APPEAL BEFORE CIT (Appeals)

INTRODUCTION APPEAL BEFORE CIT (Appeals) C.A. Reepal G. Tralshawala tralshawalareepal@gmail.com Article 265 of the Constitution provides that no tax shall be levied or collected except by an Authority of Law. However, it is often said that, tax payers end up paying such amount of tax, which is not payable under the Law, but pays it because of wrong Assessments. This is mainly for the reason that the administrations of Tax Law in their excess zeal or for lack of legal acumen wrongly interpret the provisions of tax law. This again mainly comprises of two factors - Firstly, the orders of the Assessing Officers are subject to scrutiny by Audit, Revision by Higher Authorities, etc. and Secondly, there is no Accountability, whatever may be the additions made by the Assessing Officer, assuming all the additions are deleted, the Assessing Officers are not accountable. Dr. Raja Chelliah, in his final report 191 ITR (St.) 177 at para 5.9, has specifically stated that unless the officers are made accountable, the tax administration will not improve. APPEALS BEFORE CIT(A): 1. WHO CAN FILE APPEAL? 1.1 "Every Assessee aggrieved" by any of the orders mentioned in Section 246A of the I.T. Act, 1961 has a right to prefer an appeal. In Rameshchandra & Co. v. CIT 168 ITR 375 (380) (Bom), it has been held that where an assessee has made a statement of facts, there can be no grievance if he is taxed on the basis of that statement. As there is no grievance, there can be no appeal. When an Assessing Officer states in the Order that the Assessee agreed for addition, he cannot file an appeal unless he challenges the observation of the Assessing Officer by filing Affidavit - Western India Automobiles v. CIT 112 ITR 1048 (Bom). 1.2 Where the Assessing Officer in his order states that the Assessee agreed for addition, Assessee should make application u/s.154 of the Act, challenging the observation of

the Assessing Officer and should also file an appeal specifically urging that he has not agreed for additions and the same should be supported by an Affidavit. This becomes very relevant because if the assessee does not challenge the observation, the Assessing Officer may levy penalty u/s.271(1)(c). It is always advisable that the assessee's authorised representative should not agree for any additions. If he agrees for additions, because of the changing circumstances of Consumer Protection Act, the assessee may take action against the representative for agreeing additions as ultimately the assessee is liable to penalty, prosecution, etc. As regards the legal issues are concerned, assuming the assessee agrees for addition, the same is not binding on him - Gauri Sahai Ghisa Ram v. CIT 120 ITR 338 (All) - Rani Anand Kunwar v. CIT 8 ITR 126 (Oudh). 2. PROCEDURE 2.1 An appeal should be filed within a period of 30 days of the Service of the Order against which the appeal is preferred, in the prescribed Form No. 35. The Hon'ble Calcutta High Court in Charki Mica Mining Co. Ltd. v. CIT 111 ITR 193 has held that the limitation period commences from the date of receipt of notice of demand by the Assessee and not from the date of receipt of Assessment Order. 3. GROUNDS OF APPEAL & STATEMENT OF FACTS 3.1 Every memorandum of appeal shall be written in English. The same should be concise without any argumentative or narrative. Grounds of appeal must be drafted on to the point and must not be in explanation format. The grounds of appeal must bring out the exact nature of dispute raised and nothing further. Each of the ground of appeal must be properly numbered and must start with The learned AO has erred in... or that The learned AO failed to appreciate that... It is always advisable to take alternate claims also in the grounds of appeal. This is for the reason that if the main ground is rejected, atleast there is alternative claim made, which have to be adjudicated upon. Such alternative grounds must start with Without prejudice to

the above and without accepting, the learned AO ought to have.. Thus, grounds of appeal must prima facie bring out the dispute alongwith the alternative claims, if any. 3.2 The last point after completing the grounds in respect of each of the issue raised, must contain the wordings The Appellant craves leave to amend, alter, add or delete all or any of the above grounds of appeal. This is important for the reason that if at a later stage any additional ground of appeal is to be raised, the assessee can do it as also the assessee could ask for the withdrawal of any of the ground of appeal. 3.3 It is also important to take specific ground in respect of natural justice i.e. if proper opportunity is not afforded or if principles of natural justice are violated so as to immediately draw attention of the CIT(A) that there is violation of the principles of natural justice and that the assessment order was passed without affording enough opportunity to the assessee. 3.4 This is a very important piece of document, which many a times is merely neglected or is too brief. Statement of facts is compulsory to be filed and is part of the attachment of the memorandum of appeal. Non-attachment of the statement of facts may even render the appeal as non-maintainable for the reason that it is part of the appeal filing documents. 3.5 It is very vital for the assessees to present the statement of facts in such a manner so as to bring out clearly the steps in the assessment/penalty proceedings leading to the order under challenge. Normally, it is observed that in the first appeal, statement of facts is not filed. But, it is advisable to file elaborate statement of facts covering all issues and wherever possible, alongwith the case laws. The filing of statement of facts before the first appellate authority becomes very relevant for the reason that as per the rules of the Appellate Tribunal, statement of facts cannot be filed in the

appeal before the Appellate Tribunal. Filing of detailed statement of facts, along with supporting case laws will help the Assessee, especially when appeals are disposed off by the first appellate authority ex-parte. 3.6 Statement of facts must contain all the details in respect of each of the point as if the assessee is giving submission on receipt of the assessment order. Thus, all the points as addressed hereinabove must also form part of the statement of fact for eg if some documentary evidence is produced / furnished and the assessment order states otherwise, one needs to object to the same by giving reference to the letter by which the evidence is furnished to the AO. Similarly, if some details is never asked for and it is stated contrary in the assessment that details were asked for and were not furnished, one has to point out to this effect by stating categorically in the statement of facts that no such details were ever asked for. 3.7 It should also contain the details as to what third party documents were relied upon by the AO without giving copies of the same to the assessee by pointing out the letters by which the same was demanded from the AO. Such documents / statements relied upon could once again be requested in the statement of facts itself to the CIT(A) so that appropriate action could be taken by the CIT(A) and cognizance of such facts could be taken by him. 4. DELAY IN FILING APPEAL 4.1 In case of delay in filing the appeal within 30 days, the appeal shall be filed alongwith an application to condone the delay in filing the appeal with supporting evidences like Affidavit, Doctor's Certificate, etc. Section 249(3) gives power to the Commissioner (Appeals) to admit the appeal, though belatedly, if there exist sufficient cause for not presenting the appeal within the limitation period. In Collector of Land Acquisition v. Mrs. Katiji & Others 167 ITR 471 (SC) the

Hon'ble Supreme Court has held that the Courts should have pragmatic & liberal approach in admitting the appeal beyond the period of limitation. 4.2 The Hon ble Supreme Court in N. Balkrishnan Vs. M. Krishnamurthy (1998) 7 SCC 123 condoned delay of 833 days by making the observation that condonation of delay is a matter of discretion of the Court. Section 5 of the Limitation Act does not provide discretion only in the cases of delay within a certain limit. The only criterion is acceptability of explanation irrespective of the length of delay. The primary function of the Court, being adjudication of the disputes between the parties and to advance substantial justice, it is not enough to turn down the plea of the litigant and to shut the door against him for some lapse on the part of the litigant for the delay. If explanation does not come forth as part of a dilatory strategy, the court must show utmost consideration to the suitor. 5. PAYMENT OF TAX MANDATORY BEFORE FILING APPEAL. 5.1 Section 249(4) provides that no appeal shall be entertained unless at the time of filing the appeal the assessee has paid the taxes due on the returned income or where no return is filed, an amount equal to the amount of advance tax which was payable by him. 5.2 The Appellate Authority is vested with power to dispense with the above condition if the assessee is able to show good and sufficient reasons to be recorded in writing as to why the assessee should be exempted from the operation of Section 249(4). Order refusing to exercise such jurisdiction is an appealable order - CIT v. Smt. Nanhibai Jaiswal 171 ITR 646 (M.P.) 6. CAN AN APPEAL BE SIGNED BY AN ADVOCATE / CHARTERED ACCOUNTANT / AUTHORISED REPRESENTATIVE

6.1 As per Rule 45 of the Income Tax Rules, 1961, the form of appeal i.e. Form No. 35, the Grounds of Appeal & the form of Verification appended thereto shall be signed & verified by the person who is authorized to sign the return of income under section 140 of the I.T. Act, 1961. Thus it can be inferred that only in the case of an individual or a company which is not resident in India, the return can be signed by a person who holds a valid power of attorney, which shall be attached to the return. 6.2 There are divergent views on the issue as to whether a defect in signature would render the appeal a nullity. The Hon'ble Calcutta High Court in Sheonath Singh v. CIT 33 ITR 591 has held that the absence of or defect in the signature of the appellant is not fatal so as to render the appeal a nullity and it is an irregularity which can be rectified and will be treated as having being rectified retrospectively whereas the Hon'ble Allahabad High Court in Special Manager, Court of Wards, Naraindas Narsinghdas v. CIT reported in 18 ITR 204 has taken a contrary view and held that where the signature on the appeal was that of an agent, the appeal filed was invalid. 6.3 In the following cases, it has been held that an appeal signed by an Advocate/C.A. is valid -Mrs. Leezo Salidan v. CIT 16 TTJ 243 (Bom) Pyrkashim Stores v. CIT 9 ITD 93 (Bom) Hariledge v. ITO 29 Taxman 122 (Bom) (Tribunal) RajendraKumar Maneklal Sheth (HUF) v. CIT 213 ITR 715 (Guj). 7. ADDITIONAL EVIDENCE 7.1 As stated earlier, it is quite possible that the assessee was unable to produce all the necessary evidences in support of the case before the AO or that the AO may not have given enough opportunity to the assessee. In any case, wherever additional evidence is required to be filed before the CIT(A), the same should be filed separately i.e. by way of a separate paper book and appended by a covering letter being the petition for requesting the CIT(A) to admit the same. The petition must

contain reasons in detail as to why the same could not be produced before the AO at the time of assessment proceedings and that the same must be within the scope of Rule 46A. 7.2 Further, alongwith the petition for admission of the additional evidences, one more prayer must be made i.e. to give opportunity to the AO to give his comments on the said additional evidences filed thereby requesting the CIT(A) to call for the remand report from the AO on the additional evidences filed or to call the AO personally to appear before him at the time of hearing and to note his arguments on the same. This is pertinent for the reason that even if the additional evidences are admitted but opportunity is not given to the AO, and if the appeal is allowed by the CIT(A) taking cognizance of the additional evidences, the department will take simple ground before the Tribunal that there has been violation of principle of natural justice by not giving opportunity to AO thereby violating the provision contained in Rule 46A. The Tribunal, if found correct, without going into the merits of the case would simple set aside the matter and all the hard work would go in vain. Hence, even in submission filed before the CIT(A), wherever the point covered has additional evidence, it is advisable to request the learned CIT(A) to call for the remand report on the additional evidences. 7.3 Rule 46A of the Income Tax Rules, 1962, restricts the appellant to produce any additional evidence, except in the four circumstances mentioned in sub-rule (1). It also casts duty on the Commissioner (Appeals) to give the Assessing Officer reasonable opportunity to examine the additional evidence. CIT v. Valimohamed Ahmedbhai 134 ITR 214 (Guj). Sub-rule (2) requires the Commissioner (A) to record in writing the reasons for the admission of the additional evidence. 7.4 It would not be in interest of justice to deny admission of crucial evidence into records by simply stating that it was not produced before Assessing Officer but was

produced on a later stage. The Commissioner (Appeals) was not justified in rejecting additional evidence produced before him - Dwarika Prasad v. ITO 63 ITD 1 (Patna)(TM). 8. RAISING ADDITIONAL GROUNDS 8.1 Sub-section 5 of Section 250 gives power to the Commissioner (A) to allow the appellant to raise additional ground if he is satisfied that the omission of that ground was not wilful or unreasonable. 8.2 If at any stage, either before the commencement of the appeal proceedings or thereafter, it is found that some vital ground of appeal remained to be taken, the same must be raised by way of additional ground of appeal. The additional ground of appeal must be appended with a covering letter giving in detail the reasons as to why the same could not be raised at the time of filing of the appeal i.e. in short there must be a condonation of delay petition filed alongwith the additional ground of appeal. This condonation petition must be with a prayer requesting the CIT(A) to admit the same and condoning the delay for the same. As such, the delay has to be explained in terms of each day, however, appropriate reasonable cause must be there to show that why the same could not be filed earlier. This petition alongwith reasonable cause must be appended also in cases where the additional ground to be raised is in respect of the legal issue to be on a safer side. 8.3 It is advisable to file submission with respect to the point in issue in respect of which the additional ground of appeal is raised. This is for the reason that at the time of hearing, the CIT(A) may accept and admit the additional ground of appeal and hence, one should be ready with the submissions alongwith the documentary evidences in that behalf. Even otherwise it does not matter to file the detailed submission in that behalf.

9. JURISDICTION POINT 9.1 The Assessee can raise the jurisdiction point for levy of penalty at any time. Suppose an assessee files original return of income belatedly i.e. after the due date of filing the return of income. Thereafter, the belated return was revised and the assessing officer makes the assessment on the basis of the revised return and makes certain additions against which the assessee does not file any appeal. Thereafter, the Assessing Officer levies penalty under the I.T. Act. The assessee can raise jurisdiction point stating that the assessment made on the basis of revised return itself is bad-in-law in view of the decision of Kumar Jagdishchandra Sinha v. CIT 220 ITR 67 (SC). Therefore, the assessee can raise the jurisdictional point stating that the assessment based on the revised return is bad-in-law, hence penalty is liable to be quashed. - Union of India v. Rai Singh Dal Singh 88 ITR 200 (SC), CIT v. Dumravan Cold Storage & Refrigerators Services 97 ITR 137 (Pat), Sambha R. Dalwati v. ITO 34 ITD 183 (Ahd). The Assessee can raise the jurisdictional point before the Tribunal also. 9.2 In Tide Water Marine International Inc. v. DCIT (2005) 96 ITD 406 (Del) the proceedings were initiated against the non-resident assessee u/s.147 and notice u/s.148 was issued and the assessment was completed u/s.143(3)/148. Penalty proceedings u/s.271(1)(c) was initiated and penalty was levied by AO, which was confirmed by CIT(A). In the appeal before ITAT, the assessee contended that since the notice issued u/s.148 was beyond the statutory period prescribed, the assessment was improper and invalid. The Tribunal held that it is open to the assessee to set up / raise the question of validity of assessment in the appeal against levy of penalty and since the question raised was purely question of law, the additional ground raised was admitted. The Tribunal held that the reassessment proceedings were vitiated as the notice u/s.148 had been issued beyond the statutory period prescribed u/s.149(3) and consequently the assessment made on the basis of such notice would be null and

void. Since the very basis of imposition of penalty ceased to exist by virtue of void assessment order, the penalty imposed u/s.271(1)(c) was liable to be cancelled. 10. MAKING CLAIM FOR FIRST TIME BEFORE APPELLATE AUTHORITY 10.1 If there was evidence or material on record, then only a claim made for the first time be entertained by the Appellate Authority. CIT v. Western Rolling Mills Pvt. Ltd. 154 ITR 54 (Bom). 10.2 The Board have issued instructions from time to time in regard to the attitude which the Officers of the Department should adopt in dealing with assessees in matters affecting their interests and convenience. Circular No. 14(XL-35) of 1955, C.No.13(207)-IT/50, dated 11th April, 1955, states that the Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is the duty of the Officers to assist the tax payers in every reasonable way and draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim and also freely advise them as to their rights and liabilities and the procedure to be adopted for claiming refund and relief. 11. POWERS OF THE CIT(A): Power to Stay the Recovery Proceedings 11.1 The CIT(A) is empowered to stay the recovery of tax against an application filed by the assessee. The assessee aggrieved against the order has to first file the appeal before filing the stay application. It is his discretion either to stay the recovery proceedings or to reject the same, depending upon the facts and circumstances of each case. The power of the appellate authority to stay the recovery of the demand of dues which are the subject matter of appeal pending before him is independent of the provisions of sub-section (6) of Section 220 of the Act and it is not necessary that before invoking the power of the first appellate authority, an assessee should

approach the Assessing Officer under the aforesaid provision or that the Assessing Officer must reject the assessee's prayer for stay of the demand. However, in practice, it is advisable to make application to the Assessing Officer & CIT(A) simultaneously to stay the recovery proceedings. In following cases it has been held that the CIT(A) has the power to Stay the Recovery Proceedings. Prem Prakash Tripathi v. CIT 208 ITR 461 (All). Tin Mfg. Co. India Ltd. v. CIT 212 ITR 451 (All). Paulsons Litho Works v. ITO 208 ITR 676 (Mad). Power of Enhancement 11.2 The filing of an appeal may lead to grave consequences of enhancement of assessment. The Appellate Authority does not have the power to enhance the assessment by assessing a new source of income which is not the subject matter of the assessment appealed against. It is the statutory duty of the first appellate authority to take steps to see that a true and proper assessment is made. Consequently, the first appellate authority has been given the power to enhance the assessment suo moto. In CIT v. Shapoorji Pallonji 44 ITR 891 (SC), it has laid down the principle that the CIT(A) has no jurisdiction to travel beyond the subject matter of the assessment or beyond the record i.e. the return of income or the assessment order, and his power of enhancement relates only to that income which has been subjected to the process of assessment. However, in CIT v. Nirbheram Daluram 224 ITR 610 (SC), it has been held that the appellate power conferred on the AAC under section 251 was not only confined to the matter which had been considered by the ITO but the AAC had jurisdiction to consider and make addition pertaining to a new source of income not considered by the ITO from the point of view of assessability. However, in this judgement, the Supreme Court did not considered the decision of Shapoorji Pallonji. The First Appellate Authorities have power of enhancement. He can do what the Assessing Officer could do and also direct the latter to do what the latter failed to do - CIT v. Kanpur Coal Syndicate 53 ITR 225 (SC).

11.3 Thus, it becomes very relevant to evaluate whether an appeal is really worth to be filed against the assessment order. Hence, the appeal should not be preferred only for the sake of filing of appeal. 12. PROTECTIVE ASSESSMENT 12.1 There is no provision in the Act authorizing the levy of Income-tax on a person other than `the assessee' i.e. the person by whom the Income-tax is payable. It is open to the Income-tax authorities to make a `Protective or Alternative' assessment where owing to litigation between the parties concerned in civil courts or for other reasons, the person who is really liable to pay tax cannot be finally determined by the Income-tax Authority. Therefore, even though a Protective assessment is permissible, a protective recovery is not allowed - Sunil Kumar v. CIT 139 ITR 880 (Bom). In making a protective assessment, the authorities are merely making an assessment and leaving it as a paper assessment until the matter is decided one way or the other. 12.2 In following cases, it has been held that even against Protective Assessment, Appeal can be filed. 54 ITD 471 (Delhi) (SB) Eastern Bulk Services v. ITO 166 ITR 367 (Cal) Champa Properties (P). Ltd. v. CIT. 13. WITHDRAWAL OF APPEAL 13.1 Once the appeal is preferred & filed, it cannot be withdrawn at the instance of Assessee. The Hon'ble Supreme Court has held that it is entirely at the discretion of the Appellate Authority to permit the withdrawal of the appeal once it has been preferred -CIT v. B.N. Bhattacharya 118 ITR 461 (SC). 14. APPEAL AGAINST PENALTY

14.1 As per Section 251(1)(b), the first appellate authority has no power to set aside the appeal against penalty order. It can only confirm, cancel, reduce or enhance the penalty - CIT v. Ramesh W. Murhim 107 ITR 710,711 (All). CONCLUSION Maintain Proceeding Sheet Last but not the least, the most important point is that one should maintain proceeding sheet at his end in the same way as the AO maintain in their file. This is also very important so that on each and every occasion, one can immediately write as to what has transpired in the assessment proceedings and what further details were asked for; the details regarding the requirements asked for from the assessee, with whom communication is done and so on. This helps as far as the professional is concerned so that he has all the noting in respect of the assessment proceedings and that the assessee cannot blame later on. I am indeed thankful to the organizers of WIRC of ICAI to give me this opportunity to share my views on such an important and interesting topic.