income-tax (CCIT). The CCIT is responsible for evaluating the performance of the CIT(A). This itself make the institution of CIT(A) prone to bias and prejudice and this itself make the institution of CIT(A) stand at the peril of being termed ‘not independent’.
However, it is expected that the CCIT do not interfere in the judicial work of the CIT(A). It is important to note that CIT(A) are sitting in chair of a judge to adjudicate the dispute between the assessee and the Income-tax Department.
The CIT(A) itself are a part of such Income-tax Department, however, while exercising the role of CIT(A) they must put behind their affiliation with the Department and adopt a judicious approach. It is expected that CIT(A), though a part of the Income-tax Department, do not adopt a revenue friendly approach with the motive of exaction of maximum revenue, on the contrary they must conduct themselves in a quasi-judicial and independent manner without bias, prejudice.
15. We recognize that the CCIT may wish to evaluate the performance of the CIT(A) for administrative reasons – however the parameters for evaluation should not be based on number of cases where the appeals of the assessee are dismissed or number of cases where the order of the lower authorities has been strengthened or number of cases where enhancement has been made.
This will be unfair to the taxpayers who are statutorily bound to approach the CIT(A) for redressal of their grievances, being the first appellate authority.
16. In light of the above discussion, we request your learned self to kindly drop with immediate effect Para (3) of the ‘Action Items’ dealing with ‘Incentive for quality orders’ under Part A- ‘Targets for CIT(Appeals)’ of Chapter III dealing with Litigation Management of the Central Action Plan 2018-19.
We request your learned self to kindly consider the above issue on a priority basis. We look forward to your kind intervention and taking up our request for kind consideration.
For The Chamber of Tax Consultants
(iv) Representation by IMC and other Associations 08/08/2018
Clarifications/ Initiatives of Government for “Taxpayer friendly atmosphere”:
The Central Board of Direct Taxes (‘CBDT’) has time and again been issuing directions to the tax authorities to make the functioning of the tax authorities “non-adversarial” and “tax-payer friendly”, which has been the motto of the current Government. The said directions act as guidance to the tax authorities for smooth functioning and create confidence among the tax payers. All such actions of the CBDT have been appreciated by the Industry and stakeholders.
Suggestions invited by CBDT for simplification/ clarifications:
Similarly, CBDT has been inviting suggestions from stakeholders for simplification of tax laws, smoothening of return processing, issue of refunds, timely disposal of appeals etc., to which several organisations have been regularly providing their thoughts and suggestions to the CBDT.
CBDT circular regarding Central Action plan for appeals before CIT(A):
Recently, CBDT has issued a Central Action Plan 2018-19 wherein, in order to reduce the huge pendency before the Commissioner of Income-tax (Appeals) (‘CIT(A)’), CBDT has assigned specific targets for disposal of appeals to CIT(A)s.
The said direction of CBDT is highly appreciated, as this step of having specific disposal targets for CIT(A)s will facilitate reduction of pending litigation at the stage of first appellate authority.
Certain instructions contrary to government initiatives:
However, it has been observed that some of the directions/guidance issued by the CBDT to the tax authorities have been completely contrary to the steps taken in the recent past and the promises made by the Government of providing a “non-adversarial regime” to the Industry and stakeholders. Some of the examples are as under:
• CBDT Instruction dated 8th March 2018 – PCIT/ CCIT directed to monitor functioning of CIT(A)s under their jurisdiction;
• CBDT letter dated 7th March 2018 regarding initiation of prosecution proceedings; and
• CBDT Central Action Plan 2018-19
Monitoring of functioning of CIT(A):
CBDT had issued Instructions dated 8th March 2018 to the Principal Chief Commissioner of Income-tax (‘Pr.CCIT’)/ Chief Commissioner of Income-tax (‘CCIT’), wherein they were required to conduct regular inspection of working of CIT(A)s under them and keep watch on quality and quantity of orders issued by them.
Several representations were made by Industry and stakeholders before your Honour and before the CBDT chairman, since this instruction was likely to interfere with the independent functioning of CIT(A) which is a quasi-judicial authority constituted under the Act (representation made by IMC dated 16th April 2018 is enclosed for your reference by way of an example).
After, strong representations made by the Industry and Stakeholders, we felt that said instruction dated 8th March 2018, would be withdrawn by the CBDT.
However, in the recently issued Central Action Plan, the CBDT has again reiterated that Pr.CCIT/ CCITs have been assigned responsibilities to monitor and ensure that the CIT(A)s and AOs discharge their duties in the manner envisaged by the CBDT.
Incentives to CIT(A) for Quality orders:
Further, in the Central Action Plan, the CBDT has offered incentives to CIT(A)s for passing “quality”orders. The incentives have been offered where the CIT(A) :
i). enhances the assessment made by the Assessing officer (‘AO’) or
ii). strengthens the stand of the AO on the issues in appeals or
iii). levies penalty u/s 271(1)(c) of the Income-tax Act, 1961 (‘Act’) on the additions confirmed in theCIT(A) order.
Hence, by this action of CBDT under the Central Action Plan, CIT(A)s are incentivised to decide matters against tax payers.
This completely erodes their impartiality and independence, and creates a bias in favour of the tax department in a quasi-judicial proceeding. Industry and stakeholders envisage that the functioning of CIT(A) as an independent judicial authority will be severely affected.
Hence, we would like to draw your attention to the following:
Monitoring of CIT(A) functioning by Pr.CCIT/ CCIT
1. CIT(A) is a quasi-judicial authority. It functions independently from the tax administration authorities. Accordingly, on account of the directive given in the Central Action Plan and earlier CBDT direction dated 8th March 2018 to the effect that the Pr.CCIT/ CCITs will monitor the functioning of CIT(A)s, there is a strong apprehension that monitoring of CIT(A)s’ orders by Pr.CCIT/CCIT having administrative functions as well, will severely impact the judicial decisions making by the CIT(A) as their decision making would get influenced by the fear that their orders would attract attention of CCITs if taxpayer is given relief.
This, in our opinion, is against the principles of judicial independence. The very purpose of the first appellate authority, being an independent judicial functionary, would be defeated if the qualitative aspects of the decision is monitored/ influenced by any senior officer of the Department.
2. It is important to note that monitoring of “qualitative” aspect of the CIT(A) orders are not even within the jurisdiction of Comptroller and Auditor General (‘CAG’) during the annual audit proceedings. CAG only monitors the quantitative aspect of the CIT(A)’s functioning and whether it has been effectively monitored by the CCIT in charge.
3. A few years ago, the then CCIT 1, Mumbai, had issued similar instructions that CCIT should monitor orders passed by CIT(A)s and this was later withdrawn after strong protests made to the CBDT by professionals and industrial organisations. We also believe that on strong representation made by professionals and industrial organisations against CBDT Instruction dated 8th March, 2018, the same was withdrawn. However, instead of that the Central Action Plan has made the intentions of the CBDT very clear.
Accordingly, it is apprehended that bringing in Pr.CCIT and CCIT to monitor qualitative aspects of CIT(A) order is likely to encroach the independent functioning of CIT(A) as a judicial authority and hence, such directions issued by CBDT should be withdrawn immediately.
Incentives provided to CIT(A)s under Central Action Plan for enhancement of assessment and initiating penalty proceedings
4. The incentives for passing “Quality” order being offered to CIT(A) based on enhancement criteria and imposition of penalty is likely to affect the judicial decision making process of CIT(A). In this scenario, a CIT(A) is bound to act as quasi-revenue authority and more likely than not, function as a “Revisionary Authority” (like Commissioner of Income-tax in exercise of power under section 263 of the Act) and not like an independent appellate authority.
5. It is to be noted that under the Act, the CIT(A) has no power to look for new source of income, i.e. he can enhance the assessment only on the issues which are subject matter of AO’s order. The said position has been affirmed by various courts in several decisions:
• Shapoorji Pallonji Mistry (1962) 44 ITR 891 (SC),
• CIT v. Rai Bahadur HardutroyMotilalChamaria (1967) 66 ITR 443 (SC)
• Sterling Construction & Trading Co  99 ITR 236 (Kar)
• CIT v. Associated Garments Makers (1992) 197 ITR 350 (Raj),
• CIT v. Sardari Lal & Co (2001) 251 ITR 864 (Del) (FB), and
• CIT v. B. P. Sherafudin (2017) 399 ITR 524 (Ker).
Accordingly, this action plan virtually makes the CIT(A) travel beyond the role/ responsibility of CIT(A) enshrined in the Act and this is likely to impact the judicious functioning of CIT(A).
6. The number of appeals being filed with the CIT(A)s in high demand cases and transfer pricing matters were reduced on account of introduction of Dispute Resolution Panel (‘DRP’) by Finance Act, 2009.
Many taxpayers used to opt for DRP route as it was a time bound dispute resolution mechanism and fast track route for appeals to ITAT. The DRP orders were not appealable by department from 1st April, 2009 to 1st July, 2012. Consequently, DRP virtually functioned as an approving authority.
However, once the DRP orders were made appealable by the Department, the DRP started functioning as a judicious authority during the period of 1st July, 2012 to 1st June, 2016. With the amendment made by Finance Act, 2016 whereby the powers of department to appeal against the order passed by DRP have been withdrawn, DRP has once again become an approving authority or enhancement authority and also acting for improving the draft orders passed by the AO.
On account of this, several taxpayers having huge tax demand have preferred to file an appeal before CIT(A) instead of approaching the DRP. This has been the case because the CBDT had issued directions to AOs for granting of stay of demand on collecting 15%/20% of the demand when appeal is pending before the first appellate authority i.e. CIT(A).
This approach was adopted by taxpayers since it has been observed that more often than not, CIT(A) has been a judicious authority and was likely to follow orders passed by Tribunal/High Courts, unlike the DRP, on account of which taxpayer would get necessary relief.
7. Thus, on account of this directive by the CBDT of offering incentive based on enhancement done to AO order or initiation of penalty proceeding, it is likely that the CIT(A) will also become an extension of Assessing officer, similar to the DRP. Taxpayers will then have no confidence at all in the judicial process, as this will in effect make the entire First Appellate Authority an ineffective forum. The taxpayer would therefore be left high and dry and have no recourse to get justice.
Hence, it is strongly suggested that the said Action Plan should be withdrawn/ modified and the incentives to the CIT(A) may be linked to number of cases disposed off, quality of the orders based on how many orders have been sustained at Tribunal and High Court, rather than the enhancement criterion laid down in the Action Plan.
Non-taxpayer friendly steps/ Action – experience of last 1 year:
Guidance on launching of prosecution proceeding vide letter dated 7th March, 2018
8. The CBDT Chairman had addressed a letter dated 7th March, 2018 to the PCITs in which he had observed that the work relating to the filing of prosecution complaints and disposal of compounding applications “is not up-to the mark”.
CBDT Chairman had opined that prosecution proceedings can be successfully initiated in several cases and he had directed the officers to put in their best and expedite filing of prosecution complaints and disposal of compounding applications.
These type of directions by the CBDT are likely to create distrust among the taxpayers. We understand that in view of this instruction, several prosecution notices were issued and a large number of prosecution cases were launched by PCITs and AOs without considering the “merits” or “making qualitative analysis of defaults”, just to meet their “targets” of prosecution.
This has led to a large number of prosecution notices being mechanically issued and prosecution proceedings being launched for the smallest of TDS defaults or additions to income or non-filing of return of income or non-payment of taxes on time.
Intimation received in response to an RTI query shows that around 1 lakh notices have been issued to show action taken in response to such instruction by the CBDT. This has led to fear in the minds of taxpayers as they are being prosecuted for smallest of the additions without considering the legal position of the claims made by them.
Many notices were also issued to non-resident directors of Indian subsidiaries of foreign companies. This high handed approach has also led to fear amongst foreign investors coming into India.
Revision and Recovery proceedings
9. Also, there are several instances wherein the CITs have issued revision notices under section 263 in the garb of “Erroneous Order” passed by the lower authorities. Statistics show that a majority of such notices have been issued as a direct fall out of queries raised by the audit team.
It is a well known fact that more than 75% to 80% of these orders have ultimately been quashed by the Tribunals. Such actions of CITs have already created lot of distrust of the tax department in the minds of taxpayers.
10. Also it is to be noted that the tax authorities have been regularly causing havoc by coercive recovery measures taken every year during the period from October to March to achieve revenue targets set for their respective charges. It is seen that on several occasions, High Courts have come to the rescue of the taxpayer and have taken action against the tax authorities.
Request to keep larger interest of the country in mind by avoiding frivolous litigation or creating fear psychosis:
In view of the above, it is shocking that when, on the one hand, the Hon’ble Prime Minister and Hon’ble Finance Minister talk of a tax payer friendly and non-adversarial tax regime, the CBDT on the other hand, issues directions which are completely contrary to the vision of present government.
It is imperative that necessary directives be issued to the CBDT by the Ministry that no steps be taken by CBDT whereby the actions cause harm to taxpayers and the promise of non-adversarial tax regime is broken.
We humbly request your Honour to resolve the above issues at the earliest in order to avoid unnecessary hardship being caused to the taxpayers.
IMC Chamber of Commerce and Industry
Bombay Chartered Accountants’ Society
Chartered Accountants Association Ahmedabad
Chartered Accountants Association Surat
Karnataka State Chartered Accountants’ Association
Lucknow Chartered Accountants’ Society
The audacity of the FM / PM reflected by the pampered CBDT chief are clear indication of destroying the existence of law and justice. It is the time for the nation to rise the voices.
the CBDT chief does not care even the Supreme Court decisions which were a;so negatived by review peititon orders by citing a small observation made by Delhi High Court. “Jaisa raja waisi adhikari” is clearly exhibited by the bhrityugan.
W.P.(C) No.11225 of 2018, filed by AIFTP challenging legality and validity of para 3 of Part-A of Chapter-III of Central Action Plan 2018-19 issued by CBDT allowing extra credit points to CITs(Appeal) for passing quality orders enhancing the assessment, strengthening the assessment and levying the penalty in the appellate order, is heard by Hon’ble Delhi High Court today on 16th Nov., 2018. Hon’ble Court was pleased to issue notice to the Department directing to file the reply within 04 weeks. Matter is adjourned to 11th March, 2019. Matter was represented by Mrs. Prem Lata Bansal, Senior Advocate assisted by Mr. V. P. Gupta and Mr. S. R. Wadhwa, Advocates.
POST OF THE CIT (A) SHOULD ABOLISHED AND THE CASES SHOULD BE HEARD BY THE JUDICIAL OFFICERS(JUDGES) OF DISTRICT COURT
Date : 28th August, 2018
Shri. Arun Jaitley,
Union Minister of Finance & Corporate Affairs,
North Block, New Delhi
Dear Shri. Arunji,
I am happy to hear that you have started attending work at North Block and I am sure that your upcoming budget will speak for itself.
In the mean time, I am sorry to bother you about an internal circular issued by the Chairman of Central Board of Direct Taxes (hereinafter “CBDT”) on “Target for Commissioner of Income Tax (Appeals) [hereinafter “CIT(A)”], Chapter III: Litigation Management of CBDT Central Action Plan 2017-18” (hereinafter “Action Plan”) which has been brought to my notice. It is not incorrect or illegal to judge the quality of work of CIT(A) but the reference of the appellate orders of the CIT(A) may amount to interference of judicial work which may be avoided, since the Action Plan refers to the enhancement of the assessment and/or amounts to enhancement of penalties under section 271(1)(c) of the Income Tax Act, 1961 or otherwise. I feel such review may amount to interference of judicial work of CIT(A) and reference should be avoided as far as orders of CIT(A) are concerned. I feel the Chairman of the Board shall modify such said part of the Action Plan.
I hope you will look into the said matter and oblige.
Senior Advocate and Member of SEBI & former member of National Executive Committee of BJP.
The instructions are biased and unacceptable. If the same are not amended it may result in gross injustice.
It appears that the CBDDT is proposing to use the “stick and carrot” policy against its own officers in the sense that if they strengthen the stipulated orders they would be given carrots and if not threatening to face disciplinary proceedings.
Is it correct policy?
It seems that the CBDT is proposing to use the “stick and carrot” policy for Cs.IT (Appeals). In common parlance it is used to tax payers for having stick if they violate rules and carrot if they follow rules scrupulously.
But, the CBDT is proposing to use this policy against its own officers that if they do not strengthen the stipulated orders lest they had to face disciplinary action.
What type of administration is this?
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.
Is the CBDT so confident of justice being meted out by its Officers of all ranks and CIT Appeals, then let them be brave enough to introduce ACCOUNTABILITY for all officers including CIT Appeal for all orders and actions done by them. They could then be sued by assessee’s for harassment and wrong orders