CA Final Paper 7 Direct Tax Laws Chapter 24 CA.Aseem Chawla / CA. Anuj Mathur 1
Understanding Basic Framework of Appellate Remedies under the Income Tax Act, 1961 Understanding procedure and aspects relating to appeal before various appellate authorities; Understanding aspects relating to revisionary power vested with the Commissioner of Income Tax. 2
3
Appeal means complaint made by assessee to superior authority against decision of lower authority if the assessee is aggrieved by the decision. Person making the appeal: Appellant Person against whom the appeal is made: Respondent. Under the Income tax law, right to appeal is not a natural or inherent right but a statutory right provided in terms of the provisions of the Act. Where there is no expressed right relating to any order, the aggrieved person can resort to constitutional remedies by way of filing writ petitions before the High Court or the Supreme Court. 4
Assessment Proceedings AO order under Section 143(3) Draft order under Section 144C Order under Section 143(3) following directions of DRP Assessee Appeal to CIT(A) Dispute Resolution Panel Directions Assessee/Revenue Department Appeal to ITAT Assessee/Revenue Department Assessee/Revenue Department Appeal to High Court Assessee/Revenue Department Appeal to Supreme Court 5
6
Documents to be filed with the Appeal form Form No. 35 along with statement of facts and grounds of appeal in duplicate, duly signed Challan for the payment of Appeal Fee. Copy of the order appealed against (In case of appeal against the penalty order, also enclose a copy of the relevant order). Notice of Demand in original. 7
Section 249(2): Time Limit for filing appeal Particulars Notice of demand Appeal under Section 248 Any other case Time Limit 30 days from service of notice 30 days from payment of tax 30 days from service of intimation of order. Condonation of delay in filing appeal: Application for condonation of delay may be filed stating the reasons for delay. Discretionary power of CIT(A) to admit condonation application. 8
Exclusion of time for calculating the time limit filing appeal (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. 9
Fees to be deposited for Appeal SITUATION If t otal income as per assessment order is Rs. 1, 00, 000 /- or less If t otal income as per assessment order is more than Rs. 1, 00, 000 but Less than Rs 2, 00, 000 /- AMOUNT(Rs.) 250 500 If t otal income as per assessment order is more than Rs. 1,000 2, 00, 000 /- If the subject matter of appeal is not covered by above 250 10
Amount of tax before filing appeal Section 249(4) provides that taxes due to be paid before appeal : on the returned income or where no return is filed, amount of advance tax which was payable by him. CIT(A) may exempt appellant from payment of Advance tax before filing an appeal. 11
Mr. X an Individual had filed a return of income of Rs. 2,80,000 for the AY 2009-10. Deposit tax Rs. 3,390 (tax payable on returned income minus tax deposited) He paid a sum of Rs. 10,000 whereas the tax payable on the same was Rs. 13,390. Deposit filing fees :Rs. 1,000 (as assessed income is more than Rs. 2,00,000) His income is assessed at Rs. 3,80,000 and the tax payable at Rs. 31,930.X wishes to file an appeal against the said order. Appeal to be filed within 30 days of receipt of assessment order/ notice of demand. Advise X about the procedure for filing an appeal. Should apply for stay of demand for Rs. 18,540 (31,930 minus 13,390). 12
Notice to AO and assessee fixing a day and place of hearing. Right to be heard: The appellant in person or through his Authorized Representative (AR) and Assessing Officer 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. The CIT(A) shall dispose off the appeal in writing and shall state the points of determination and reasons for decisions. CIT(A) may hear and decide appeal within 1 year from end of financial year in which appeal is filed. On disposal of appeal CIT(A) shall communicate the order to the assessee and the Chief Commissioner/Commissioner. 13
To confirm, reduce, enhance or annul the assessment. In an appeal against the order of assessment in respect of which the proceedings before the Settlement Commission abates under section 245HA of the Act, 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 before him. 14
Limitations on Powers No power to review except power of rectification under Section 154. 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. 15
Conditions for admitting additional evidence AO refused to admit the evidence OR Admit additional evidence Assessee prevented by sufficient cause to produce evidence called upon by the AO OR Assessee prevented by sufficient cause to produce evidence relevant to ground of appeal CIT(A) record reasons in writing for admitting Allow AO opportunity to examine and to produce evidence in rebuttal OR AO did not allow sufficient opportunity to adduce additional evidence 16
17
1. Orders which may be Mentioned under Section 246 A of the Act appealable 2. Time Limit of Filing the Within 30 Days from the date of service of order. Appeal. 3. Prescribed Form Form No. 35. {( As per Rule 45 of Income Tax Rules, 1962 ( Rules )} 4. Who can file Appeal Assessee aggrieved by order of Income tax authority. 5. Fees Payable Assessed Income Fees Rs. 1 lakh or less Rs. 2, 50 /- More than Rs. 1 lakh but less than Rs. 5, 00 /- Rs. 2 lakh More than Rs. 2 lakh Rs. 1, 000 /- 6. Documents to be Filed. Form No.35, Grounds of Appeal, Statement of Facts, Copy of Order against which appeal is preferred, Notice of Demand in original and original challan of filing fees. 7. Documents to be Submitted Duplicate. in 8. Place of Filing. CIT(A) as mentioned in the Notice of Demand. 18
19
Central Government At present there are 27 benches in India Accountant Member At least 10 years in practice as Chartered Accountant. Member of Income-tax Service for at least 3 years Judicial Member 10 years of Judicial office in India, Indian Legal Service: 3 years or more (Grade II) Advocate for atleast 10 years. The Central Government shall appoint the President of the ITAT 20
Party files Appeal before ITAT within 60 days ITAT sends notice to respondent along with appeal and grounds Respondent may file Cross objections (Form 36A) within 30 days Memorandum of cross objections Once either of the party files an appeal before the ITAT, it will issue a notice to the respondent informing about filing of appeal. Provide appeal memo and the grounds of appeal to the respondent. On receipt of the notice, the respondent can file a memorandum of cross objection in Form No. 36A within 30 days of the receipt of the notice. The memorandum of cross objection can be filed against any part of the order decided against the respondent. There is no fee for filing the memorandum of cross objection. 21
Appeal fees payable in the case of an appeal to ITAT by the assessee Situation Amount (RS. ) If the total income as per assessment order is 1, 00, 000 /- or less If the total income as per assessment order is more than 1, 00, 000 /- but less than 2, 00, 000 /- If the total income as per assessment order is more than 2, 00, 000 /- If the subject matter of appeal is not covered by above 500 1, 500 1 % of the assessed income subject to maximum Rs. 10, 000 /- 500 No fees payable in case of case of filing of departmental appeal or for filing memorandum of cross objections. The IT Department can t file appeal before ITAT if tax impact is less than Rs. 300,000 22
Time Limit for filing an appeal The appeal shall be filed before ITAT within 60 days of the date of communication of the order appealed against. Condonation of Delay in Filing (Section 253(5)) Appellate Tribunal to admit an appeal or permit the filing of a cross objection after the expiry of the time prescribed: Condonation only if sufficient cause for not presenting appeal within prescribed time; Application for condonation to accompany appeal documents. 23
After giving both parties opportunity of being heard, pass order thereon as it deems fit. ITAT may hear and decide appeal within period of 4 years from end of financial year in which appeal is filed. Cost of appeal to the ITAT shall be at the discretion of the Tribunal. Tribunal shall send copy of order to the assessee and the Commissioner. 24
Stay granted by Tribunal: May grant a stay of demand after considering merit of the case, for 180 days but not exceeding 365 days; The ITAT should decide the matter within that period; Vacation of order of stay if appeal not disposed off within time limit; After that period of stay, order shall be vacated even though delay is not attributable to the assessee. Rectification: Tribunal may at any time, within 4 years from date of the order, rectify its order to rectify its mistake apparent from record. (Section 254) 25
Power to admit additional evidence: Income tax authorities have passed order without giving opportunity to adduce evidence. Power to award cost of an appeal (at discretion of Tribunal); Power to allow to raise a new ground; [National Thermal Power Corporation Ltd v CIT [1998] 229 ITR 383 (SC)] Power to remand to the authority competent to make requisite order. 26
The powers and functions be exercised and discharged by Benches. Bench shall consist of one judicial member and one accountant member. The President or any other member may, sitting singly, dispose of any case which has been allotted to his Bench pertaining to an assessee (Total Income not exceeding Rs. 5 lakhs) The President may constitute special bench for particular case (3 or more members) Difference in opinion on any point, shall be decided by majority opinion Members are equally divided, case shall be referred to the President or other members of the Tribunal for hearing. 27
28
Question of Fact v. Question of Law Question of Fact Question of fact involves determination of facts. The ITAT is the final fact finding authority. Hence question of fact can only be raised upto the ITAT. HC can entertain question of fact only if finding of ITAT is perverse. [ACIT v. Gautam Investments (P.) Ltd [2001] 250 ITR 324 (KAR)] Question of Law Question of law involves interpretation of law. Only a question which involves a substantial question of law can be raised in the High Court or Supreme Court. 29
1. Orders Appealable Mentioned under Section 253. 2. Time Limit of Filing the Within 60 days from the date of service of CIT(A)'s order. Appeal 3. Prescribed Form No. Revised Form No. 36. (As per Rule 47 ( 1 ) of Rules ) 4. Who can file Appeal Aggrieved Assessee or Commissioner. 5. Fees Payable Income assessed is Rs. 1 lakh or less Rs. 500 Income assessed is more than Rs. 1 lakh but less than Rs. 2 lakh Income assessed income is more than 2 lakhs. Rs. 1, 500 1% of assessed income, subject fee maximum of Rs. 10,000 6. Documents to be Filed. Revised Form No. 36, Grounds of Appeal, Copy of Order against which appeal is preferred, & Documents filed before the CIT(A) as referred in the column. 7. Documents to be Submitted Triplicate. in 8. Place of Filing. Registrar of the Appellate Tribunal. 9. Cross Objection. Form No. 36 A. ( As per Rule 47 of the Rules) 10. Prescribed Form No. Within 30 days of the receipt of the notice of appeal filed by other party. 30
31
After the order of Tribunal an appeal may filed to the High Court if High Court is satisfied that the case involves a substantial questions of law. Directly or indirectly affects substantial interests of parties Substantial question of law [Chunnilal V. Mehta and Sons Ltd.(Sir) v. Century Spinning and Manufacturing Co. Ltd.[1962] AIR 1962 SC 1314] Open question (not settled by pronouncement of the Supreme Court) Issue is not free from difficulty Calls for a discussion of alternative views 32
Appeal can be filed by the commissioner/ assessee against ITAT order [Memorandum of appeal stating the substantial question of law] The time prescribed for filing appeal is within 120 days from the date of receipt of order Where HC is satisfied that a substantial question of law is involved, it shall formulate such question. H.C may award such costs as it deems fit. H.C shall deliver such judgment as it deems fit. Appeal shall be heard on these question so formulated. 33
H.C shall determine any issue which: Has not been determined by the Tribunal Has been wrongly determined by the Tribunal, by reason of such question of law. Implied that question needs to be raised first before Tribunal before it is raised before H.C. Case before HC to be heard by not less than two Judges (Section 260B). Case to be decided by opinion of such Judges. 34
35
Appeal Before Supreme Court (Section 261) After the order of High Court an appeal can be filed to Supreme Court. Such appeal can only be filed if the High Court certifies it to be a fit case of appeal 36
Hearing before Supreme Court (Section 262) The Supreme Court after hearing such case shall: Decide the questions of law Deliver its judgment stating with necessary grounds on which such decision is based. The cost of appeal shall be the discretion of the Supreme Court. SC order is final and binding on lower courts within the territory of India. 37
38
Revisionary powers of Commissioner Revision of order prejudicial to Revenue [Section 263] Revision of order prejudicial to Assessee [Section 264] 39
Section 263: Revision of orders prejudicial to the Revenue CIT may call for Records AO order erroneous Prejudicial to Revenue Examine records Give opportunity of being heard to asseessee Enhancing the assessment Pass order Modifying assessment Cancelling the assessment and directing for fresh assessment 40
Other Aspects The Commissioner cannot revise the order of the Assessing Officer beyond the expiry of two years from the end of the financial year in which such order is passed; Appeal against the order passed under Section 263 of the Act lies with the ITAT; A return processed under Section 143(1) cannot only be regarded as an intimation and not an order. Thus, the same cannot be revised in terms of Section 263 of the Act;[ACIT v Rajesh Jhaveri Stock Brokers Pvt. Ltd [2007] 291 ITR 500 (SC)] 41
Section 264: Revision of other orders Application of the assessee Call for records Make necessary inquiry Pass order not prejudicial to assessee On his own motion Application to Commissioner Time Limit for filing application: 1 year from date on which order is communicated to the assessee. Fees: Rs. 500. 42
Cases where revision cannot be made: Appeal lies to CIT(A) or ITAT and time limit for appeal has not expired and assessee has not waived off right to appeal. Order has been made subject of an appeal to CIT(A) or ITAT. 43
Can revision proceedings under Section 263 be initiated based on audit opinion? No [CIT v. Sohana Wollen Mills [2008] 296 ITR 238 (P&H)] Can the Commissioner use additional records and material not used by the AO? Yes [CIT v. Shree Manjunathesware Packing Products and Camphor Works [1998] 231 ITR 53 (SC)] Will AO s adoption of interpretation favorable to the assessee leading to loss of revenue amount to erroneous order? No [CIT v. Max India Ltd. [2007] 295 ITR 282 (SC)] 44
Doctrine of Merger Section 264 Section 263 Total Merger Partial Merger The AO s order merges completely with order of the Appellate Authority. Hence, it is not open for the CIT to revise the order once it is made subject to appeal even on grounds that are not raised in the appeal. Merger of the AO s order with the order of the Appellate Authority is only on the ground that relate to matters considered and decided by the Appellate Authority. 45
46
An order under clause (ii) of sub-section (3) of section 115VP (Tonnage Tax) Order under Section 143 (1B) or 143 (1) or Section 200A (1), Order passed Under secton 143(3) or 144 or 144BA (12) to the 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; Order u/s 115WE(3) or section 115WF or section 115WG Fringe Benefit Tax; Order of assessment, re-assessment or re-computation under section 147 or section 150 or section 144BA (12) ; Order of assessment or reassessment under section 153A or section144ba (12) ; 47
An order made under section 163 treating the assessee as the agent of a non-resident; An order made under section 170(2) or 170(3), section 171; an order imposing a penalty under section 221, section 271, section 271A, section 271AAA, section 271AAB, section 271B, section 271BB, section 271F, section 271FB, section 272, section 272B, section 272AA or section 272BB or section 273; section 271C, section 271CA, section 271D, section 271E and section 272AA by Deputy commissioner; Section 272A by Deputy commissioner/deputy director; sub-section (1A) of section 275; an order imposing a penalty under sub-section (2) of section 158BFA; Chapter XXI i.e. under Section 270 to 275; 48
Order of assessment or reassessment under section 92CD (3). An order made under section 201, sub-section (6A) of section 206C; An order of assessment made under section 158BC (c) An order made under section 237; Order made under section 154 or section 155 having the effect of Enhancing the assessment, or Reducing the refund, or An order refusing to allow the claim made by the assessee under either of these sections; 49
Appealable orders before the ITAT Any order passed by the CIT (A) under Section 154, 250, 271A or 272A of the Income Tax Act. Order passed by an assessing officer under Section 115VZC (1) (Tonnage Tax in case of shipping companies) or under section 158BC; Order passed by a Commissioner under Section 12AA or section 80G(5)(vi) or section 263 or section 271 or section 272A or order under Section 154 amending the order under Section 263. Order passed by a Chief Commissioner or a Director General or a Director under section 272A. Order passed by AO under Section 143(3), 147, 153A or 153C in pursuance of directions of Dispute Resolution Panel (DRP). Order passed by AO under Section 143(3), 147, 153A or 153C with the approval of the Commissioner as referred to in Section 144BA(12). 50
Monetary Limit for Income Tax Department appeals stated by Central Board OF Direct Taxes ( CBDT ) vide Instruction No. 3/2011 dated 09.02.2011: S.No Appeals in Income - tax matters Monetary Limit (In Rs.) 1 Appeals before Appellate Tribunal Rs. 3,00,000 2 Appeals u/s 260A before High Court Rs. 10,00,000 3 Appeal before Supreme Court Rs. 25,00,000 51