Appeals under Income Tax Act -Law and Practice

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Appeals under Income Tax Act-Law and Practice

• CA SHARAD A. SHAH
• B.Com. FCA, DISA, IFRS (ICAI)
• Valuer (ICAI), Arbitrator (ICAI)

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PREAMBLE

• Appeal - to a higher authority for a remedy for
  redressal of grievances against unjust,
  erroneous, undesirable or invalid Orders passed
  by a lower Authority.
• No inherent right to appeal but conferred by the
  Statute.
• This right is conferred by the statute, hence
  subject to the terms and conditions specified
  therein.
• Fate of most of the appeal is decided at
  Assessment Stage or in the initial proceedings.

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Remedies available against the order of an
Assessing Officer

• Appeal to CIT-Appeals
• Revision of Order u/s 264
• Objections to be filed with DRP if it is an
  order u/s 144 C (Draft assessment order)

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Appellate Forum
Authority Under Section
Commissioner (Appeals) (First Appeal) 246A
Commissioner (Appeals) (First Appeal) 248
Dispute Resolution Panel (First Appeal) 144C
Income Tax Appellate Tribunal (ITAT) (Final Fact Finding Authority) 253
High Court (only if substantial question of law is involved) 260A
Supreme Court of India 261
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• APPEAL TO COMMISSIONER OF INCOME TAX- APPEALS

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Who can file Appeal

• Any assessee (or any Deductor w.e.f. 1.7.2012)
  aggrieved by an order.
• In case of Firm, by any partner of a firm
• In case of AOP, by any member of AOP
• Legal Heir in case of deceased person.
• Managing Director or any Director in case of
  Company
• Karta in case of HUF. However, after the
  partition if any adverse order is passed in
  respect of pre partition HUF, erstwhile
  co-parceners can prefer an appeal.
• The representative assessee as defined u/s 160.

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Appealable Order S. 246A

• Intimation u/s 143(1)
• Assessments u/s 143(3), 144, 144C, 147, 150,
  153A, 153C,
• An order against assessee who denies his
  liability to be assessed under the Income Tax
  Act.
• Orders u/s 154 or 155.
• Orders imposing penalties under various sections
  (except where CIT passes the order)
• Orders u/s 144BA- when becomes effective

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Appealable Order S. 246A

• TDS/TCS related orders u/s 200A, 201, 206C, 206CB
• An order treating agent of non-resident u/s 163
• An order of assessment on Successor u/s 170
• An order of assessment for earlier year in
  pursuance of APA S. 92CD(3)
• Order giving effect to the order of CIT-A or any
  other authorities.

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Appeal to CIT-A u/s 248

• Where under an agreement or other arrangement,
  the tax deductible on any income, other than
  interest, under section 195 is to be borne by the
  person by whom the income is payable, and such
  person having paid such tax to the credit of the
  Central Government, claims that no tax was
  required to be deducted on such income, he may
  appeal to the Commissioner (Appeals) for a
  declaration that no tax was deductible on such
  income.
•  

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Non-Appealable Orders

• Orders which are not specified u/s 246-A are
  non appealable orders e.g.
• Order of refusal to grant stay of demand.
• Order to levy interest u/s 234 A, 234 B, 234C.
• Certificate granted u/s. 197(1).
• Interest charged u/s. 220(2).
• Orders passed U/s 264 rejecting Revision
  Petition.
• Orders with agreed additions

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Orders directly appealble at ITAT

• An Order passed in pursuance of the direction of
  DRP (S. 144C) that is when DRP route is chosen.
• An appeal against the order u/s 263 by
  Commissioner of Income Tax
• Note-1 an order passed by an Assessing Officer
  under the directions received u/s 263 is
  appealable to CIT-A
• Note-2 Two appeals recommended- to ITAT against
  263 and to CIT-A against the order of AO

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Orders directly appealble at ITAT Contd

• An Order passed by the CIT u/s 12 AA, or 80 G (5)
  (vi)
• An Order passed by the CIT u/s 263, 271 or order
  passed by him u/s 154 amending his order u/s 263.
• Order passed by Chief Commissioner or Director
  General or a Director u/s 272 A

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Time Limit for filing of Appeal

• An appeal is to be filed with CIT-A with in 30
  days, that is to say
• Where the appeal relates to any TDS U/S 195(1),
  from the date of payment of tax.
• Where the appeal relates to any assessment or
  penalty the date of service of the notice of
  demand.
• In other cases the date on which such
  intimation of the order is served.

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MODE OF FILING APPEAL

• Press release dated 30-12-2015 states that
  electronic filing is being made mandatory
• Utility is now available on IT web site
• The appeal is to be digitally signed.
• The Assessment Orders are not available on line
• One has to scan and attach the file having
  Assessment Order
• Issue is about original notice of demand
• Till yesterday, we were able to physically file
  an appeal

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Condonation of delay

• Application for condonation of delay must be made
  specifying that there was a Sufficient Cause for
  delay.
• The CIT(A) can condone delay in filing of appeal
  under section 249(3) if satisfied that delay was
  due tosufficient cause.
• The CIT(A) has discretionary powers of
  condonation which should be exercised
  judiciously.
• The CIT(A) should have a pragmatic and liberal
  approach. Collector Land Acquisition Vs Mst.
  Katiji 167 ITR 471 SC

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Other decisions

• The Supreme Court in N. Balkrishnan vs. M.
  Krishnamurthy (1998) 7 SCC 123 had condoned a
  delay of 833 days. It was observed that
  condonation of delay is a matter of discretion of
  the Court and the only criterion is the
  acceptability of explanation irrespective of the
  length of delay.
• A subsequent decision of the Supreme Court/High
  Court was considered as sufficient cause for
  condoning delay in filing the appeal. State of
  Andhra Pradesh vs. Venkataramana Chudava
  Muramura Merchant (1986) 159 ITR 59 (AP)

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Other decisions Contd..

• The Courts have also held that the mistake of an
  Advocate or Chartered Accountant is a reasonable
  cause for delay in filing an appeal. Rafiq C.
  Munshilal AIR 1981 SC 1400 (1401), Mahavir Prasad
  Jain vs. CIT (1988) 172 ITR 331 (MP), Concord of
  India Insurance Co. Ltd. vs. Smt. Nirmaladevi
  Sons (1979) 118 ITR 507 (SC). Punam Singh vs. ITO
  (2002) 257 ITR 38 (Chennai) ( Trib). Shakti
  Clearing Agency P. Ltd. vs. ITO (127 Taxman 49
  (Mag) (Raj.).

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Exclusion of time taken for copy (Section 268)

• The day on which the Order appealed against was
  served is to be excluded
• If the assessee was not furnished with a copy of
  the order, the requisite time for obtaining a
  copy of such order shall be excluded.

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Appeal Fee
Particulars Amount (Rs.)
Total income computed by AO Upto Rs. 1,00,000/- 250/-
Between Rs. 1,00,001/- to Rs. 2,00,000/- 500/-
Above Rs. 2,00,001/- 1,000/-
Cases not covered above 250/-
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• Total income determined at negative figure
• - Minimum fees
• Gilbs Computer Ltd. Vs. ITAT - 317 ITR
  159(Bom)
• Challan details while making payment through
  Net-banking
• Type of Payment Tax On regular assessment
  Code 400
• Details of Payment Others

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Admission of Appeal

• Section 249(4) - Appeal shall not be admitted
  unless
• Where ROI is filed by the Assessee He/She/It
  has paid the tax due on the returned income on or
  before the filing of appeal Mandatory
• Where no ROI is filed The assessee has paid an
  amount equal to the amount of advance tax payable
  by him
• The CIT(A) has discretion to exempt the Assessee
  for any good and sufficient reason to be recorded
  in writing.

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Admission of Appeal Contd..

• Even payment of tax as per ROI before filing the
  appeal or hearing of the appeal will not mar the
  appeal
• S. Alagarswamy Vs. ITO - 296 ITR 43 (Mad)
• CIT Vs. Smt. G.A. Samanthakamani - 259 ITR 245
  (Mad)
• Tax does not include interest
• CIT Vs. Manojkumar Beriwal - 217 CTR 407 (Bom).

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Documents to be filed with the Appeal

• Form 35 (In duplicate)
• Statement of Facts (In duplicate)
• Grounds of Appeal (In duplicate)
• Copy of order against which appeal is preferred
  (In duplicate)
• Original notice of demand (u/s 156)
• In case of Penalty Appeals, copy of the base
  order from which the Penalty is initiated/levied
• Copy of challan for payment of fees
• Court Fee Stamp ( Rs. 5/- ????)

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Documents to be filed with the Appeal
(recommended
but not mandatory)

• Power of Attorney
• Covering letter addressed to the CIT (A)

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Documents to be filed with the Appeal

Contd.

• Non enclosure of notice of demand technical
  irregularities but not fatal
• Chelamala Setti Adeyya Vs. CIT - 54 ITR
  339(AP)
• The form of verification shall be signed by a
  person in accordance with the provisions of Rule
  45(2) i. e. by the person who is authorized to
  sign the ROI u/s. 140 of the Act, as applicable
  to the assessee.

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Procedure in AppealSection 250Procedure in
AppealSection 250

• Notice to AO and Assessee fixing a day and place
  of hearing.
• Following shall have right to be heard
• a) the appellant in person or through his AR
• b) the AO or his AR.
• CIT (A) has powers to adjourn the hearing from
  time to time.
• Before disposing of the appeal, the CIT (A) has
  power to make further inquiry or may direct the
  AO to further inquire and report i.e. remand
  report.
• Additional ground may be allowed, at the time
  hearing of an appeal, if satisfied that the
  omission was not willful or unreasonable.

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Procedure in AppealSection 250 Contd..

• The order of the CIT(A) shall be in writing
  stating the point for determination, the decision
  thereon and the reason for the decision.
• The CIT(A) may, as far as possible, may hear and
  decide the appeal within a period of one year
  from the end of the financial year in which
  appeal is filed.
• The CIT(A) on disposal communicate a copy of
  order to the assessee and to the Chief
  Commissioner or Commissioner but not to the AO
• As per CBDT Instruction No. 1489 dated 03-11-1982
  the CIT(A) should pass appellate in all cases
  order within 20 days after the final hearing and
  in all duly heard cases before relinquishing
  charge on transfer/proceedings on leave.

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Procedure in AppealSection 250 Contd..

• The order of the CIT(A) shall be in writing
  stating the point for determination, the decision
  thereon and the reason for the decision.
• The CIT(A) may, as far as possible, may hear and
  decide the appeal within a period of one year
  from the end of the financial year in which
  appeal is filed.
• The CIT(A) on disposal communicate a copy of
  order to the assessee and to the Chief
  Commissioner or Commissioner but not to the AO
• As per CBDT Instruction No. 1489 dated 03-11-1982
  the CIT(A) should pass appellate in all cases
  order within 20 days after the final hearing and
  in all duly heard cases before relinquishing
  charge on transfer/proceedings on leave.

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Powers of CIT (Appeals)-Section 251

• To confirm, reduce, enhance or annul the
  assessment or
• In an appeal against the order of assessment in
  respect of which the proceedings before the
  settlement commission abates under section 245
  HA, confirm, reduce, enhance or annul the
  assessment.
• In Penalty matters, to confirm or cancel such
  order or vary it so as either to enhance or to
  reduce the penalty
• In any other case he may pass such orders in
  the appeal as he thinks fit.
• Power to consider and decide any matter arising
  out of the proceedings in which the order
  appealed against was passed, notwithstanding that
  such matter was not raised by the appellant.

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Powers of CIT (Appeals)-Section 251

Contd..

• Any matter arising out of the proceedings
• It extends to all matters arising out of the
  proceedings which might have been considered and
  determined by the AO in the course of the
  assessment although such matters might not have
  been raised by the assessee. The competence of
  the appellate authority ranges over the whole
  assessment proceedings without restrictions on
  him. His jurisdiction is therefore, not confined
  to the subject matter of the appeal but extends
  to the subject matter of assessment.
• Ugar Sagar Works Ltd. Vs./ CIT -141 ITR 326
  (Bom)

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Powers of CIT (Appeals)-Section 251

Cont

• ITAT
• CIT-A does not have jurisdiction over those
  issues which have not been considered by the AO
• If does so, he is encroaching over the powers
  conferred u/s 263 and u/s 147

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Powers of CIT (Appeals)-Section 251

Contd..

• Powers of CIT (A) are very wide. He has the
  powers to direct the appellant to produce any
  document or to produce any witness for
  examination.
• Inherent power to stay the recovery.
• ITO Vs. Mohammed Kunhi - 71 ITR 815 (SC)
• Paulsons Litho Works Vs. ITO -208 ITR 676
  (Mad)

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Limitations

• No power to review except power of rectification
  u/s. 154.
• No power to consider validity of Act or Rules
  
• CIT Vs. Straw Products Ltd. 60 ITR 156 (SC)
• Commissioner (Appeals) has no power to set aside
  an order and refer the case back to AO for fresh
  assessment w.e.f 01-06-2001
• Commissioner (Appeals) cannot award costs to
  parties.

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Production of additional evidence (Rule 46A)

• Where the AO refused to admit the said evidence
  which ought to have been admitted.
• Where appellant was prevented by sufficient cause
  from producing evidence called upon by the AO.
• Where the appellant was prevented by sufficient
  cause from producing before the AO any evidence
  which is relevant to any ground of appeal.
• Where AO passed the impugned order without giving
  sufficient opportunity to appellant to adduce
  evidence relevant to any ground of appeal.

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Production of additional evidence (Rule 46A)
Contd..

• The CIT (A) must record in writing the reasons
  for admission of additional evidence.
• Before considering the additional evidence, the
  CIT(A) must
• Allow the AO a reasonable opportunity to examine
  the evidence or document or to cross examine the
  witness produced by the appellant, or
• To produce any evidence or document or any
  witness in rebuttal of the additional evidence
  produced by the appellant.
• This process may call for Remand Report from AO

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Remand Report

• When CIT(A) remands some matter to AO for
  verification and calls for Remand Report. (S.
  250)
• It is the right of assessee to get a copy of the
  Remand reference and Remand Report.
• For some issues, AO may have to give opportunity
  to the Assessee
• The assessee has right to make further submission
  to counter any issue in the Remand Report.

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Death of an assessee
Where an assessee to an appeal dies or is
adjudicated insolvent or in the case of the
company wound up, the appeal will not abate and
will continue against the executor, administrator
or other legal representatives of the assessee or
by or against the assignee, receiver or
liquidator as the case may be. In case of a
death of assessee, the legal heirs of the
assessee must file copy of death certificate and
an affidavit of they being the legal heirs. A
fresh memorandum of appeal signed by the legal
heirs must be filed before the Commissioner
(Appeals) or the Tribunal as the case may be
where the assessee is the appellant so that the
legal heirs are brought on record.
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Withdrawal of Appeal
Appeal once filed cannot be withdrawn by the
appellant. However the appellate authority in
its discretion may allow withdrawal of appeal and
dismiss the same as not pressed. In CIT v. Rai
Bahadur Hardutroy Motilal Chamaria (1967) 66 ITR
443 (SC) it has been held that It is also
well-established that an assessee having once
filed an appeal cannot withdraw it. In other
words, the assessee having filed an appeal and
brought the machinery of the Act into working
cannot prevent the AAC from ascertaining and
settling the real sum to be assessed, by
intimation of his withdrawal of the appeal. Even
if the assessee refuses to appear at the hearing,
the Appellate Assistant Commissioner can proceed
with the enquiry and if he finds that there has
been an under-assessment, he can enhance the
assessment
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Withdrawal of Appeal Contd..

• Although the assessee has no power to withdraw
  the appeal filed before the CIT(A) as per 66 ITR
  443(SC) (supra) but the CIT(A) or Appellate
  Authority is satisfied that there will be no
  prejudice to revenue may allow to withdraw.
• Bhartia Steel Engineering Co. P. Ltd. Vs. ITO
  97 ITR 154(Cal)

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Appeal Order and appeal effect

• After conclusion of hearing the CIT (A) will
  issue a order of the appeal.
• If it is in favour of the Assessee, either in
  full or partial, he has to file a request with AO
  for appeal effect.
• In case of against the Assessee, he has to decide
  to file second appeal file an appeal before
  jurisdictional ITAT within 60 days.

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Appeal Order and appeal effect
Contd..

• After conclusion of hearing the CIT (A) will
  issue a order of the appeal.
• If it is in favour of the assessee, either in
  full or partial, he has to file a request with AO
  for appeal effect.
• In case of against the Assessee, he may decide
  to file second appeal file an appeal before
  jurisdictional ITAT within 60 days.

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Appeal Order and appeal effect
Contd..

• If the appeal order is against the AO, then he
  has a right to go in appeal with ITAT.
• The revised limits for filing appeal by
  Department before Appellate Authorities as
  specified vide Circular 21 of 2015 are given
  hereunder

Appeals in Income Tax Matters Monetary Limit (In Rs.)
Before ITAT 10,00,000/-
Before High Court 20,00,000/-
Before Supreme Court 25,00,000/-
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Drafting of Appeal before the CIT (A)

• Before drafting an appeal, prepare a
  Reconciliation Statement of Income Declared and
  Income Assessed.
• Read the assessment order thoroughly.
• Identify each addition and each disallowance.
• Identify the wrong facts stated by the AO in his
  Order and consider it in the grounds of appeal
  appropriately

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Drafting of Appeal before the CIT (A)
Contd

• Statement of facts should be given for each
  ground of appeal and these may be detailed
  depending upon case to case. Statement of facts
  can be given at the time of hearing also.
• Grounds of appeal must be in brief and avoid
  arguments while drafting grounds of appeal.
• It is suggested that simple sentences be used in
  brief but the grievance to be raised must not be
  left out.
• Always avoid mixing up the grounds of appeal with
  statement of facts.

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Drafting of Appeal before the CIT (A)
Contd

• Grounds of appeal should be drafted in logical
  sequences and be numbered properly.
• The First Ground should be a General ground-
  Income assessed and income declared.
• In the last Ground, crave leave for addition,
  modification, substitution or withdrawal of
  grounds of appeal.

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Drafting of Appeal before the CIT (A)
Contd

• Submit Power of Attorney- if not submitted
  earlier
• Study the assessment order in depth and carefully
  and understand the facts of the case and the
  background involved in each addition.
• Study all the replies filed before the AO during
  the assessment proceedings
• Identify the weak points in relation to each
  additions made.
• Examine whether any additional evidence is to be
  taken. If so, draft an appropriate application
  under Rule 46- A.

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Presentation before the CIT (A) Contd

• File the application under Rule 46-A alongwith
  documentary evidence in support of your claim as
  far as possible. (2 Sets)
• Prepare paper book with index containing all
  written submissions filed, evidences in support
  of assertions made in the written submissions.
• Prepare exhaustive written submissions relevant
  to each ground of appeal. Highlight the important
  submissions in bold or italics.
• Make special efforts in emphasizing as to how and
  why the AO was wrong based on actual facts and
  legal issues. Controvert the stand taken by the
  AO duly supported by documentary evidences, legal
  position and decided cases by the courts.

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Presentation of Appeal before the CIT (A)
Contd

• Reliance be placed on the decisions of the Apex
  Courts, Jurisdiction High Court and ITAT.
• Revenue authorities have to follow decision of
  jurisdictional High Court unless appealed against
  in Supreme Court
• CIT Vs. G. M. Mittal Stainless Steel (P) Ltd.
  (2003) 130 Tax man 67 / 263 ITR 255 (SC)
• Jurisdictional ITAT order is also binding on
  CIT-A
• Care need to be taken while placing reliance on
  case laws. Examine the cases for and against. As
  far as possible, distinction be made between the
  cases which are against.
• Distinguish the cases relied upon by the AO.

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Presentation of Appeal before the CIT (A)
Contd

• Maintain calm and be peaceful and confident.
• Have proper knowledge of all facts of the case.
  Reply to the queries raised by the CIT (A) be
  offered promptly and to the point.
• Do not get provoked with the seemingly irrelevant
  queries by the CIT(A).
• Avoid unnecessary arguments and altercations in
  case if the CIT(A) is not satisfied with your
  arguments.

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• OBJECTIONS BEFORE
• DISPUTE RESOLUTION PANEL

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CONSTITUTION OF PANEL

• COLLEGIUM OF 3 COMMISSIONER OF INCOME TAX OR
  PRINCIPAL COMMISSIONER OF INCOME TAX
• PRESENTLY SITTING AT MUMBAI

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WHO IS ELIGIBLE

• WHERE TRANSFER PRICING ADJUSTMENT IS MADE ON
  REFERENCE TO TPO (AND DRAFT ORDER IS GIVEN)
• WHERE ASSESSEE IS A FOREIGN COMPANY

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PROCESS IN BRIEF

• Form 35A to be filed in triplicate 1 Set to AO
• Time limit within 30 days of receiving Draft
  Order
• In substance it has same process as that of
  appeal before CIT-A
• Direction Order has to be given in 9 months
• Although Department can file appeal against DRP
  order to ITAT (instruction not to file)-
  Proposed Amendment in Finance Bill 2016,
  withdraws this power to file Appeal
• There is no fee payable

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• APPEAL BEFORE ITAT

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Constitution

• Normal divisional Bench 2 members- One
  Accountant Member and One Judicial Member (Pune
  has such 2 Benches)
• Special Bench Normally 3 members
• Third Member Bench
• Single Member Bench (Where assessees assessed
  income does not exceed Rs. 15 lakhs now
  proposed to be Rs. 50 lakhs.

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FORMS FOR APPEAL

• Appeal Memo- Normal- Form 36
• Appeal Memo- After DRP Direction- Form 35B
• Cross Objection- Form 36A
• Stay Petition- Appendix A
• Misc Application- No specific form

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TIME LIMITS

• Appeal within 60 days or order being appealed
• Cross Objection within 30 days of receiving
  intimation of filing of appeal by opponent
• Misc Application- Now proposed to be reduced to
  6 months (Earlier 4 years)

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PROCESS IN BRIEF

• FILE 3 SETS OF APPEAL PAPERS WITH ALL ENCLOSURES
• FILING OF PAPER BOOK
• SUBMISSION OF ADDITIONAL GROUNDS
• OTHER THINGS ARE SAME IN SUBSTANCE

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Some other proceedings at ITAT

• Cross Objection
• Stay petition
• Misc. Application

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FEES FOR APPEAL BEFORE ITAT
Assessed Income Range Fees (Rs.)
0 1,00,000 500
1,00,001 2,00,000 1500
2,00,001 onwards 1 of assessee income subject to maximum of Rs. 10,000/-
Cross Objection No fees
Stay Petition 500
Misc Application 50
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Thank You