[Union Budget] Tax Litigation – The lesser it be, more rewarding it is

Authored by Dr Hemant O Sharma | CA, PhD & Gopal C Mehta | Advocate High Court

1. The budget 2023-24 contains several redeeming provisions which promise tax-relief to the classes which aspired it for long and also deserved it – on account of elapse of time, equity & merits.

2. While the authors heartily commend the governmental efforts in the sphere of reducing tax litigation, yet it is respectfully submitted that it is the administrators of the tax law, who need to administer & implement the provisions in the spirit in which they are proposed.

3. The memorandum at page 34 under the heading “Introduction of the authority of Joint Commissioner (Appeals)” at para 2, states:

“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”

(emphasis supplied)

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4. In this respect the following issues need deliberation:

4.1 Since the onset of pandemic the government has itself consciously not taken up cases for scrutiny, in the last 2 years, except in limited cases. However, the government was gifted with a bonanza with more than 90,000 cases (section 148 cases) being legalised by hon’ble Supreme Court in case of UOI v Ashish Agarwal [2022] 138 taxmann.com 64 (SC) which judgment got fiercely debated, discussed and deprecated in legal circles, spearheaded by authors at Taxmann.

4.2 It is respectfully submitted that the source of appeals-to-be-filed with CIT (Appeals) itself has been hugely & unusually depleted in the last 2 years.

4.3 In respect of functioning of the office of Joint Commissioner/Additional Commissioner/(JCIT/Ad.CIT, for short) & their newly enshrined power of adjudicating an appeal, the issues appearing herein merit consideration.

4.4 The office of JCIT/Ad.CIT, is required to execute several administrative responsibilities, apart from being empowered with quasi-judicial authority under section 144A, to “…….issue such directions as he thinks fit to complete the assessment….”

4.5 It bears a recall that

“…………..A Joint Commissioner, may on his own motion or on a reference being made to him by the Assessing Officer or on the application of an assessee, call for…………”

(emphasis supplied)

4.6 In the last several decades of our practice we have not come across a single case where section 144A direction was given by JCIT/Ad.CIT on “his own motion”.

4.7 It is common knowledge that even when a pleading for section 144A direction is made by the assesee, it generally culminates in the direction to the beleaguered Assessing Officer to follow the law enshrined on the subject. The poor AO is left high and dry without any specific direction; he is largely left to his own wisdom, capability and understanding to draft the assessment order.

4.8 It is also respectfully submitted that authors have also not come across a single direction “……on a reference being made to him by the Assessing Officer”. Hence to this extent power of adjudication, is rendered a dead-letter and otiose.

4.9 It leaves the authors speculating as to how the power of adjudicating an appeal, which is now so generously conferred on the office of JCIT/Ad.CIT, shall be a welcome armoury in the appeal machinery, that shall help mitigate the burden of litigation both of the government and assessees.

4.10 It is very respectfully submitted that with the intent and objective of reducing litigation the department should at the stage of assessment itself decide less cases against the assessee, but with greater authority & conviction of law premised on the orders of judicial and quasi-judicial authorities, that shall add certainty to cases.

4.11 It is stated that:

“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……”

4.12 It is respectfully submitted that in the interest of justice & equity, assessment proceedings should not raise a small demand (as may be envisaged by the CBDT), which shall also be a step in reducing litigation.

4.13 It needs a recall that consciously deciding not to file appeal by the department, at the higher appellate forums, in accordance tax-effect stated in the circular no 17 dt 8^th Aug 2019, achieves the same purpose. This is more particularly so, as we already have sub-section (7) of section 270A, though in respect of penalty, which helps reduce litigation, on payment of penalty equal to 50% of tax demand. This is apart from the various litigation reduction schemes that flow in occasionally.

4.14 It is stated that:

“…..Commissioner (Appeals) are currently overburdened due to the huge number of appeals”, 

without citing statistics and reasons for pendency of huge number of appeals. It is very respectfully submitted that this is frivolous, unsubstantiated & insufficient argument for this fundamental reform. The parallel of which argument is commonly found in the assessment orders passed by AOs.

4.15 It is respectfully submitted that CIT (Appeals) have never really borne the burden of appeals; indisputably it is the beleaguered appellants who bear the real burden.

4.16 The large scale reversal of orders of CIT (Appeal) orders by higher appellate authorities demonstrates that the premise of burden, to facilitate the reform, is itself incorrect, though the intention of the government is certainly honorable.

4.17 Hardly do we come across orders of CIT (Appeal) receive the same kind of appreciation at appellate forums as that of by Assessing Officers. It is respectfully submitted that the orders of assessment by AOs fight their own battle write till the Supreme Court. When the hon’ble Supreme Court pronounces orders favouring the revenue, very rarely does the contribution of CIT (A) gets acknowledged.

4.18 Without prejudice, it is respectfully submitted that the appellant-assessee should be allowed to raise the issue, before the JCIT/Ad.CIT (Appeals), as to why this office did not issue any direction under section 144A at the assessment stage.

4.19 It is respectfully submitted that since they are now given the power to decide an appeal the office of JCIT/Ad.CIT should be required to state in the assessment order why he does not deem it fit to issue a direction at assessment stage itself.

4.20 It is respectfully submitted that this provision of getting an appeal decided by DCIT, an authority lower than Commissioner, prevailed under section 246 in the statute till 2000.

4.21 There is no reason cited for the resuscitation of the dead provision at this stage, when no arguments of merits & enhanced-credibility of the office of JCIT/AD.CIT, which could have otherwise been the basis of empowering them, to decide an appeal have been propounded.

4.22 It is respectfully submitted that the office of JCIT/Ad.CIT has failed the department at assessment stage by not giving direction sustainable in law. How can the legislature now expect miracles from this office?

4.23 It is stated that:

“Such authority has all powers, responsibilities and accountability similar to that of Commissioner (Appeals) with respect to the procedure for disposal of appeals.”

(emphasis supplied)

4.24 The sub-section (6B) of section 250, dealing with procedure for disposal of appeals, by CIT(Appeal) states:

“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)……….; (c)……………”

(emphasis supplied)

4.25 The proposed sub-section (5) to the 246 provides 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 of appeals in an expedient manner with transparency and accountability by eliminating…………”

4.26 The absence of efficiency, by advertence or inadvertence, in the procedure stated in the said sub-section (5) is evident. Even when no responsibility is cast on the office of JCIT/Ad.CIT (Appeals), to execute their high-profile job with greater efficiency, can this office be trusted to pass just, fair and legally sustainable orders, is left to the imagination of the reader of this column.

4.27 The intellect of Kabir on litigation, is necessary to dwell on the fruits of litigation.