Understanding CIT appeal under income tax

 

Taxpayer when not satisfied with the order passed by the tax-officer  can appeal before CIT Appeal under section 246 of the Income tax act, 1961.  Hence it is very important for tax professional to obtain procedural knowledge in this respect.

According to the provisions of Section 246 any assessee who is aggrieved by an order, passed by the Assessing Officer may prefer an appeal to the Commissioner of Income-tax (Appeals).

 

The Commissioner of Income-tax (Appeals) or the Appellate Tribunal may admit an appeal, beyond the period of limitation, if it is satisfied that there was sufficient cause for not presenting the appeal, within time.

 

An appeal can be filed against the order of the Commissioner of Income-tax (Appeals).

Under Section 253 of the Income-tax Act, an assessee, who is aggrieved by an order, passed by a Commissioner of Income-tax (Appeals), can prefer an appeal to the Income-tax Appellate Tribunal. Similarly, the Commissioner (Administration) can object to any order of the Commissioner of Income-tax (Appeals) and, file an appeal to the Appellate Tribunal.

 

Time limit for preferring an appeal.

The period of limitation for preferring an appeal to the Commissioner of Income-tax (Appeals) is thirty days from the receipt of the order of the assessing officer and, for preferring an appeal to the Appellate Tribunal, the limitation is sixty days from the date on which the Commissioner’s, order is communicated.

 

An appeal can be presented by registered post or, must it always be sent by hand delivery.

The appeal can be presented by hand delivery or, can be sent by registered post. However, the appeal, if it is sent by registered post, the same should reach the authorised officer, within the period of limitation, as mentioned above.

 

Fees, payable to file an appeal.

For filing an appeal to the Commissioner of Income-tax (Appeals), the prescribed fees are as follows:-

1.    Rs. 250/-, where the Assessed income is Rs.1 lakh or less;

2.    Rs.500/-, where the Assessed income is over Rs.1 lakh but less than Rs.2 lakhs;

3.    Rs.1, 000/-, where the Assessed income is over Rs. 2 lakh.

For preferring an appeal to the Appellate Tribunal, the prescribed fee is as under:-

1.    Rs.500/-, where the Assessed income is Rs.1 lakh or less;

2.    Rs.1500/-; where the assessed income is more than Rs.1 lakh, but less than Rs.2 lakhs;

3.    1% of the assessed income, subject to a maximum of Rs.10,000/-, where the assessed income is more than Rs.2 lakhs.

4.    Prescribed forms for presenting an appeal

For presenting an Income-tax appeal before the Commissioner, the prescribed form is Form No.35, while for an appeal to the Appellate Tribunal; the prescribed form is Form No.36.

 

How to draft the appeal?

Every memorandum of appeal, whether in Form No.35 or 36, shall be written in English. The grounds of appeal should be concise, without any argument or narration and, should be numbered, serially, under distinctive heads. With the memorandum, it is necessary to prepare a statement of facts in such a manner so as to bring out clearly the issue, raised in the order of the Assessing Officer, under challenge. There is, however, no requirement for filing a separate statement of facts before the Appellate Tribunal as the statement of facts, filed before the Commissioner of Income-tax (Appeals), would be annexed with the Memorandum of Appeal to the Appellate Tribunal.

 

If I forget to raise an issue before the Commissioner of the Appellate Tribunal, can I raise the issue at a later stage?

While drafting the appeal, a lot of care should be taken, so as to include all the grounds, therein. Though the Commissioner of Income-tax (Appeals) or, the Appellate Tribunal has the powers to entertain additional grounds, the same can be raised, only, before the disposal of the appeal and, with the permission of the appellate authority. For admission of the additional grounds, the person must have adequate reasons for not raising the ground at the time of filing the appeal.

 

Can the Memorandum of appeal be signed by my Advocate or Chartered Accountant?

The form of appeal shall be signed and verified by the assessee or, by a person, who is authorised to sign the return of income, or, by a Constituted Attorney of the Power of Attorney, specifically, mentioning the same. This power has been given to the Advocate or Chartered Accountant, specifically and the appeal may be signed only by such person. However, a letter of authority to appear may not include the power to sign an appeal.

 

Will I be informed about the hearing of the appeal or, will it be disposed of on the basis of my Memorandum that I have filed?

The Commissioner of Income-tax (Appeals) or the Appellate Tribunal would issue a notice of hearing to the assessee

 

 

Does CIT (A) have power of enhancement: 

The powers conferred upon the first appellate authority by the Income-tax Act are much wider than the powers of an ordinary Court of appeal. The first appellate authority is not an ordinary Court of appeal, considering that only one party to the original decision taken is entitled to appeal. It is on account of this peculiar position that the statute has conferred wide powers to the first appellate authority.

Once the assessment comes before the CIT(A), his jurisdiction is not restricted to examining only those issues that have been taken up by the appellant in appeal, but ranges over the whole assessment and it is open to him to correct the assessment order not only in regard to the matters taken in appeal, but also with regard to maters which were considered by the Assessing Officer in the assessment proceedings. He can examine every process which results in ultimate computation and assessment of income, even if his decision leads to enhancement of income.

However, in the area of powers of enhancement, there are contrary decisions : while one view relying upon the decisions in the cases of : CIT v. Shapoorji Pallonji Mistry, 44 ITR 891 (SC) and CIT v. Rai Bahadur Hardut Roy Motilal Chamaria, 66 ITR 445 (SC) is that the power of enhancement is restricted to only those areas and sources of income which were considered by the Assessing Officer at the assessment stage, and hence, such enhancement should not lead to a new source of income.

The other view relying upon the decisions in the cases of CIT v. Kanpur Syndicate Ltd., 53 ITR 225 (SC) and CIT v. Nirbheram Daluram, 224 ITR 610 (SC) is that such power of enhancement can even lead to an addition in respect of a new source of income.

In CIT v. Nirbheram Daluram, 224 ITR 610 (SC), the Apex Court relied upon the three judges Bench decisions in the cases of Jute Corporation of India v. CIT, 187 ITR 688 (SC) and CIT v. Kanpur Coal Syndicate, 53 ITR 229 (SC) to hold that the CIT(A) (or AAC as in that case) has plenary powers in disposing of an appeal. The scope of his power is coterminous with that of the Assessing Officer. He can do what the Income-tax Officer can do and can also direct him to do what he has failed to do.

The ratio of the decision in the case of Nirbheram Daluram should prevail considering that it was pronounced in the context of S. 251 of the Act, while the earlier decision was in the context of the corresponding provision of 1922 Act.

On the other hand, it is also argued that the decision in the case of Rai Bahadur Hardut Roy Motilal Chamania was a decision of a three-Member Bench, while that in the case of Nirbheram Daluram, the decision was by a Division Bench and therefore, the former should prevail over the latter.

It has to be noted that in the case of Nirbheram Daluram, the issue of enhancement in respect of a new source of income was never under consideration. Hence, wherever such a situation arises, the proper course of action is to take remedial action u/s.147 or S. 263 of the Act, as the case may be [CIT v. Sardari Lal & Co., 251 ITR 864 (Del-FB)].

Needless to add, where the CIT(A) proposes to enhance the income or penalty, he has to issue a show-cause notice giving the appellant a reason-able opportunity to explain his case. In view of the wide powers of the CIT(A), proceeding before the CIT(A) should be conducted after adequate preparation and care.

Further, as far as possible, all legal issues should be taken before the CIT (Appeals), as at times, the Tribunal takes the view that the issue had not been agitated before the CIT(A) and does not arise out of his order.

 

Given below few recent judgments which will enable yourself with the knowledge on appeal under income tax.

 

·         Issues appelable :   Issue of not allowing relief in respect of witholding tax under section 90-91 is squarely covered within ambit of section 246-1-a. Refer, Capegemini Business Services v DCIT, 9 Taxmann.com 2. 

 

Tribunal in the case of ITO v MSC Agency ( India) P.Ltd, 9 ITR ( Trib) 425, held that Order determining amount of tax under section 172 (4) is appellable.

 

Further in the case of Capgemini Business Services ( India) Ltd v Dy CIT, 131 ITD 396, Mumbai ITAT held that Question of not allowing relief in respect of withholding tax under section 90/91 has direct  effect of reducing refund or enhancing amount of tax payable , such an issue is squarely  covered with in ambit of section 246A (1) (a). ‘Amount of tax determined’ as per section  246A(1) (a) encompasses not only determination of amount of tax on total income but also  any other thing which has an effect of reducing or enhancing total amount of tax payable by assessee.   

 

Penalty for failure to furnish annual information is also appealable before Commissioner (Appeals) and Tribunal.(S.253(1)(c), 271, 271FA). Refer, DIT v. Ravi Vijay & Anr, 252 CTR 228.

 

·         Procedure : Proceedings for assessment of an assessee cannot be based on directions issued by another co‐ordinate Tribunal or even a higher forum , if that was not the subject matter before it.  That would be an exercise without jurisdiction. Power of commissioner ( Appeals) , directing to tax certain amounts in hands of a third party, held to be not valid. Refer, CIT v Krishi Utpadan Mandi Samiti, 336 ITR 77 

 

In case of a company whose name has been struck off the register by the Registrar of Companies can file an appeal under Section 246 and in that situation the Director of erstwhile company is authorized to sign the requisite form. Refer, Ajay Ispat (P.) Ltd v. ITO, 136 ITD 145 (Ahd.)(Trib.).

 

·         Delay in filing : Supreme court directed that Delay by Department in filing appeal cannot be mechanically condoned.  Refer, Chief Post Master General vs. Living Media India Ltd. 

 

·         Additional ground : Benefit of proviso to section claimed was first time before Commissioner(Appeals) held justified in allowing the  claim. Refer, Raja Rani Gulati(Smt) v. CIT, 249 CTR 51. 

 

When the relevant material is on record the additional ground can be entertained by the tribunal. Refer, National Thermal Power Co. Ltd vs CIT, 229 ITR 283 (SC.).

 

Additional claim by way of additional ground before AAC is allowable when material is on record.

 

·         Question of law: Question of law can be raised at any stage in income tax proceedings under Income-tax Act, 1961. Refer, CIT v. St. Marys Malankara, 348 ITR 69. 

 

·          Stay of demand : Jodhpur high court decided that first appellate authority has inherent powers to grant stay even if provisons in I-T Act do not confer any such specific power to grant stay against recovery of disputed demand  

 

·         New evidence :  In the case of ITO vs Bhagwan Das, IT Appeal No. 383(chd) of 2011,  ITAT held that to render justice, CIT Apppeal can consider new evidence under Rule 46A. However, Delhi ITAT in the case of DCIT vs E-4 Entertainment (P) Limited,, ITA No. 4491/ Del/2010 held that in case AO had provided sufficient opportunity to the assesse, then there is no requirement to consider new evidence.  Further, in the case of ITO vs Electric Mfg Co. Limited, ITA 638(Kol), of 2012 it was held that CIT(A) cannot admit additional evidence without complying with Rule 46A.

 

 

·         Raising of penalty by tax department when appeal is pending.

Amendment in section 275  By the Finance Act, 2003 section 275 has received a proviso, which directs the assessing officer to   impose penalty within a period of one year from the end of the financial year in which the order of Commissioner (Appeals) is received. Mind you this is so even if the assessee challenges the order of Commissioner (Appeals) before the Income tax Appellate Tribunal.

To be precise section 275 sets out the time limit within which the penalty proceedings must be completed. Section 275 requires completing the penalty proceedings before the expiry of the financial year in which the proceedings in the course of which the action for imposition of penalty has been initiated, are completed or within one year from the end of the financial year in which the order of Commissioner (Appeals) is received, whichever date is later. Section 275 more precisely reads as under:

" 275. Bar of limitation for imposing penalties. - (1) No order imposing a penalty under this Chapter shall be passed—

(a) in a case where the relevant assessment or other order is the subject matter of an appeal to the Commissioner (Appeals) under section 246 or section 246A or an appeal to the Appellate Tribunal under section 253, after the expiry of the financial year in which the proceedings, in the course of which action for the imposition of penalty has been initiated, are completed, or six months from the end of the month in which the order of the Commissioner (Appeals) or, as the case may be, the Appellate Tribunal is received by the Chief Commissioner or Commissioner, whichever period expires later; 

Provided that in a case where the relevant assessment or other order is the subject-matter of an appeal to the Commissioner (Appeals) under section 246 or section 246A, and the Commissioner (Appeals) passes the order on or after the 1st day of June, 2003 disposing of such appeal, an order imposing penalty shall be passed before the expiry of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed, or within one year from the end of the financial year in which the order of the Commissioner (Appeals) is received by the Chief Commissioner or Commissioner, whichever is later ; "

Section 275 therefore primarily divides the cases into two categories. In the first category of cases is where the appellate order is made before 01.06.2003. The limitation for the cases falling under this category, is before the end of the financial year in which the proceedings, in the course of which the action for imposition of penalty has been initiated, were completed; or six months from the end of the month in which the order of the commissioner (A) or ITAT was received by the Commissioner, whichever period expires later. The second category covers a case where the order of Commissioner ( A) is passed after 01.06.2003 in which case the limitation is before the expiry of the end of the financial year in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed or one year from end of the financial year in which the order of Commissioner ( A ) is received. . The words "in which the proceedings, in the course of which action for imposition of penalty has been initiated, are completed" used in section 275 indicate that the penalty imposition must take place after the assessment proceedings are completed.

When do the assessment proceedings are complete?

The Gujarat High Court in CIT v. Mayur Foundation (2005) 274ITR562 held that assessment proceedings cannot be said to be complete but are pending till the appeal is heard and disposed of by the Tribunal and the order of the Tribunal is given effect to by the assessing authority by computing the correct tax liability of an assessee. If this be so, it then follows that the assessing officer must wait until the passing of the order by the Income Tax Appellate Tribunal when the matter will reach its finality. In such a scenario the right course for him is to keep the penalty action in abeyance.


The Patna High Court in Commissioner of Income-tax Vs. Jhaverbhai Biharilal & Co. (171ITR362) held that where the assessment being still open, it could not be said that there was any difference between the assessed income and the returned income and the question of levying penalty did not arise. The question of levy of any penalty would arise only after the Tribunal has decided the quantum matter.

The word 'proceedings' must be read as referring to assessment proceedings and till such time they are open no penalty imposition is warranted under the law even after such amendment made in section 275 by the Finance Act, 2003. One would therefore expect that a necessary instruction be issued in this regard by the Central Board of Direct Taxes to prevent the assessing officer from imposing penalty before the receipt of order of the Tribunal