Rahul Hakani, Advocate

1. Introduction of the authority of Joint Commissioner (Appeals) – A much needed move.

   CURRENT PROVISIONS.(LEGISLATIVE HISTORY)

   Chapter XX-A of the Income Tax Act, 1961 (hereinafter referred to as the “Act”) deals with “Appeals to the Deputy Commissioner (Appeals) and Commissioner (Appeals) “. Section 246 deals with Appealable orders before Deputy Commissioner (Appeals) and Commissioner (Appeals) and Section 246A deals with Appealable orders before Commissioner appeals.

   Prior to 1978, Appellate Assistant Commissioner was the first Appellate Authority under the Act and Section 246 provided for Appealable orders before him. Thereafter, Finance (No 2) Act, 1977 created another first Appellate Authority called the “ Commissioner of Income Tax (Appeals)”. Accordingly Section 2(16A) was inserted w.e.f 10-7-1978 defining Commissioner (Appeals). Thus, first Appeals came to be filed either before the Appellate Assistant Commissioner or the Commissioner (Appeals) based on the nature of Assessee, quantum involved and other factors. Section 246 also made provision for transfer of pending appeals from the Appellate Assistant Commissioner to Commissioner (Appeals). Appeal before both the authorities was governed by only Section 246. Chapter XX-A read as “Appeals to the Appellate assistant commissioner and Commissioner (Appeals).“

   Thereafter the Direct Tax Amendment Act, 1987 redesignated Appellate Assistant commissioner as Deputy Commissioner (Appeals). Section 246 was also amended in it’s scope of Appealable orders before Deputy Commissioner (Appeals) and Commissioner Appeals by Direct tax Amendment Act, 1987 and Direct tax Amendment Act, 1989. Chapter XX-A w.e.f 1/4/1999 read as “Appeals to the Deputy Commissioner (Appeals) and Commissioner (Appeals)”. The changes were explained in Circular No 545 dated 21/9/1989 [181 ITR (st) 198], Circular No 549 dated 31/10/1989 [192 ITR (st) 1] and Circular No 551 dated 23/1/1990 [183 ITR (St) 7]. The relevant portion is as under :

   “Substitution of a new section 246 by the Amending Act, 1987 and further amendments therein by the Amending Act, 1989 14.1 Under the old provisions of section 246, various orders passed under the Income- tax Act were enumerated against which assessees could file appeal before the Appellate Assistant Commissioner or the Commissioner (Appeals). Since the Amending Act, 1987 inserted several new provisions under the Income-tax Act, including the new scheme of assessment of firm and partners, omitted certain old provisions and also changed the designations of various income-tax authorities, the said section 246 was required to be overhauled. The Amending Act, 1987 has, therefore, substituted a new section 246 in the Income-tax Act. The Amending Act, 1989 has further made amendments in the said new section 246 to set right certain anomalies and remove omissions and also to reverse the changes incorporated therein pursuant to the new scheme of assessment of firm and partners, as the said new scheme itself was withdrawn by the Amending Act, 1989. The provisions of the old section 246 and the new section 246, as it has emerged after amendments by the Amending Act, 1987 and the Amending Act, 1989, are discussed in the following paras :……………”

   Thereafter, by virtue of Finance (No. 2) Act, 1998, Section 246A was inserted w.e.f 1/10/1998 which provided for appealable orders before Commissioner (Appeals) only. The institution of Deputy Commissioner (Appeals) was closed. Said provision was explained in Circular No 772 dated 23/12/1998 [ 235 ITR (St) 35] as under :

   “Abolition of the appellate level at Deputy Commissioner (Appeals)

   1. 1. Under the existing provisions of Income- tax Act, Deputy Commissioner (Appeals) are hearing appeals in very small cases. The Commissioner (Appeals) are also doing the identical functions. In the same case, appeal in one year may be pending before Deputy Commissioner (Appeals) and in the other year before the Commissioner (Appeals) depending upon the quantum of addi- tion. Presently, only a few posts of Deputy Commissioner (Appeals) are functioning in the country.
      2. A new section i.e., section 246A has been inserted to provide for filing of appeals before the Commissioner (Appeals) against all order where appeals earlier lay either with Deputy Commissioner (Appeals) or

         Commissioner (Appeals). It also provides that every appeal which is pending before the Deputy Commissioner (Appeals) would stand transferred to the Commissioner (Appeals) on the appointed date. Vide Notification SO 811(E) dated 14-9-1998, 1st day of October, 1998 has been notified as the appointed date for the purpose of the above section.

      3. Similar amendments have also been made in the Wealth-tax Act and Gift-tax Act.
      4. This amendment takes effect from the 1st day of October, 1998.”

   The Finance Act, 2000 made Section 246 non- functional after 1/6/2000 and thus appeals could not be decided by Deputy Commissioner (Appeals). Circular No 794 dtd 9/8/2000 [245 ITR (St) 21] explained the provisions as under :

   “Sunset clauses to sub-sections (1) and (2) of section 246 of the Income-tax Act

   1. 1. Section 246 of the Income-tax Act in sub-sections (1) and (2) lists out the orders passed by the Assessing Officer against which appeal may be filed before the Deputy Commissioner (Appeals) and the Commissioner (Appeals), respectively. Section 246A providing appeals before the Commissioner (Appeals) was introduced by the Finance (No. 2) Act, 1998 with effect from 1st October, 1998 in respect of the appeals against orders made before or after the appointed day. The appointed day was notified as 1-10-1998. The introduction of a new section was necessitated by the decision to do away with one appellate level at the level of Deputy Commissioner (Appeals).
      2. When section 246A, came into effect from 1-10-1998, no terminal clauses were provided to sub-section (1) and sub-section (2) of section 246 to take care of the pending matters, if any. The Act amends these sub- sections now by making them inapplicable to appeals filed on or after 1-6-2000. It is also clarified that any appeal made under section 246 of the Income-tax Act on or after 1-10- 1998 and before 1-6-2000 shall be deemed to be the appeal filed under section 246A. Similar amendments are made in section 23 of the Wealth-tax Act, 1957.
      3. These amendments take effect from the 1st day of June, 2000.”

   Thus, presently the Commissioner of Income Tax (Appeals) act as the only first appellate authority against majority of the orders passed by the assessing Officer as provided u/s 246A of the Act. Commissioner (Appeals) was consciously made the only first appellate authority for the reasons stated in Circular No 772 dated 23/12/1998 (supra).

   PROPOSED AMENDMENT

   The Finance Bill, 2023 proposes to substitute section 246 of the Act to provide for appeals to be filed before Joint Commissioner (Appeals).

   Sub-section (1) of the proposed section seeks to provide that any assessee aggrieved by any of the following orders of an Assessing Officer (below the rank of Joint Commissioner) may appeal to the Joint Commissioner (Appeals) :

   1. an order being an intimation under sub-section (1) of section 143, where the assessee objects to the making of adjustments, or any order of assessment under sub-section (3) of section 143 or section 144, where the assessee objects to the amount of income assessed, or to the amount of tax determined, or to the amount of loss computed, or to the status under which he is assessed;
   2. an order of assessment, reassessment or recomputation under section 147;
   3. an order being an intimation under sub- section (1) of section 200A;
   4. an order under section 201;
   5. an order being an intimation under sub- section (6A) of section 206C;
   6. an order under sub-section (1) of section of section 206CB;
   7. an order imposing a penalty under Chapter XXI; and
   8. an order under section 154 or section 155 amending any of the orders mentioned in (i) to (vii) above:

      It is proposed to insert a proviso under sub- section (1) that an appeal cannot be filed before the Joint Commissioner (Appeals) where an order referred to under this sub-section is passed by or with the approval of an income- tax authority above the rank of Deputy Commissioner.

      Sub-section (2) of the proposed section seeks to provide that where any appeal filed against an order referred to in sub-section (1) is pending before the Commissioner (Appeals), the Board or an income-tax authority so authorised by the Board in this regard, may transfer such appeal and any matter arising out of or connected with such appeal and which is so pending, to the Joint Commissioner (Appeals) who may proceed with such appeal or matter, from the stage at which it was before it was so transferred. This will enable transfer of certain existing appeals filed before the Commissioner (Appeals) to the Joint Commissioner (Appeals).

      Sub-section (3) of the proposed section seeks to provide that notwithstanding anything contained in sub-section (1) or sub-section (2), the Board or an income-tax authority so authorised by the Board in this regard, may transfer any appeal which is pending before a Joint Commissioner (Appeals) and any matter arising out of or connected with such appeal and which is so pending, to the Commissioner (Appeals) who may proceed with such appeal or matter, from the stage at which it was before it was so transferred.

      Sub-section (4) of the proposed section seeks to provide that where an appeal is transferred under the provisions of sub-section (2) or sub- section (3), the appellant shall be provided an opportunity of being reheard.

      Sub-section (5) of the proposed section seeks to provide that for the purposes of disposal of appeal by the Joint Commissioner (Appeals), the Central Government may make a Scheme, by notification in the Official Gazette, so as to dispose appeals in an expedient manner with transparency and accountability by eliminating the interface between the Joint Commissioner (Appeals) and the appellant in the course of appellate proceedings to the extent technologically feasible and direct that any of the provisions of this Act relating to the jurisdiction and procedure for disposal of appeals by Joint Commissioner (Appeals) shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification.

      Sub-section (6) of the proposed section seeks to provide that for the purposes of subsection (1), the Board may specify that the provisions of that sub-section shall not apply to any case or any class of cases.

      It is also proposed to insert an Explanation in this section to define “status” to mean the category under which the assessee is assessed as “individual”, “Hindu undivided family” and so on.

      CONSEQUENTIAL AMENDMENTS

      It is also proposed to amend section 2 of the Act by inserting a definition for Joint Commissioner (Appeals) and to amend section 116 of the Act to make Joint Commissioner (Appeals) an income- tax authority under the Act.

      Further, consequential amendments are proposed in relevant provisions of the Act in order to ensure that functioning of the Joint Commissioner (Appeals) is aligned with that of the Commissioner (Appeals). Thus provisions

      relating to filing of appeals as well as provisions dealing with powers of Commissioner (Appeals) are amended to include Joint Commissioner (Appeals). Further, penalty provisions and other provisions where the Commissioner (Appeals) could exercise powers are now amended to include Joint Commissioner (Appeals).

      LEGISLATIVE INTENT

      It has been noted that as the first authority for appeal, Commissioner (Appeals) are currently overburdened due to the huge number of appeals and the pendency being carried forward every year. In order to clear this bottleneck, a new authority for appeals is being proposed to be created at Joint Commissioner/ Additional Commissioner level to handle certain class of cases involving small amount of disputed demand. Such authority has all powers, responsibilities and accountability similar to that of Commissioner (Appeals) with respect to the procedure for disposal of appeals.

      IMPLICATIONS

      Joint Commissioner (Appeals) would include Additional Commissioner (Appeals) also. This change will increase the quantum of Officers who can decide Appeals.

      The Joint Commissioner (Appeals) will not be able to decide appeals where Assessment Order is passed pursuant to his directions under Section 144A. Further in search assessment where approval of Joint commissioner is taken u/s 153D or an order is passed by him, he will not be able to decide appeals arising therefrom. Also, where reopening is done pursuant to sanction by Additional Commissioner or Joint Commissioner it appears that validity of consequent reassessment orders could not be decided in appeal by Joint/Additional Commissioner (Appeals).

      The memorandum explaining the provisions do not give details of the no of Appeals pending and how many of such appeals would be transferred. Hence, one is not certain whether

       

      the desired objective would be achieved or not by the proposed amendment.

      The amendment does not provide for any opportunity of hearing to the assessee whose case is transferred from Joint Commissioner (Appeals) to Commissioner (Appeals) and vice versa. Opportunity of hearing should be provided.

      One of the reason for abolition of Deputy Commissioner (Appeals) was that in the same case, appeal in one year was pending before Deputy Commissioner (Appeals) and in the other year before the Commissioner (Appeals) depending upon the quantum of addition. Care should be taken that same scenario is not repeated.

      The Joint/Additional Commissioner (Appeals) have over the years acted as an Assessing Officer. It is important for the success of the institution of appeals that an Appellate authority has a different way of looking at an Income tax issue compared to an Assessing Officer. It is well known that our mind makes us hesitant towards change — modifying prior beliefs or behaviours. As humans we often hold on to stubborn ideas, biases and prejudices. It must be ensured that the Assessee before the Joint/ Additional Commissioner (Appeals) should not get the impression that he is subjected to an extended assessment proceedings. Appeal should not become an empty formality. Hence, before Joint Commissioners accept the role of Appellate authority proper training must be given to the officers.

2. Rationalisation of Appeals to the Appellate Tribunal – Appeal By AO against Order of DRP?

   CURRENT PROVISIONS

   Section 253 of the Act contains provisions relating to filing of appeals to the Appellate Tribunal (ITAT). Sub-section (1) of the said section details the types of orders passed under various sections of the Act, against which an aggrieved assessee may appeal to the Appellate Tribunal. The said sub-section provides that any assessee aggrieved by any order passed by a Commissioner (Appeals) under section 154, section 250, section 270A, section 271, section 271A, section 271J or section 272A may appeal to the Appellate Tribunal. Therefore, the Appellate Tribunal is the first level of appeal for such orders of the Commissioner (Appeals).

   PROPOSED AMENDMENT

   1. It has been proposed to amend the provisions of section 253 of the Act to provide that appeal against penalty orders passed by Commissioner (Appeals) under the sections 271AAB, 271AAC and 271AAD shall be made to the Appellate Tribunal.
   2. It has been proposed that section 253 of the Act may be amended so that appeal against an order passed under section 263 of the Act by Principal Chief Commissioner or Chief Commissioner or an order passed under section 154 of the Act in respect of any such order shall be made to the Appellate Tribunal.
   3. It is proposed that an amendment may be made in sub-section (4) of section 253 by substituting the words “against the order of Commissioner (Appeals)” with “against an order”.

      LEGISLATIVE INTENT

      Sections 271AAB, 271AAC and 271AAD are penalty provisions under Chapter XXI of the Act for imposition of penalty. Section 271AAB of the Act provides for imposition of penalty by the Assessing Officer in a case where search has been initiated under section 132 of the Act. Section 271AAC of the Act provides for imposition of penalty by the Assessing Officer in a case where income determined includes any income referred to in section 68, 69, 69A, 69B, 69C or 69D of the Act for any previous year. Section 271AAD of the Act contains provisions for imposition of penalty by the

      Assessing Officer if during any proceedings under the Act it is found that in the books of account maintained by any person there is a false entry or an omission of any entry which is relevant for computation of total income of such person to evade tax liability. Vide Finance Act, 2022, sections 271AAB, 271AAC and 271AAD were amended to enable Commissioner (Appeals) also to pass an order imposing penalty under the said sections. However, as the reference to the same has not been inserted in sub-section (1) of section 253 of the Act, an aggrieved assessee cannot appeal against such penalty orders passed by Commissioner (Appeals) which may lead to taxpayer grievance. Therefore the proposed amendment.

      Further, vide Finance Act, 2021, section 263 of the Act was amended to enable Principal Chief Commissioner and Chief Commissioner to also pass an order of revision under the said section. However, in the absence of any reference to such orders passed under section 263 of the Act in sub-section (1) of the section 253 of the Act, an assessee aggrieved by any order under section 263 of the Act by a Principal Chief Commissioner and Chief Commissioner or an order under section 154 of the Act rectifying such order under section 263 of the Act cannot appeal against such orders to the Appellate Tribunal. Therefore, the proposed amendment.

      Sub-section (4) of the section 253 of the Act allows the respondent in an appeal, against an order of Commissioner (Appeals), to file a memorandum of cross-objections before the Appellate Tribunal. However, it is pertinent to note here that appeal can be made to the Appellate Tribunal against orders of authorities other than Commissioner (Appeals) also, like Principal Commissioner or Commissioner or Principal Director or Director etc. As a result, the respondent, whether it is Revenue or the assessee, cannot file memorandum of cross-objections against an appeal before the

      Appellate Tribunal by virtue of the provisions of sub-section (4) of section 253 of the Act. This creates grievances as well as reduces the fair and equitable dispensation of judgement in such cases. Therefore, it is proposed that an amendment may be made in sub-section (4) of section 253 to enable filing of memorandum of cross-objections in all classes of cases against which appeal can be made to the Appellate Tribunal. For example, where the assessee files an appeal to the appellate tribunal against an order passed by the Assessing Officer in consequence of an order of the Dispute Resolution Panel the Assessing Officer would be able to file a cross objection to such appeal which cannot be filed presently.

      IMPLICATIONS.

      Section 253(4) reads as under :

      “(4) The Assessing Officer or the assessee, as the case may be, on receipt of notice that an appeal against the order of the Commissioner (Appeals), has been preferred under sub- section (1) or sub-section (2) by the other party, may, notwithstanding that he may not have appealed against such order or any part thereof, within thirty days of the receipt of the notice, file a memorandum of cross-objections, verified in the prescribed manner, against any part of the order of the Commissioner (Appeals), and such memorandum shall be disposed of by the Appellate Tribunal as if it were an appeal presented within the time specified in sub- section (3).”

      The example given in the memorandum explaining the provisions whereby on account of proposed amendment in Section 253(4) an Assessing Officer can file cross-objection where an order of DRP is under challenge before the ITAT by the Assessee has created lot of controversy. This is because it is well settled that Cross objection is nothing but an Appeal. As per Section 144C(10), every direction issued by the DRP is binding on the Assessing Officer. Hence, the question of Assessing Officer manifesting his grievance against the order of DRP by filing a cross objection i.e. an appeal is impermissible and also in the teeth of provisions of Section 144C and the scheme of Section 253.

      Section 253 (1) provides various orders against which Assessee can file an Appeal to ITAT. Section 253(2) provides for appeal to be filed by the Income tax department against the order passed only by Commissioner (Appeals). Sub-Section (4) of Section 253 provides that cross-objection can be filed only if a party has failed to file appeal as per Section 253(1) or

      253(2). Thus, income tax department can only file cross-objection where an Assessee has filed Appeal against the order of commissioner (Appeals) u/s 154 or 250. Hence, amendment of Section 253(4) without amending Section 253(2) providing various orders against which income tax department can file appeal, it will not be possible for income tax department to file cross-objections against those orders. Thus, even orders passed by Commissioners, principal commissioners etc which are intended to be covered by Section 253(4) should also be incorporated in Section 253(2).

      In-fact, Sub-Section (2A) was specifically introduced by Finance Act, 2012 which permitted the income tax department to file appeal against the directions of DRP. This amendment was omitted by Finance Act, 2016.

      Thus, merely by substituting “against the order of Commissioner (appeals)” with “against the orders” will not expand the coverage of orders beyond those passed by Commissioner (Appeals) for filing cross-objection by the Assessing officer.

3. RATIONALIZATION OF PROVISIONS OF PROHIBITION OF BENAMI PROPERTY TRANSACTIONS ACT, 1988

1. 1. Amendment to Section 46 CURRENT PROVISIONS

      Under the existing provisions of section 46 of the Prohibition of Benami Property Transactions Act, 1988 (PBPT Act), any person, including the Initiating Officer (IO), aggrieved by the order of the Adjudicating Authority, may prefer an appeal to the Appellate Tribunal within a period of 45 days from the date of the order.

      PROPOSED AMENDMENT

      The provisions of section 46 of the PBPT Act may be amended to allow the filing of appeal against the order of the Adjudicating authority within a period of 45 days from the date when such order is received in the office of the Initiating Officer or the aggrieved person as the case may be.

      LEGISLATIVE INTENT

      The order often takes time to reach the office of the Initiating Officer or the approving authority and, it is difficult to file an appeal within the prescribed time limit and leads to delay in such filing.

      IMPLICATIONS

      Even under the Income Tax Act, 1961, as per Section 254(2) a Miscellaneous Application to rectify mistakes apparent in the order passed u/s 254(1) has to be filed within six months from the end of the month in which the order is passed. However in following decisions it is held that date of passing of order means the date on which the order is received:

      Techknoweledgy Interactive Partners P. Ltd. v. ITO [2021] 190 ITD 643 (Mum)(Trib)

      For workability of scheme of section 254(2), limitation period is to be counted from date of service of order and not from date of order

      Golden Times Services (P.) Ltd. v. Dy. CIT (2020) 422 ITR 102 (Delhi)

      Starting point of limitation provided under section 254(2) has to commence from date of actual receipt of judgment and order passed by Tribunal which is sought to be reviewed.

      Daryapur Shetkari Sahakari Ginning and Pressing Factory v. ACIT (2021) 277 Taxman 155 (Bom) (HC)

      Period of limitation prescribed in section 254(2) would commence from date when affected party got knowledge of decision in question and it would not commence from date when order was passed.

      The proposed amendment to Section 46 is a welcome decision as it has brought certainty and will avoid legal disputes on the issue of limitation.

   2. Amendment to Section 2(18).

CURRENT PROVISION

Under the existing provisions of section 2(18) of the PBPT Act, the ‘High Court’, for the purpose of filing appeal against the order of the Appellate Tribunal, have been defined as Jurisdiction of such High Court within which either the aggrieved party ordinarily resides or carries on business or personally works for gain, or if the aggrieved party is Government then, jurisdiction of the High Court within which the respondent, or any respondent in case of multiple respondents resides, or carries on business or works for gain.

PROPOSED AMENDMENT

To modify the definition of ‘High Court’ by inserting a proviso so as to provide that where the aggrieved party does not ordinarily reside or carry on business or personally work for gain in the jurisdiction of any High Court or where the Government is the aggrieved party and any of the respondents do not ordinarily reside or carry on business or personally work for gain in the jurisdiction of any High Court, then the High Court shall be such within whose jurisdiction the office of the Initiating Officer is located.

LEGISLATIVE INTENT

It had been observed that the non-residents against whom proceedings under PBPT Act have been initiated and who does not fall in the category of appellant or respondent mentioned in the definition, do not fall under the jurisdiction of any High Court. Hence, to enable the determination of High Court jurisdiction for the non-resident appellants or respondents, it is proposed to amend section 2(18) of the PBPT Act.

The amendment will provide certainty to the non-residents who are aggrieved by the order of the Appellate Tribunal regarding the appropriate High Court wherein they will have to file appeal.