Issues in Appellate & Assessment Proceedings

Issues in Appellate & Assessment Proceedings CA Rajiv Jain Sub-regional conference At Jammu On 25th November 2009 J & K branch of NIRC of ICAI CA. Rajiv Jain, email: rajivjain@trintrin.com

Appeals before the CIT (Appeals) Right of Appeal is not an inherent right and no appeal could lie unless provided in the Law. The provisions are contained under section 246 to 251. Sec 246A (1) provide the list of appeal-able orders. Orders passed by authorities below the rank of Commissioner of Income Tax are appeal-able before CIT(A). If order is not appeal-able under the Act-Remedy lies in availing writ jurisdiction of high courts. Appeal will lie even if the AO had no jurisdiction to pass the order. Right of appeal before CIT(A) is available only to the assessee/taxpayer and not to the department. CA. Rajiv Jain, email: rajivjain@trintrin.com

Appeals before the CIT (Appeals) Department barred to appeal against the order of the AO: but subject to following remedies: Revision by the commissioner u/s 263. Rectification u/s 154 by AO himself. Action u/s 147. Further appeal lies u/s 253 against the order of CIT(A) under the direction of the Commissioner and the AO may also file an appeal to the Tribunal against the order passed by the CIT(A). CA. Rajiv Jain, email: rajivjain@trintrin.com

Appeal-able Orders; s 246A… • an order under clause(ii) of sub-section(3) of section 115VP (Tonnage Tax) • Order u/s 143 (1B)(1), • Order passed u/s 143(3) or 144, • 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 - FBT; • Order of assessment, re-assessment or re-computation under section 147 or section 150; • Order of assessment or reassessment under section 153A - Search Cases; • 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; CA. Rajiv Jain, email: rajivjain@trintrin.com

Appeal-able Orders; s 246A… • an order made under section 163 treating the assessee as the agent of a non-resident; • an order made under 170(2) or 170(3), section 171; • an order made under section 201, sub-section (6A) of section 206C; • an order made under section 237; • an order imposing a penalty under • section 221, section 271, section 271A, section 271AAA, section 271B, section 271BB, section 271GA, section 271F, section 271FB, section 272AA or section 272BB; • section 271C, section 271CA, section 271D, section 271E and section 272AA by joint commissioner; • Section 272A by joint commissioner/joint director; • sub-section (1A) of section 275; • an order imposing a penalty under sub-section (2) of section 158BFA; • Chapter XXI i.e. u/s 270 to 275; • an order of assessment made by an AO under clause (c) of section 158BC- Search initiated on or after the 1st day of January, 1997 before 1-6-2003; CA. Rajiv Jain, email: rajivjain@trintrin.com

Orders not appeal-able before CIT(A) • Order passed by an authority of equivalent rank i.e. Commissioner of Income Tax/ Director General. • Order passed u/s 263- Direct Appeal to ITAT. • Order passed u/s 12AA by DG exemption-Direct Appeal to ITAT. • Order of Authority for advance rulings. Remedy in WRIT • Order passed u/s 264 • Order denying approval u/s 10 (23C) • Order passed u/s 139(9)-Treating the return as defective • Order passed u/s 220(6)-Stay petition before the AO • Order passed u/s 220(2) • Order passed u/s 197 • Order charging interest u/s 234A, 234B and 234C CA. Rajiv Jain, email: rajivjain@trintrin.com

Right of appeal – Person other than assessee CA. Rajiv Jain, email: rajivjain@trintrin.com • The right to appeal – Taxpayer other than assessee • When an assessment is made on the representative assessee u/s 161 or • Where the company has given a guarantee to pay the tax due from a foreign technician could file appeal under this section. • The amalgamating company can file an appeal the assessment of amalgamated company and • The coparceners and members of the dissolved HUF. • An assessee who denies his liability to be assessed under this act can also file an appeal after the assessment is made e.g. a person treated as a partner in the assessment of a firm may deny his liability to be assessed as a partner.

Right of the assessee: Other than appeal to CIT(A) Rectification u/s 154 • There is no bar on moving the AO u/s 154 simultaneously with an appeal u/s 246A. Revision u/s 264 • Right to move the Commissioner u/s 264 is an alternative right. CA. Rajiv Jain, email: rajivjain@trintrin.com

Form of Appeal and fees Form no 35 Rule 45; s 249(1) • Appeal - unsigned or unverified or signed by wrong person • Curable defect Rajender Kumar v CIT 213 ITR 715. • Failure to attach notice of demand u/s 156 • Irregularity and can be rectified. CIT v Gangadhar 158 ITR 75. • Fees Assessed income <= 100000 Rs. 250/- Assessed income 100001-200000 Rs. 500/- Assessed income 200001 or more Rs. 1,000/- In any other case Rs. 250/- CA. Rajiv Jain, email: rajivjain@trintrin.com

Limitation; s 249(2) The appeal is to be presented within 30 days receipt of the notice of demand or order appealed against without any order required for admission of appeal. Exclusion of period for calculation of 30days; s 268 • The day on which order is served. • If notice of demand is served but order is not served, the period for obtaining copy of the order. CA. Rajiv Jain, email: rajivjain@trintrin.com

Condoning the delay; s 249(3) • An appeal filed after expiry of limitation cannot be entertained without condoning the delay. • The power to condone the delay is discretionary which is to be exercised judiciously. The order passed by the CIT(A) refusing to condone the delay is an order passed u/s 250 – appeal-able before ITAT. CA. Rajiv Jain, email: rajivjain@trintrin.com

No admission of appeal - if undisputed tax not paid; s 249(3) No appeal under this Chapter shall be admitted unless at the time of filing of the appeal: • Tax due on returned income; or • where no return has been filed an amount equal to the amount of advance tax payable is paid. Exceptions: • Where TDS is not deducted or not paid after deducting and the assessee is treated in default u/s 201. CIT vs Motor Industry 249 ITR 141. • A person denying his liability to make deduction of tax u/s 195, for declaration that he is not liable to deduction. CIT v Wesman Engg 188 ITR 327. • Appeal against the order of penalty u/s 221 for non payment of tax does not require that full tax assessed should be paid before appeal is entertained. • The CIT(A) is empowered to exempt the assessee from payment of tax for good and sufficient reason. • Tax to be paid only on returned income and not on assessed income. CA. Rajiv Jain, email: rajivjain@trintrin.com

Hearing: Opportunity to both parties. S 250(1), (2) and (3). • The proceedings quasi judicial in nature. • Must confirm to the principle of natural justice. • Each party must be given an opportunity of being heard either in person or through authorized representative. • Power to grant adjournment. CA. Rajiv Jain, email: rajivjain@trintrin.com

Further Enquiry; s 250(4) • The CIT(A) to make further inquiry as he thinks fit or he may direct the AO to make further inquiries and the power is coterminous with the power of AO u/s 143(3)/144. • Power to obtain remand report from the AO on certain points or on the assessment. Reasonable opportunity is to be provided to the assessee for rebutting the information contained in the remand report. CA. Rajiv Jain, email: rajivjain@trintrin.com

New/Additional Ground of appeal; s 250(5) • CIT(A) can go into any ground of appeal not specified in the memorandum of appeal subject to the CIT(A) being satisfied that omission of that ground was not willful or unreasonable. • CIT (A) may also direct or allow modification of grounds of appeal. • If the power is not exercised judiciously it may be subjected to appeal before ITAT. CA. Rajiv Jain, email: rajivjain@trintrin.com

Fresh Claims for deduction; • The supreme court in case of CIT v Gurjargravures Ltd. 111 ITR 1took the view that a claim for deduction not made before the AO cannot be entertained by the CIT(A). • The view was reluctantly followed in the case of Jute Corporation 131 ITR 412 (Calcutta) and was ultimately reversed by Supreme Court in 187 ITR 688. • If claim of the assessee was based on settled view of law and the ground/claim raised was bonafide and could not be raised before AO for relevant reasons then CIT (A) has jurisdiction to admit such claim or ground. • The view of the Hon’ble Supreme Court that a fresh deduction or claim for expenditure before the assessing can only be made by filing a revised return of income and not otherwise is limited to the power of the assessing authority Goetze India Ltd v CIT 284 ITR 323. • If the commissioner of appeal is satisfied on the law and facts of the case he may permit considering the new question/ ground/claim made before him. CA. Rajiv Jain, email: rajivjain@trintrin.com

Admission of additional evidences • The discretion of the admission of additional evidence is governed by rule 46A. • Rule 46A provides that appellate shall not be entitled to produce the additional evidences which were not produced before the AO except under certain specified circumstances. • where the Assessing Officer has refused to admit evidence which ought to have been admitted; or • where the appellant was prevented by sufficient cause from producing the evidence which he was called upon to produce by the Assessing Officer; or • where the appellant was prevented by sufficient cause from producing before the Assessing Officer any evidence which is relevant to any ground of appeal; or • where the Assessing Officer has made the order appealed against without giving sufficient opportunity. • Additional evidences to be admitted by recording the reasons for admission and these additional evidences cannot be considered unless AO has been provided reasonable opportunity to rebut these evidences, CA. Rajiv Jain, email: rajivjain@trintrin.com

…Reasonable Opportunity: Additional Evidences • Opportunity is defined by the Hon’ble Supreme Court, in case of Khem Chand vs. Union of India (AIR 1958 SC 300), while explaining as to what contemplates the words “reasonable opportunity” in Articles 311(2), held that the “reasonable opportunity”, includes:- • An opportunity to deny his guilt and establish his innocence which he can do if he is told what are the charges levied against him and the allegation on which such charges are based; and • An opportunity to defend himself by cross examining the witness produced against him and by examining himself or any other witness in support of his defence. • In view of the above guidelines there are two elements of “reasonable opportunity”. • The assessee must be given an opportunity for hearing and • The opportunity must be reasonable which shall depend upon the facts and circumstances of each case. • Whether 142(1) or show cause under proviso to s 144(1) is issued. • There is no curb on the powers of the CIT (A) to direct production of any document/evidences or examination of any witness to enable him to dispose the appeal. Power to be exercised judiciously. CA. Rajiv Jain, email: rajivjain@trintrin.com

Orders of Appeal and limitation for orders • s 250(6) provides that order of appeal should be: • in writing and • must state facts and reasons for his findings for the purpose of enabling the ITAT to see whether the findings are supported by the facts of the case as the order is appeal-able before the ITAT. • s 250 (6A) provides that the appeal wherever possible may be disposed within one year form the end of FY in which the appeal is filed. However, the language in the section is directive and not mandatory. CA. Rajiv Jain, email: rajivjain@trintrin.com

Powers of CIT (A) s 251 • In case of an order of assessment may confirm/reduce/enhance or annul the assessment. • In case of order of penalty may confirm, cancel, enhance or reduce the penalty. • In any other case such order as he thinks fit. • The powers of CIT (A) are wider than those of an appellant court under the code of civil procedures as his competence is not restricted to deal with the subject matter of appeal. • He may examine all matters covered by the assessment order and correct the assessment in respect of all such matters even to the prejudice to the assessee. • New Source of Income cannot be discovered. Sardari Lal’s case CA. Rajiv Jain, email: rajivjain@trintrin.com

…Powers of CIT (A) s 251… CA. Rajiv Jain, email: rajivjain@trintrin.com He may remand the case to the AO for inquiring into the items which were not the subject matter of appeal. He may change the head of income. The addition made by the AO may be sustained for altogether different ground. The power of enhancement can be exercised suo-moto or also on a motion by the AO. The power of enhancement can be exercised even in the second round. However, if the case is remanded by the ITAT for determination of a particular point then the power of enhancement cannot be exercised. No enhancement without providing reasonable opportunity to the assessee. The CIT (A) cannot do what the AO could not have done himself. The order passed in the IInd round of an appeal is an order u/s 250 and hence appeal-able against ITAT u/s 253.

Stay-Review-Rectification • Power to Grant Stay • Power of granting stay to recovery proceedings pending an appeal can be exercised by CIT(A) being incidental to his appellate jurisdiction. • Review and Rectification • No power to review the order but rectification u/s 154 is permitted. CA. Rajiv Jain, email: rajivjain@trintrin.com

Withdrawal of Appeal • It is not open for the assessee who has preferred an appeal to withdraw it so as to prevent the CIT (A) from enhancing the assessment. • However, CIT (A) has the power to permit withdrawal of appeal when there is no case of enhancement. CA. Rajiv Jain, email: rajivjain@trintrin.com

Issues CA. Rajiv Jain, email: rajivjain@trintrin.com Protective Assessments. Income returned under misconception of law or addition himself assented to or agreed upon by the assessee before the AO. Appeal in cases where assessment is subjected to revision u/s 263. Consolidated orders. Penalty by CIT(A) u/s 271, 271A and 272AA

General • Validity of assessment order can not be challenged in an appeal challenging the order of penalty. • Right of appeal against the order u/s 154/155 is expressly provided under the section however it does not extend the period of limitation for appeal against the assessment order. • An order passed by the AO giving effect to the order of the Appellate Authority modifying/amending the original assessment is a fresh assessment order and is appealable in the next round. CA. Rajiv Jain, email: rajivjain@trintrin.com

Drafting of Statement of facts & Grounds of appeal CA. Rajiv Jain, email: rajivjain@trintrin.com Grounds of Appeal Examples: That the assessee denies the liability to be assessed at the income of Rs.…. That the assessment is completed without adhering to the principle of natural justice. That the ld AO erred in disallowing……and further erred…. That the ld AO was wrong in……. That while making an addition of Rs……….the ld AO was wrong. Having recorded his finding that…..the ld AO was wrong in ………. Statement of Facts/Written submission/Paper Book Representation

Thanks CA. Rajiv Jain, email: rajivjain@trintrin.com

Issues in Appellate & Assessment Proceedings