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
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 meagre 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.itatinline.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)
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 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. e.g.: 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 10.30 AM, 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 organised 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 assessees 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. 7th March 2018
In March 2018, 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 Minister will interact with the tax professionals to better appreciate the harassment caused to the taxpayers.
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 offence 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 Ahmedabad 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 taxpayers can be at least ` 50,000. It is desired that 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