Section 116 of the Income-tax Act, 1961 specifies various authorities for implementation of this Act. One of the highest among the various authorities, is the Central Board of Direct Taxes constituted under the Central Board of Direct Taxes. Therefore, under section 119 of the Act, the Board may issue instructions to subordinate authorities. Sub-section (1) of section 119 states that:
“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 shall observe and follow such orders, instructions and directions of the Board:
Provided that no such orders, instructions for 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 particular manner, or
b) So as to interfere with discretion of the Commissioner (Appeals) in exercise of his appellate functions.”
In pursuance to this, the CBDT had formed the plan for the financial year 2018-19. The preamble of this document set out the purpose for forming the said plan, which reads as under:
“The Vision 2020 document adopted by the Income tax Department envisages an efficient and effective tax administration, progressive tax policy and improved tax compliance. The Action Plan 2018-19 must work toward accomplishing this vision.
The Action Plan 2017-18 was a comprehensively remodelled plan that sought to address all the current priorities in a holistic manner. It laid special emphasis on a number of critical areas such as litigation management, improving quality in diverse areas of work and strengthening compliance and enforcement functions. The plan worked well and resulted in enhanced levels of performance in all functions across the board
This Action Plan for 2018-19 retains the broad structure of the plan for 2017-18 and seeks to consolidate the achievements made, while re-emphasizing priorities within the framework of the overall Vision. A new chapter on Widening of Tax Base has been added, so as to highlight the critical importance of this area. The chapter on Audit has been omitted, since the CITs (Audit) are already functioning under instructions and SOPs formulated by the Directorate of Incometax (Audit and Inspections). The separate chapter on Prosecution and Compounding has been omitted and the relevant targets, in consolidated form, have been incorporated in the chapter on Assessment Units (prosecution targets for TDS units already form part of the chapter
on TDS). Targets in various key result areas have been recalibrated in the light of experience gained”.
Chapter I of the plan set out targets for tax collection. Further, chapter III of the plan pertains to Litigation Management. Part 3 of chapter III pertains to incentive for quality orders and provides that additional credit of 2 units shall be allowed for each quality appellate order passed. Para 3 of chapter III reads as under:
(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) 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.
The above instructions have been challenged by the All India Federation of Tax Practitioners (AIFTP) before the Delhi High Court and The Chamber of Tax Consultants, Mumbai vide Writ Petition No. 3343 of 2018 in the High Court of Judicature of Bombay who condemned the CBDT’s policy in the following words
“we may recall the policy provided for incentive for quality orders. This clause states that with a view to encourage quality work by Commissioner (Appeals) additional credit of 2 units shall be allowed for each quality appellate order passed. Of course subject to CCIT upon examination of the order finds of deserving higher weightage.
The term quality cases is explained as those including cases where
(a) enhancement has been made,
(b) order has been strengthened, in the opinion of the CCIT, and
(c) penalty under section 271(1) has been levied by the CIT(A).
All these contingencies necessarily point to circumstances where the order passed by the Commissioner (Appeals) is in favour of the revenue. For example this policy refers to the enhancement made by the Commissioner or a case where the Commissioner has levied penalty under section 271(1) of the Act. This necessarily refers to enlargement of the assessee’s liability before the Commissioner as compared to what may have been determined by the Assessing Officer. In our opinion, such policy is wholly impermissible and invalid. Any Directives by the CBDT which gives additional incentive for an order that the Commissioner (Appeals) may pass having regard to its implication, necessarily transgresses in the Commissioner’s exercise of discretionary quasi-judicial power.”
Further, the Court held that “under the circumstances the CBDT has now decided to withdraw the guidelines for the coming year. In our opinion in its existing form for the past financial year also the same cannot be allowed to have effect. We are conscious that the Appellate Commissioners have already passed the orders. Correction of these orders cannot be doubted en masse only because they were passed under the shadow of the said policy. Nevertheless to allow the implementation of this policy, on the orders passed by the Appellate Commissioners even for the past financial year, would amount to an illegal prescription to prevail and operate.”
Though the Board has wide powers for administration of this Act, it cannot interfere with the discretion of Commissioner (Appeals) in exercise of his appellate functions. Therefore, the Board itself has decided to withdraw the aforesaid guidelines / instructions. The Board should always be careful while issuing instructions, orders and Directions, because its power are circumscribed by the Act. Issuing such instructions mean giving encouragement to breed corruption. Hence, in future the Board should take care before issuing such instructions. As correctly held by the Bombay High Court such instructions are not operative retrospectively; so they are null and void.
Further, it important to note the observation of the Hon’ble Bombay High Court in Milestone Real Estate Fund v. ACIT (Bom) (HC), (www.itatonline.org) wherein it has been held:
“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 collected tax revenue which is not in the interest of honest tax payers”
H. N. Motiwalla
Editor