The Budget session introducing the Finance Bill, 2020 was indeed one of the most anticipated events in the country which probably turned out to be less than eventful for most of its taxpaying audience. While various measures have been introduced in order to extend or broaden the existing tax incentives (specific to industries), the budget, however, was not so joyous so far as the redressal of grievances or resolution of disputes under the Income Tax Act, 1961 [“the Act” for short] is concerned. In the present article I have endeavoured to analyse certain crucial amendments in the provisions relating to appeals under the Income Tax Act, 1961 for our readers.

What are the proposed amendments?

So, let’s straightaway start with the amendments proposed in the Finance Bill, 2020. A chart of the amendments that have been proposed is as follows:


Proposed Amendment and its rationale

What it means for the Assessee in simple words?


95. In section 250 of the Income-tax Act, after sub-section (6A), the following sub-sections shall be inserted, namely:—

“(6B) The Central Government may make a scheme, by notification in the Official Gazette, for the purposes of disposal of appeal by Commissioner (Appeals), so as to impart greater efficiency, transparency and accountability by—

(a) eliminating the interface between the Commissioner (Appeals) and the appellant in the course of appellate proceedings to the extent technologically feasible;

(b) optimising utilisation of the resources through economies of scale and functional specialisation;

(c) introducing an appellate system with dynamic jurisdiction in which appeal 5 shall be disposed of by one or more Commissioner (Appeals).

(6C) The Central Government may, for the purposes of giving effect to the scheme made under sub-section (6B), by notification in the Official Gazette, direct that any of the provisions of this Act relating to jurisdiction and procedure for disposal of appeals by Commissioner (Appeals) shall not apply or shall apply with such exceptions, 15 modifications and adaptations as may be specified in the notification:

Provided that no direction shall be issued after the 31st day of March, 2022.

A move towards e-appeal proceedings wherein submissions and hearings would be online with lesser to no interaction in person with the CIT(A)


96. In section 253 of the Income-tax Act, in sub-section (1), in clause (c), for the words, 20 figures and letters “under section 12AA”, the words, figures and letters “under section 12AA or section 12AB” shall be substituted with effect from the 1st day of June, 2020.

Right of appeal against an order u/s 12AB rejecting an application or refusing registration to charitable trusts, etc.


97. In section 254 of the Income-tax Act, in sub-section (2A),—

(a) in the first proviso, after the words “from the date of such order”, the words “subject to the condition that the assessee deposits not less than twenty per cent. of 25 the amount of tax, interest, fee, penalty, or any other sum payable under the provisions of this Act, or furnishes security of equal amount in respect thereof” shall be inserted;

(b) for the second proviso, the following proviso shall be substituted, namely:––

“Provided further that no extension of stay shall be granted by the Appellate Tribunal, where such appeal is not so disposed of within the said period of stay as 30 specified in the order of stay, unless the assessee makes an application and has complied with the condition referred to in the first proviso and the Appellate Tribunal is satisfied that the delay in disposing of the appeal is not attributable to the assessee, so however, that the aggregate of the period of stay originally allowed and the period of stay so extended shall not exceed three hundred and sixty-five 35 days and the Appellate Tribunal shall dispose of the appeal within the period or periods of stay so extended or allowed:”.

In order to obtain a stay on the outstanding demand, from the Income Tax Appellate Tribunal, the Assessee will have to pay 20% of the disputed demand or furnish security of an equal amount before seeking such stay or an extension thereof if the stay is already granted.

What is the impact of these amendments?

Amendment to section 250 introducing e-appeal proceedings

By virtue of the amendment to section 250, the Government has endeavoured to further its goal of a digital economy by introducing e-appeal proceedings as one of the modes of hearing and concluding the disputes between the Taxpayer (Appellant / Litigant) and the Government. As per the said amendment, it is now possible for the Government to frame and introduce a scheme whereby any appeal could be heard by way of no to minimum face to face interaction between the Taxpayer / Assessee and the Commissioner of Income Tax (Appeals) which is the First Appellate Authority [hereinafter referred to as “the CIT(A)” or “the FAA”] under the Act. Looking at the number of appeals filed each year coupled with the growing number of taxpayers, it appears to be a welcome step for disposal of appeals since it will entail lesser time in commuting, lesser time in discussion, lesser visits to the office of the CIT(A) resulting into more focused and detailed approach from both sides leaving little to no scope for deviation from the issues involved in appeal. However, as bright and sunny as it may look, it has its own flipside. Lets take a look at the amendment in a little more detail as follows:

1. The whole objective of the scheme to be proposed appears to be imparting of greater efficiency, transparency and accountability in disposing Appeals by the CIT(A). As per the proposed amendment this is sought to be achieved by (i) eliminating interface between the CIT(A) and the Appellant to the extent possible; (ii) optimizing utilization of resources through economies of scale and functional specialization; and; (iii) introduction of an Appellate system with the dynamic jurisdiction wherein an Appeal could be disposed off by one or more Commissioner (Appeals).

2. To start with it is imperative to understand what is probably sought to be achieved by the present proposed amendments. While it appears that the goal is of making an entirely digital economy, the said avowed objective of a digital economy could and should not be at the cost of justice itself. Considering the fact, that e-hearings/e-Appeals have already been tried in the Income Tax Appellate Tribunal and the limited success that has been achieved therein, it would have been wise if the quasi-judicial authority [the CIT(A)] is permitted to conduct hearings by way of a face to face interaction with the litigant in hearing and deciding Appeals rather than eliminating such an interface. It is a well-known fact that an effective judicial system involves granting a fair hearing to a litigant. Further, it is well settled that justice should also appear to have been done and hearings should not just be a mere procedural formality. In this regard, probably the first and foremost requirement is for the judge and the litigant to interact face to face, so that there is an increased scope for both the parties to put across their views and counter views and to seek or provide clarifications as and when necessary. It is a settled law that the office of the CIT(A) is a quasi-judicial authority which for all practical purposes exercises the powers of a Court in adjudicating disputes between the Taxpayer and the Revenue. Hence, it is imperative that there has to be interaction between the Appellant and CIT(A). A total elimination of such interaction is bound to cause more chaos than clarity, at the cost of fair adjudication which in turn may lead to further litigation.

3. To mitigate this, it is suggestible to introduce actual hearings through electronic mode like video conferencing, etc. so that the goal of achieving efficiency and transparency is also met with alongwith reducing the time and cost involved in litigation before the CIT(A).

4. Proceeding further the proposed objective is of achieving greater efficiency, transparency and accountability, which is sought to be through optimum utilization of resources through, (i) economies of scale; (ii) functional specialization; and (iii) by introducing a dynamic jurisdiction whereby an appeal could be deliberated upon and disposed off by one or more CIT(A)s. It is interesting to see that the Government is alive to the fact that a large number of similar cases come up for hearing and to which less than uniform orders are passed. Some of the similar cases would include cases pertaining to tainted purchases (commonly referred to as bogus purchases), long term gains/short term gains/losses in respect of penny stocks, cases pertaining to donations to some trusts investigated by the Income Tax department, cases pertaining to alleged accommodation entries in respect of loans or share capital, other cases arising out of large scale investigations by the Income Tax Departmental Authorities or other Enforcement Authorities, etc. It is true that such cases by and large may have a similar fact back ground but what needs specific mention here is that in order to uniformly apply a particular order or judgment in one case to another case it would be important to see whether the facts as well as the arguments / objections raised by the Assessee’s in both the cases are exactly the same and not merely similar2. It also needs to be highlighted here that more often than not a binding decision is not followed by some CIT(A)s citing this very reason that facts are different in the case at hand and that in the precedent cited. It is therefore not understood as to how the economic principle of economies of scale could at all be applied in hearing and disposal of Appeals and that too without a face to face interaction with the adjudicating authority. We must not forget that it is incorrect to perpetuate injustice in the name of uniformity or consistency.

5. Another fact that needs to be highlighted here is that, off all the illustrations mentioned above, the genesis more often than not is the investigation conducted by the Income Tax department itself. Therefore, what needs to be seen is the correctness and completeness of the investigation conducted by the Departmental Officers since the entire assessment and Appeal in such cases hinges on the investigation conducted. This is one of the major factors requiring consideration while disposing of Appeals. Such a faceless scheme for appeals can be successful only if it is supported by or preceded by detailed and standardized investigations and consequent assessment proceedings. It is therefore necessary to make the investigation and assessments standardized and only thereafter try to club or consolidate similar cases.

6. The proposed amendment also seeks to optimally utilize resources through functional specialization as well. I would like to believe that the demarcation as regards adjudication and disposal of Appeals requiring specialized knowledge of the subject (for example transfer pricing, interpretation of tax treaties, investigation matters, etc.) is already being done in cases wherever possible i.e. functional specialization in settling disputes is already resorted to since the cases get demarcated at the time of assessment itself. However, instead of creating a differentiation on the basis of existing specialization it would have been worthwhile to create further specialization in the existing work force through training and knowledge sharing. If such a thing is done then there would be no requirement to create a differentiation at all based on functional specialization. According to me, the entire body comprising of CIT(A)s should be equally aware of and capable of adjudicating any and every issue or dispute under the Act instead of creating a separate functional speciality within such body.

7. The next aspect which requires a far greater amount of deliberation and probably rethinking is the introduction of dynamic jurisdiction whereby an Appeal could be heard by more than one CIT(A). It appears by a bare reading of the proposed amendment that the office of the CIT(A) is greatly under estimated. For a majority of the tax paying community the CIT (A) is in fact one of the best options available in redressing their grievances under the Act. As per Section 250 of the Act and also since the inception of the Act appeals before the CIT(A) have been heard by only one CIT(A). Introduction of dynamic jurisdiction is a paradigm shift to the extant law and the customary as well as conventional application thereof. It is not clear as to when and which Appeal would be made subject to dynamic jurisdiction. It is also not clear as to whether before the hearing of the Appeal or during the hearing of the Appeal or after the conclusion of the hearing of the Appeal the dynamic jurisdiction would be invoked. These issues should be addressed by framing appropriate rules in this regard before any such scheme is implemented, though, it cannot be ruled out that the Government may retain the right to pick and choose Appeals which will be referred for adjudication based on dynamic jurisdiction. If this will happen then it may be violative of clause (b) of Section 119 (1) which prohibits the board to interfere with the discretion of the CIT(A) in exercise of his Appellate functions. In fact, unless, it is clearly spelt out in the scheme proposed, as to how the dynamic jurisdiction is to be invoked and what are the limitations to such invocation, it would appear that the prohibition contained in 119(1) (b) would be rendered nugatory. It may lead to a situation where discretion might result in discrimination in as much as the government may pick out a case at any given time, even after the conclusion of the hearing but before the passing of any order by the CIT(A), and order that, this case is picked up for reference to another CIT(A). If such a thing happens then the whole due process of law in the form of Appeal for redressing grievances would turn completely one sided.

8. Further, the greatest downside that could be seen in introducing a dynamic jurisdiction is that the litigant will be left stranded in the battle of viewpoints in case his Appeal is deliberated upon by more than one CIT(A) and he may or may not be aware as to what is the point of difference. Not only that, it is also not clear as to how many times the dynamic jurisdiction could be invoked or as to how many people will the Assessee (Appellant) will have to convince before his appeal is finally allowed or whether he will at all be allowed to represent before all the CIT(A)s before his appeal is finally decided. What could be seen from the above discussion is that the power of the Government amending the provisions relating to first Appeal might remain totally unchecked and could probably lead to a greater abuse rather than greater good especially in the absence of adequate safeguards It is but a matter of time. The idealistic goals sought to be achieved are greater efficiency, transparency and accountability but it is not clear as to in what terms is greater efficiency measured or transparency or accountability is to whom, the Government or the Taxpaying community. Such amendment is really a matter of grave concern for all the stake holders running this country by paying taxes. It is therefore, imperative that the proposed scheme is framed with adequate safeguards before it is implemented since the success of e-appeals will depend majorly if not entirely on the safeguards contained in the scheme against any possible abuse of power.

9. The scheme for e-hearing of appeals has been piloted on the lines of e-assessment proceedings. It needs mention that even developed countries like the U.S.A. have not resorted to faceless e-assessment proceedings relating to taxation and for good reason. The e-assessment proceeding in India looks fairly promising considering Indian dynamics but it has had its own share of problems. For example in many cases the notices are not sent to the assessees through e-mails or hard copies in post but merely uploaded on the portal and the Assessee is not even intimated about the same, while in some other cases even orders are passed by without serving a copy of the same on the Assessees, in other cases the Assessee’s not capable of using internet or e-mails are forced to reply via e-proceeding, etc. This leads to misuse of the scheme intended for the benefit of the tax payers and creates totally avoidable hardship and nuisance. These shortcomings of the scheme would have to be taken care of before taking it further in the form of e-appeal proceedings. In any case, e-appeal proceedings is already initiated and probably utilized as well by many Assessees since CIT(A)s are accepting written submissions on e-mail and even sending notices on e-mails which seems to be working fairly plus it also has an advantage of allowing personal hearing to the Assessee’s, if they so desire. One would therefore ponder over the reason for introducing a scheme which is probably in place, already. It will all depend upon the proposed scheme and till such time it will be merely speculating or being apprehensive on things which may or may not happen.


This is a consequential amendment proposed whereby, any order rejecting registration of a Trust passed by the Principal Commissioner or the Commissioner under the proposed section 12AB of the Act would be appealable before the Income Tax Appellate Tribunal. The section confers a right of appeal to the Assessees against the orders passed u/s 12AB of the Act.


1. The title of this Article is really derived from the amendment proposed to be made in Section 254 of the Act. To start with, what is the proposed amendment? The Income Tax Appellate Tribunal [“the Tribunal” for short] is the Second Appellate Authority under the Act. It is a Court exercising judicial functions. As per the extant provisions of first proviso to Section 254(2A) of the Act, the Tribunal is empowered to grant a stay of recovery in any proceeding relating to Appeal filed under sub-section (1) of Section 253 of the Act. There was a great latitude to the powers of the Tribunal in granting stay and in fact full stay of the outstanding demand was granted in most deserving cases while at the same time protecting the interest of the Revenue. While granting stay, the Tribunal would invariably consider merits of the Appeal, at least prima-facie, before granting the stay. By virtue of the present amendment the power of the Tribunal (Court discharging judicial functions) to grant stay has been curtailed so as to provide that the Tribunal could grant stay of outstanding demand only when the Assessee deposits at least 20% of the amount of tax, interest, fee, penalty or any other sum payable under the Act or the assessee furnishes security of equal amount thereof that is 20% of the disputed demand. Further, as per the second proviso to Section 254 (2A) the Tribunal’s power granting an extension of the stay of recovery of disputed demand is also curtailed. Now, even the second proviso is proposed to be amended so as to provide that before granting any such extension of stay, the assessee would be required to comply with the condition of 20% pre-deposit of the amount of disputed demands as provided in the first proviso. This is one of the most draconian, retrograde amendment ever proposed in the budget. This amendment is like dissecting the law without anaesthesia. The rationale for introducing such provisions is also fairly imperceptible particularly when the Revenue is duly protected and compensated by way of levy of multiple interests, fees and penalties under the Act for non-payment of dues. Needless to mention that the rate of interest granted on refunds is less than half of that charged on delayed payment of tax demanded. This amendment, therefore, is an attempt by the Legislature to step over the powers of a Court (judiciary) in discharging its judicial functions.

2. Now to start with, it needs specific mention that the Income Tax Appellate Tribunal plays the most pivotal role in the justice delivery system in India. The Tribunal has been held as one of the most effective means of dispute resolution under the Act. It has always lived upto its motto of “SULABH NYAY SATVAR NYAY”. This is primarily because the power of the Tribunal in adjudicating disputes was never sought to be controlled in this manner. However, because of the proposed amendment, this will lead to large amount of heart burn, undue financial hardship and greater chaos in the tax paying community. This is simply for the reason that a mandatory pre-deposit of disputed tax for granting of stay before adjudicating an Appeal (which is in effect a grievance of the tax payer) is not only a co-ercive means of recovery but also totally contrary to the well accepted canon of free-justice to all. It is also violative of certain articles of the Constitution of India like Article 265 which mandates that no tax shall be levied or collected unless under the authority of law, Article 14 Equality before the Law and Equal Protection of the Law and even Article 19(1)(g) providing no restraint on carrying of any lawful business or profession.

3. To put it simply by way of an example, say an assessee files a Return of Income for Rs.100/- and the assessed Income is Rs.500/- and the assessee has for whatever reason lost before the FAA. His only option is to approach the Tribunal seeking redressal of his grievances. As per the earlier provisions looking to the merits of the case the Tribunal was empowered to grant a complete stay on the entire disputed demand and even consequential penalty proceedings. However, by virtue of this amendment, the assessee (Appellant before the Tribunal) will have to invariably pay 20% of the disputed tax or at least provide security of an equal amount, before any stay is granted by the Tribunal. This would mean that such an assessee would have to pay tax even on the income which may ultimately not be his income at all or may not be taxable at all. Now, there may also be cases where a similar sum of Rs.400/- as mentioned in the above illustration is taxed in the hands of say Mr. X but is not so done in the hands of say Mr. Y, both of whom are say recipients of the same type of compensation from the same authority. In such a case, not only the law would be unequally applied but more importantly the justice would also be delivered in biased / partial way by asking one person to pay tax on certain receipt treated as income in one case but not so in the case of another. Another aspect of the matter is that introducing such a provision is likely to cause totally undue financial burden, financial hardship and mental agony to an entire body of aggrieved tax payers who have filed an Appeal before the Tribunal. This is because many of the litigants are individual tax payers who may or may not be able to either pay the disputed tax or provide a security in lieu thereof. Such tax payers will have to invariably bear the brunt of harsh and in many cases unwarranted co-ercive tax recovery measures which may lead to selling of business assets and in extreme cases even closure of business. Such a provision would therefore lead to differential application of law among tax payers (the ones who can furnish security or pay disputed tax and the ones who can’t furnish security or can’t pay disputed tax) forming one class i.e. litigants before the Tribunal. For this reason also the said provision is violative of the Constitution.

4. Another extremely important aspect that the provision fails to consider is the legally accepted principle of impossibility of performance. The term high pitched assessment is not new to income tax assessments nor is non consideration of binding judicial precedents or even circulars, instructions or notifications in favour of the assessee while passing assessment orders. Not only that, the Act does not provide any safeguard against pre-determined mindset of the Assessing Authorities in certain types of cases. In this environment introduction of such provisions seeking mandatory pre-deposit of disputed tax might lead to even closure of some good thriving businesses simply for paying the mandatory pre-deposit of tax. This will clearly violate Article 19(1)(g) of the Constitution.

5. The Income Tax Appellate Tribunal must be appreciated and lauded for its efforts in redressing grievances by introducing the unique system of granting early hearings through applications, quick fixation of matters pertaining to stay, early hearings, covered matters, etc. Invariable, the litigants look up to the Tribunal for a quick and fair disposal of the Appeals. In fact, it could very well be said that the Tribunal is probably the most effective justice delivery system in the country for disputes relating to taxation. It deserves all the appreciation. Not only that, it has been held by the Apex Court that the power to grant stay is ancillary and incidental to the appellate powers of the Tribunal and the Tribunal is empowered to grant stay if it is satisfied that the purpose of appeal will be frustrated by allowing to continue the recovery proceedings during the pendency of the appeal3 However, these provisions seek to put fetters on the exercise of powers by the Tribunal and thereby tinker with the independence of the Tribunal in its functioning. It is very unfortunate that while the Assessing Officer (lowest authority in the appeal proceedings) is empowered to grant a stay on the disputed demand without any limit but the Tribunal (the final fact finding authority under the Act) is deprived of such powers. These provisions therefore need to be seriously pondered over before being incorporated in the Act. It would be worthwhile to amend the proposed section so as to leave the pre-deposit of disputed tax to the discretion of the Tribunal (though it is being already done in all cases where the Tribunal finds it necessary taking into consideration the interests of the Revenue).

6. Apart from the above, in any case, impossibility of performance is always a defence against such a law and the Tribunal or the Judiciary will certainly step in and look into this aspect of the matter. It is also possible that these provisions could be read down as directory provisions seeking to safeguard the interest of the revenue and not mandatory per-se. A possible reading of the provision could be that firstly, disputed tax demand is not actual tax as defined in section 2(43) of the Act i.e. the tax chargeable under the provisions of the Act and till the Appeal is pending it cannot be said with certainty that it is tax chargeable under the Act. This is particularly so if prima-facie the Tribunal is of the view that the tax is incorrectly charged. Secondly, if the said provisions were absolutely mandatory then the government would not have even incorporated an option to furnish security of an equivalent amount and without even specifying the nature of security. In fact when similar fetters were put on the power of the Tribunal to grant stay beyond a period of 365 days, the Judiciary stepped in to read down the section and hold that stay could be extended even beyond a period of 365 days4. A similar view might be taken even for these proposed provisions.

7. Going further, it needs mention that though similar provisions for pre-deposit of disputed tax find a mention in Indirect Tax Laws, no parallel can be drawn between these provisions under the Direct Tax Laws and the Indirect tax laws. This is because firstly, the law and the subject of levy are totally different in the two set of laws and secondly, usually the mandatory pre-deposit under Indirect Tax Laws is before the First Appellate Authorities who are acting under the very same Ministry as the assessing authority itself.

8. To conclude, the proposed provisions are certainly likely to cause avoidable undue hardship to all tax paying litigants before the Tribunal. The same may also be declared unconstitutional for more than one reason especially since they seek pre-deposit of tax which may not at all be chargeable under the provisions of the Act. However, we may have to wait till the provisions are finally enacted into law and thereafter their interpretation by the Hon’ble High Courts or the Hon’ble Supreme Court.


1. Over the last few years, instead of providing the rationale for introducing certain amendments, the Explanatory memorandum merely spells out what the proposal is instead of why the same is introduced. In the present article, due care has been taken in referring to the same as also the budget speech and notes on clauses but the same is not reproduced herein for the sake of brevity.

2. Vinay Extraction v/s CIT – 271 ITR 450 (Guj), et. al.

3. M.K. Mohd. Kunhi – (1969) 71 ITR 815 (SC)

4. Adobe Systems – (2014) 228 Taxman 141 (All), Maruti Suzuki – (2014) 44 166 (Delhi), Vodafone Essar Gujarat – 233 Taxman 35 (Guj), et al.

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