Tax Litigation: Committee of Commissioners of Income tax to examine the tax litigation aspects is a welcome move, however, the term of reference is “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 20% matters which are taken up to High Courts of which 81.85 % of the orders of the Appellate Tribunal are upheld by the High Courts?
The Judiciary and various quasi-judicial forums like Appellate Tribunal is 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 trappings of a Court“. In ITAT v. V. K. Agarwal (1999) 235 ITR 175 (SC) held that interfering with administration of justice of the Income Tax Appellate Tribunal will amount to contempt of Court. In a historic judgement, the then law Secretary was held for contempt. In Khalid Automobiles v. UOI (1995) 4 SCC (Suppl) 652, the Court held that an order of Tribunal is binding on the Assessing Officer and the first Appellate Authority and the failure to follow the same may constitute contempt of Tribunal’s order. Income-tax Act provided remedial action for when the order of the lower authority is not accepted by the party in dispute. In taxation matters the revenue is one of the biggest litigants before the Appellate Tribunal and High Court. In 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 81.85% of the orders of the Appellate Tribunal referred to High Courts are upheld by the High Courts. It is for the first time in 78 years of the history of the Appellate Tribunal that the revenue is making an allegation against the institution that the orders are perverse and their submissions are not recorded. A possible consequence of this could be that the concerned ITAT Member may be reprimanded or a further serious consequence could be that he may be transferred or may be met with some other gross consequence. Such an approach has the potential of creating a fear factor 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 judicial thinking while adjudicating an issue but also affect all future decision making when a particular ITAT Member or his colleagues have met with a negative consequence in their career. With due respect, no litigant can generalize and make an allegation against the institution that the orders are perverse. If the orders are perverse or arguments were not properly recorded, the Income-tax Act provides an appeal as well as rectification of mistakes in respect of the same. We hope that the CBDT will take appropriate remedial measures to withdraw the reference as regards the alleged perverse orders. AIFTP has made representation to CBDT to withdraw the terms of reference in respect of perversity of any order.
Tax consultants and honest payers of this country have a right to know and understand that whatever rightful tax is due to the Government in accordance with the law must be paid and the tax collected must be utilized for welfare of the State and not for frivolous litigation.
AIFTP has suggested from time to time that there has to be a centralized Legal Cell of the revenue to deal with tax litigation. AIFTP has also brought to the notice of the tax administration from time to time requesting them to introduce mechanism in the tax administration to find out whether effect has been given to the order of Supreme Court or High Court. A detailed representation was handed over to the then Chairman of the CBDT.
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 may be published on the website of the department. Department has filed the affidavit stating that they will host the orders, however, till date no progress has been seen. There are instances where the Special Benches orders of the Tribunal were not challenged but orders where the Tribunal has followed the same were challenged. In UOI v. Pirthwi Singh and Others (2018) 16 SCC 363, the honourable Apex Court dismissed the appeal of Union of India by levying a cost of ₹ 1 lakh for filing frivolous litigation, wherein 10 counsels were engaged in one matter where the Court questioned as to when the Government will wake up to its duties and responsibilities to the justice delivery system.
We are of the considered opinion that the following suggestions can be considered for better tax management:-
1. Accountability in tax administration
In most of the cases the additions made are redundant, knowing well that the additions may, in all probability, be deleted by the Appellate Tribunal. The reason being fear of audit and investigation. Secondly, assuming all the additions are deleted, no question is asked to the Assessing Officer who has made such additions. Recently, the revenue has filed an appeal before the Bombay High Court wherein the addition was ₹ 20,13,185/- and tax effect was only ₹ 6,84,280/-. There was a delay in filing the appeal. Notice of motion was taken, the delay was condoned and the matter may then come for admission-hearing after 4 years. The issue involved is estimation of profit where the AO estimated 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 Sales Tax department. One has to debate how much of taxpayers’ money will be spent for contesting the tax in dispute of ₹ 6,84,000/-considering the cost of time and infrastructure. This shows the appeals are filed mechanically. What is the remedy? It is desired 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
AIFTP has made representations from time to time to educate the tax officials to develop the culture of providing a tax service rather than tax collection. One may be surprised to know that this year few tax officials made the assessee pay the advance tax and if any assessee didn’t pay, the department would conduct a survey. Similarly, when the first appeal is pending they can recover only 20% of tax in dispute, however there are instances where 100% tax was recovered. Recently the Hon’ble Bombay High Court in Milestone Real Estate Funds v. ACIT (Bom) (HC), (www.itatonline.org), made the observation as under “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”. Revenue was also directed to pay costs of ₹ 50,000/- to the Petitioner for the unnecessary harassment. Unless Tax Officials develop the culture of tax service, tax terrorism will continue in order to meet the target of collecting tax revenue which is not in the interest of honest tax payers.
3. Training of Departmental Representatives
Role of the departmental representative is to assist the court to decide the correct determination of tax which is due to Government. They have to follow the court ethics. This may be possible when proper training is imparted to such officers. Officers may be well conversant with taxation provisions, however, for effective representation, knowledge of general law is also very important, such as Principle of natural justice, binding precedents, etc. Production of records is very essential in matters where the reassessment proceedings are challenged. In Mumbai, unless the Tribunal directs, the records are not produced, which lead to a number of adjournments. In the process, precious time of the Court is wasted which delays the disposal of matters. In some of the cases, the grounds are not as per Rules, which result in further adjournments. In most of the appeals of the revenue, it is the assessees who file the paper book to assist the Court to decide the matter in accordance with law. If departmental representatives are made aware of the rules, procedure, etc., the representation before Appellate Tribunal will be better, which will help the Tribunal to render quality judgments. One must also acknowledge that some of the departmental representatives too, make effective representations before the Appellate Tribunal and are up-to-date with most case laws.
4. Pendency of tax Appeals before Bombay High Court and Mumbai Tribunal
In Mumbai, appeals pending for admission before the High Court are nearly 5,600 since 2016 onwards and appeals pending for final hearing are nearly 6,000 since 2002. One must acknowledge that the Bombay High Court is making all efforts to reduce the pendency per day where on an average, at least 20 matters are disposed off at the admission stage itself. In a year, total working days for High Court are only 216 days. If only tax matters are taken on all days, it will take at least three years to clear the pendency till March 2019. For final hearing, the High Court may not be able to dispose more than five matters per day where all matters are those having detailed arguments. For disposing 6,000 matters, it may require considerable amount of time. Hence for final hearing, it may take another six years. Therefore, for disposal of appeals already filed and admitted, it will take at least nine years 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 are disposed off. However, having fear of prosecution proceedings being initiated against the assessee, an appeal is filed though the tax in dispute is minimal. There are instances where the assessees have not filed the appeal before Tribunal considering the quantum of tax effect and penalty being small, the revenue has still launched prosecution. Total pendency before the ITAT as on 1-4-2019 is only 92,205 and in Mumbai it is only 14,714, having 11 Benches. (AIFTPJ – April Page No. 55). In most of the stations, the SMC matters are taken up within six months of filing which is a welcome move.
For reducing the pendency of tax appeals before High Court, following suggestions may be considered:
(1) Appointment of judges so that there could be at least two tax Benches in Bombay High Court only to decide the pendency of Direct taxes matters.
(2) Increase the age limit of judges from 62 to 65 years as suggested by the Parliament Committee report.
(3) Elevate the Members of the Appellate Tribunal who are persons of integrity and knowledge so that they can help in the quick disposal of tax matters
(4) More than 70% matters pending before the High Court are of the revenue. The revenue can prepare the list of the cases and issues pending before the High Court and common issues can be taken together
(5) Appeals filed only on facts which do not have recurring nature may be withdrawn.
(6) If common issues are involved in direct taxes across the Country which is affecting large number cases, they can be taken up before Supreme Court out of turn basis, which will help reduce the pendency before various High Courts.
(7) CBDT can prepare the list of cases and issues pending before Supreme Court and various High Courts. Once the Supreme Court decides a particular issue, the matters can be taken out of turn and disposed by 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 number of tax litigation.
(9) 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 at Mumbai or Guwahati in respect of tax appeals for admission.
(10) In most of the cases the appeals are filed where the amount involved is large, with 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. Order of the Appellate Tribunal along with the brief note about the issue involved may be put before him. By reading the order the judge will be able to advise whether it is worth filing an appeal or not. If this process is followed, the revenue will be able to succeed in a number of matters. There are instances when the appeal is decided by Special Bench the appeal is not filed, whereas the order relying on special Benches the appeals are filed
(11) In earlier days, when the tax Bench used to sit, 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. Such a practice is not followed now. Being a senior officer, he could get the instructions from concerned Commissioner whether to withdraw the appeal or contest the matter. This has helped the Court in saving time from unnecessary adjournments.
(12) Suggestions made by various High Courts and appellate Tribunal may be considered and remedial actions may be hosted in the website of the CBDT so that the citizens are made aware that the CBDT is taking remedial measure to have better tax administration.
(13) One of the road blocks for having ease of 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. The way we are functioning today, for getting decisions from the Appellate Tribunal, it will take at least six years after reassessment. Assuming the assessee succeeds, the revenue will take up the matter before 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 SCALE 931. It was a case under the Business Profits Tax Act, 1947. The accounting period was 1946-47. The amount involved was a paltry sum of a few lakhs 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 may be useful for the Government to prepare the vision of tax law and tax administration of our country when we celebrate 75 years of independence in 2022.
For better administration of tax law and tax compliance, the new Ministry may have a meeting with voluntary organizations like AIFTP, the Chamber of consultants, Bombay Chartered Accountant’s, etc. who send representations objectively without any fear or favour, only in the interest of the nation.
There could be number of suggestions which can help reduce the tax litigation and finality in tax matters within reasonable time which may help in ease of doing business in India. An appeal is made to readers to send their objective suggestions for enabling the AIFTP to take up the issues when the new Government is formed with the Ministry of Finance and Ministry of law.
Dr. K Shivaram
Chairman, Editorial Board AIFTP