It is widely acknowledged fact that fairly large number of tax assessors / collectors make hanky panky unsustainable uncalled for additions; do not allow deductions, allowances, rebates and reliefs and at their ipse dexit make high pitched assessment, raising substantial paper demand, causing unrest and harassment to the taxpayer. The taxpayer has no option but to prefer an appeal before the First Appellate Authority on payment of fees to the exchequer and the Advocate / Chartered Accountant. Unsustainable, unjust, unlawful tax demand is not kept in abeyance up to 15% and one has to pay minimum 15% out of hard earned money, affecting normal business.
The First Appellate Authority, being senior assessing officer with wide and varied power to confirm, reduce, enhance or annul the assessment and to pass such orders as he thinks fit.
The competence of the Commissioner (Appeals) ranges over the whole assessment and it is open to him to correct the Assessing Officer not only with regard to a matter raised by the assessee but also with regard to a matter which has been considered by the Assessing Officer and determined in the course of the assessment. It is also well-established that an assessee having once filed an appeal cannot withdraw it. In other words, the assessee having filed an appeal and brought the machinery of the Act into working cannot prevent the Commissioner(Appeals) from ascertaining and settling the real sum to be assessed, by intimation of his withdrawal of the appeal. Even if the assessee refuses to appear at the hearing, the Commissioner(Appeals) can proceed with the enquiry and if he finds that there has been an under-assessment, he can enhance the assessment : CIT v. Raj Bahadur Hardutroy Motilal Chamaria (1967) 66-ITR-443(S.C.)”. Amounts relating to new sources of income of items not considered by the Assessing Officer from the point of view of their assessability can be added by the Commissioner (Appeals) in appeal before him: CIT v. Nirbheram Deliram (1997) 224-ITR-610(S.C.)”. The power of the Commissioner(Appeals) under sub-section (1)(b) includes the power even to enhance the penalty subject to the requirement of sub-section (2) of a reasonable opportunity of showing cause against such enhancement being given to the appellant-assessee : CIT v. Assam Travels Shopping Service (1993) 1999-ITR-1 (SC). Thus sword of enhancement hangs on the taxpayer. In less than 50% of cases appeal is allowed and in such cases too danger of second appeal by the Department subsists. The moment tax involved is more than the specified limit, appeal is filed by the department in a mechanical manner and as a routine exercise. The concerned authorities prefer to try before the Income Tax Appellate Tribunal under the suspicions atmosphere. On dismissal of appeal, rigorous efforts are made to recover and some times to freeze the bank accounts and jeopardise / disrupt smooth running of business. No power vests with the first appellate authority to award cost on allowing of appeal.
Adversary proceedings commence before the Tribunal, where the taxpayer as well as the tax department have right, power and competence to challenge findings of the first appellate authority. The tax payer is dragged to prefer second appeal as well as to face appeal preferred by the tax department. Here to the taxpayer has to pay tribunal fee as specified u/s. 253(6) of the Income-tax Act up to ₹ 10,000/-, whereas the department need not pay any fee. Even for stay of demand or for rectification prescribed fee has to be deposited by a tax payer. The taxpayer has to pay representation fee to the authorised representative, whereas the representation by the department is entrusted to the tax officials, cost whereof is minimal, with no stakes. Hardly 10% of departmental appeals are allowed, whereas more than 75% of assessee’s appeal are allowed. Though there are instructions and guidelines, still without application of mind, indiscriminate appeals are filed before the Hon’ble High Courts by the department, moment tax involved is above the specified limit. More than 90% of departmental appeals are either not admitted or are dismissed.
Such being tax litigation scenario on large number of representations and directions of Commission, section 254(2B) was inserted by Finance Act, 1999 w.e.f. 1-6-1999, which provides: ‘The cost of any appeal to the Appellate Tribunal shall be at the discretion of that Tribunal”. Statistics show that over 19 years, in negligible few cases cost commensurate with the expenditure, damages, compensation has been awarded by the Tribunal. Even if specific ground is raised and forcefully argued, discretion is not judiciously and judicially exercised. Even High Courts are slow in awarding cost/exemplary costs.
Costs of tax litigation nowadays form a substantial part of the stake involved therein. Sometimes they exceed even the tax and interest of which the subject matter is in dispute, as once an addition / disallowance there would be repetitive similar addition / disallowance in all subsequent assessments, till it is finally decided by the Hon’ble High Court. That apart penalty notice is invariably issued. Penalty is levied, requiring additional appeal, payment and litigation, till set at rest over 15 years. Unfortunately this is the most neglected part of tax adjudication. There lay several judgments / orders running into several pages and deciding many points, finding covered by the binding precedents, saying only two words “No costs” or “Costs made easy” not “Cost to follow the result”. Even when awarded they are assessed much lower than actually incurred, rather peanuts. It is not paid automatically by the department. If at all realised, without any interest and with revengeful attitude, which a taxpayer cannot afford. In reality, they provide a very poor compensation to the successful distressed / harassed taxpayer for the financial injury and waste of precious time for vindication of his claim or defence. It is farce.
Of course, law confers discretion on the Tribunal / Courts, but it cannot be exercised arbitrarily. As stated in Halsbury’s Laws of England, (para 15, Vol. 10, 4th Edn. (Reissue)
“This discretion must be exercised judicially; it must not be exercised arbitrarily but in accordance with reason and justice”. Decision in this regard must be based on reasons expressed in the judgment indicating that the enormous practical consequences resulting from such exercise have been considered. Section 35 of Civil Procedure Code provides for costs.
The mandate of sub-section (2) of Section 35 of the Code that where the Court directs that any costs shall not follow the event, the Court shall state its reasons in writing is seldom followed in practice by courts. Many courts either do not make any order as to costs or direct the parties to bear their respective costs without assigning or recording the reasons for giving such exemption from costs. Unless the Courts develop the practice of awarding costs in accordance with Section 35 (that is, costs following the event) and also give reasons where costs are not awarded, the object of the provision for costs would be defeated.
In Sahara Group case Hon’ble Mr. Justice Jagdish Singh Khehar, later Chief Justice of India observed : “The Indian judicial system is grossly afflicted, with frivolous litigation. Ways and means need to be evolved, to deter litigants from their compulsive obsession, towards senseless and ill-considered claims. One needs to keep in mind, that in the process of litigation, there is an innocent sufferer on the other side, of every irresponsible and senseless claim. He suffers long drawn anxious periods of nervousness and restlessness, whilst the litigation is pending, without any fault on his part. He pays for the litigation, from out of his savings (or out of his borrowings), worrying that the other side may trick him into defeat, for no fault of his. He spends invaluable time briefing counsel and preparing them for his claim. Time which he should have spent at work, or with his family, is lost, for no fault of his. Should a litigant not be compensated for, what he has lost, for no fault ? The suggestion to the legislature is, that a litigant who has succeeded, must be compensated by the one, who has lost. The suggestion to the legislature is to formulate a mechanism, that anyone who initiates and continues a litigation senselessly, pays for the same. It is suggested that the legislature should consider the introduction of a “Code of Compulsory Costs”.
The Hon’ble Judge also observed : “This abuse of the judicial process is not limited to any particular class of litigants. The State and its agencies litigate endlessly up to the highest Court, just because of the lack of responsibility, to take decisions. So much so, that we have started to entertain the impression, that all administrative and executive decision making, are being left to Courts, just for that reason. In private litigation as well, the concerned litigant would continue to approach the higher Court, despite the fact that he had lost in every Court hitherto before. The effort is not to discourage a litigant, in whose perception, his cause is fair and legitimate. The effort is only to introduce consequences, if the litigant’s perception was incorrect, and if his cause is found to be, not fair and legitimate, he must pay for the same. In the present setting of the adjudicatory process, a litigant, no matter how irresponsible he is, suffers no consequences. Every litigant, therefore likes to take a chance, even when counsel’s advise is otherwise.
Recently the Apex Court has dismissed a PIL Writ Petition filed by Rajiv Daiya and imposed costs ₹ 25 lakh. On 24-8-2017, the Apex Court (Kehar, C.J. and Chandrachud, J.) dismissed a Writ Petition challenging appointment of Deepak Mishra, J. and CJI imposing costs ₹ 10 lakh upon each one of the two petitioners holding it to be publicity oriented. On 26-8-2017, a PIL. Petition raising the same challenge by National Lawyers Campaign was dismissed by the Apex Court (Sikri and Chandrachud, JJ) in default with the same observation of being publicity oriented but with no order as to costs. Here again there are no settled principles or guidelines for imposition or calculation of such costs and the judicial discretion varied from case to case like Chancellor’s foot in equity jurisdiction. But strange enough, in CIT v. Deutosche Software Ltd. (2017) 399-ITR-570 (SC) expunged the observations and deleted cost of ₹ 1 lakh for making the assessee contest the case in three forums and wasting the taxpayer’s money.
It is also being noticed that without jurisdiction or on lack of jurisdiction action u/ss 147/148 for re-opening of assessment is taken and on challenge writ is allowed and notice is quashed or/and assessment annulled; but no order as to costs. Pathetic situation is when concluded assessment after scrutiny is revised by the Commissioner under garb of power conferred under section 263 of the Income-tax Act. Legitimate deduction, allowance, relief, rebate, refund not claimed in the return on account of ignorance and tax paid and assessed, but revision filed u/s. 264 of the I.T. Act is dismissed and tax is retained in contravention of Article 265 of the Constitution and Circular No. 14 (XI-15) of 1955 dated 11-4-1955 of the Central Board of Direct Taxes. On successful challenge, directions are given, but without awarding cost, much less exemplary cost. There cannot be any estoppel against the statute. Article 265 of the Constitution of India in unmistakable terms provides that no tax shall be levied or collected except by authority of law.
Nirmala Mehta v. A Balasubramaniam, CIT (2004) 269-ITR-1 (Bom.).
The authorities under the Income-tax Act, 1961 are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If an assessee, under a mistake, misconception or on not being properly instructed, is over-assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes, due are collected. Once an assessee is in a position to show that he has been over-assessed under the provisions of the Act, regardless of whether the over-assessment is as a result of the assessee’s own mistake or otherwise, the Commissioner has the power rather duty to correct such an assessment under section 264(1) of the Income-tax Act, 1961. If the Commissioner refuses to give relief to the assessee, he would be acting de hors the powers under the Act. The tax authorities should not raise technical pleas if the citizens have a lawful right and the lawful right is being denied to them merely on technical grounds. The tax authorities cannot adopt the attitude which private litigants might adopt. In S.R. Koshti v. CIT (2005) 276-ITR-165 at 175 (Gujarat). the Court boldly directed :
“The respondent shall pay the costs quantified at ₹ 5,000/-. The Revenue shall, in the first instance, pay the costs along with the refund to the petitioner, and recover the same from the respondent – Commissioner, who shall bear the same out of pocket”.
There lay an unnoticed classic judgment in Chiranji Lal Tak v. Union of India (2001) 252-ITR-333 at 335 (Raj.) where the Hon’ble Court observed:
“Litigation is not a luxury and/or amusement or entertainment. It is not pleasure or pleasant to come to the courts. Only when the Union or a State or its officers make it unavoidable, the litigants come up before the court for redressal of their grievances or for enforcement of their legal or fundamental rights. The litigation is heavily cost and in the matter of awarding the cost, the court should have to keep in mind this aspect in such matters. It is no use or desirable that on success of the litigant he has been given only the token cost or the cost for the sake of the cost of the litigation. The litigants spend huge amount in filing litigations. Under the Advocates Act or any other State or Central enactment, the scale of the fees to be charged by advocates to different categories of cases are not fixed. In a matter where the litigant has to file a litigation in the highest court of the State, it is not undesirable or unreasonable on his part to engage the services of a competent advocate. He cannot be asked to engage any advocate. In the matter of engagement of advocate his confidence in him is important. He has all the rights to elect his advocate. On the other hand, the advocate on his being approached by the litigant is free to charge his fees from the litigant to provide him his professional services in the matter. In the matter of settlement of the fees to be charged by an advocate seldom there may be any question of bargaining”. The erring Income Tax Officer held by the court to pay the cost of ₹ 11,000/- to the petitioner. Very recently a Division Bench of Rajasthan High Court in GVK Jaipur – Kishangarh Express way Ltd. v. Addl. CIT in DBITA No. 622/2009 on 16-11-2017 observed;” The Officer not only acted arbitrarily but has exceeded its jurisdiction and which has put an agony on assessee’s account were daily turnover or toll is required to be operated through bank therefore, the agony which has been made on 6th February ,2009 and narrated in issue No. 5 of the written submission which we have reproduced with a view to show agony which has been suffered and the conduct of the officer in spite of the High Court interference he has acted arbitrarily. In that view of the matter, the issues Nos. 7 & 8 are required to be viewed very seriously and the Tribunal ought to have granted cost under 254(2)(b). The Hon’ble Court held:” Looking to the fact that the cost could have been awarded corresponding to the tax paid by the assessee which in turn comes in lakh of rupees but we do not want to put the department to heavy loss but at the same time, we want to put check on the officers not to act arbitrarily, therefore, we impose a cost of ₹ 11,000/-.
On analysis I am of the opinion that it is high-time when the Tribunal and High Courts evaluate sincerely and award exemplary cost recoverable from the erring tax authority. If collected from the department, black mark to be put on confidential conduct report with serious action to keep a check on errant and over enthusiast officer. It is highly desirable for the Supreme Court, High Courts and Tribunals to work out guidelines for eradication and rationalisation of the social evil. Honest and straight-forward taxpayers need be honoured – not harassed.