Taxpayer’s grievance from high pitched Income Tax Assessments

What is high pitched assessment?

An Assessment made far beyond Returned Income is considered as a high–pitched assessment. A high-pitched scrutiny assessment case is one where it is found that the addition of income was made on frivolous grounds, non-observance of principles of natural justice, or non-application of mind and gross negligence by the assessing officer in deciding a case.

Though the word high pitched assessment is no where defined in the Act but reference can be taken from various judicial pronouncements and language of CBDT Instruction No 95 dated 02.12.1993 provided instructions and guidelines for granting stay in High–Pitched assessment, which categorically states that:

“Where the income determined on assessment was substantially higher than the returned income, say twice the latter amount or more, the collection of the tax in dispute should be held in abeyance till the decision on the appeal provided there were no lapses on the part of the assesses”

Thus high pitched assessment are those assessment in which assessed income is substantially higher than returned income.

In the case of income-tax, Justice Wanchoo noted two main causes for evasion of taxes : one, high rates of tax, and the other, high-pitched assessments. Although the rates of income-tax have been considerably lowered, the menace of high-pitched assessments still continues. This fact was noted by Dr. Raja Chelliah and he suggested, in para 5.4(h) of his report, that where heavy additions/disallowances made by the Assessing Officers are deleted by the appellate authorities, the Assessing Officer should be made accountable for such additions/disallowances.

Wanchoo committee report - Reasons for arrears

The terms of references of the Wanchoo Committee included examination of the administrative system and suggesting effective measures to reduce tax arrears. Inter alia, the committee identified the following reasons :—

(a)  Un-realistic and over-pitched assessments without due consideration of the possibility of recovery,

(b)   Delays in completion of assessments,

(c)   Delays in carrying out rectifications,

(e)   Delays in adjustments of taxes already paid.

Reasons for High-Pitched Assessments

·      Such assessments may arise because of an item that appears in books of accounts or does not appear in the books of accounts.

·      Such high-pitched assessment can also be irrespective of the returned income and independent of the books of accounts like in case where acquisition of assets not disclosed in the books of accounts is found at the time of search.

·      This distinction has now assumed importance in view of the fact that additions under sections 68-69D attract tax @ 84%

Role of professionals

What is really needed on the part of the tax professionals is to prepare themselves for making proper representations by mastering the facts and the latest laws. While they need to keep in mind the interest of their clients they also have an onerous duty in ensuring that right amount of taxes are paid. If proper tax culture is developed, the taxpayer's agony would be less and it will be difficult for the authorities to pass an unreasonable order making high pitched assessments. But unfortunately, some of the professionals have been using various devices in their profession, which may be termed as improper and it vitiates the judicial process. The professional institutions also need to think over the ways and means of inculcating standard of ethics and discipline among the Chartered Accountants, Advocates, Company Secretaries, Cost Accountants as also among other tax consultants.

Availability of recourses with the assessee in High Pitched Assessments under Income Tax Law

There are various ways in which severity of punitive action taken for recovery of demand can be minimised. Income tax Act provides various remedies which are listed as under:

(i)     Stay Application followed by Appeal with PCIT/CIT, before the Assessing Officer /Higher Authorities

(ii)    Application for payment of demand in installments

(iii)  Writ Petition in High Court against rejection of stay application by Assessing Officer /Higher Authorities

(iv)  File application with local committee on high pitched assessment.

First three options are generally exercised by the assessee but application to the local committee for the high pitched assessment is rarely exercised.

It is interesting to note here that the word stay of demand is no where find place in the entire income tax Act. The correct word as per Income Tax Act is “Assessee in Default”.

Application to the Local committee for high pitched scrutiny assessment
A taxpayer, who feels unsatisfied by an order of a tax assessment officer or thinks it is irrational, can file petition before the committee. The local committee of chosen tax officers will examine “whether there is a prima facie case of high-pitched assessment, non-observance of principles of natural justice, non-application of mind, gross negligence or lack of involvement of assessing officer”. This mechanism is part of the CBDT's initiative to make tax processes and procedures fair, objective and rational.

The CBDT has order to constitute a local committee to deal with the situation of high pitched assessment under the jurisdiction of each Pr. CCIT region vide F. No. 225/101/2021-ITA-II, dated 23.04.2022. In the instruction itself, CBDT has categorically said that “Board has consistently been advising the field authorities to be fair, objective and rational while framing scrutiny assessment orders. Role of supervisory authorities in this regard, has also been highlighted by the Board from time to time…”.

Norms for constitution of Committee to deal taxpayer’s grievance from high pitched assessments

CBDT Instruction F.No.225/10112021-ITA-ll, Dated 23.04.2022

Subject: Revised Instruction for constitution and functioning of Local Committees to deal with   

               Taxpayers Grievances from High-Pitched Scrutiny Assessment - Regarding

The Central Board of Direct Taxes (the ‘CBDT’), by its Instruction No.17/2015 dated 09.11.2015 (copy enclosed) provided for constitution of ‘Local Committees to deal with Taxpayers’ Grievances from High-Pitched Scrutiny Assessment’ in each Pr. CCIT region. The Local Committees were constituted to expeditiously deal with Taxpayers’ grievances arising from High-Pitched Scrutiny Assessment.

2. Taking into consideration the changes in organizational set-up subsequent to launch of Faceless Assessment regime, the CBDT, in exercise of its powers under section 119 of the Income-tax Act,1961(‘the Act’) and in supersession of its earlier Instruction No. 17/2015 dated 09.11.2015, hereby issues the following instructions regarding constitution and functioning of ‘Local Committees to deal with Taxpayers’ Grievances from High-Pitched Scrutiny Assessment’:

A. Constitution of Local Committees:

(i) Local Committees to deal with Taxpayers’ Grievances from High-Pitched Scrutiny Assessment (‘Local Committees’) are required to be constituted in each Pr. CCIT region across the country including the Pr. CCIT (Exemption) and Pr. CCIT (International Taxation).

(a) The Local Committee shall consist of 3 members of Pr. CIT/CIT rank. To have a perspective of processes involved in Faceless Assessment process, Local Committees so constituted in each Pr. CCIT region and Pr. CCIT(Exemption) shall have one Pr.CIT (AU) of the region. The Local Committee constituted under the Pr. CCIT (International Taxation) need not have a Pr. CIT (AU) as a member, as the assessments under the International Taxation charges are outside the purview of Faceless Assessment regime.

(b) The other members may be selected from the pool of officers posted as Pr.CsIT/Pr. CIT(Central)/CIT(Judicial)/ CIT(Audit)/CsIT(DR),ITAT of the respective P.CCIT region. For the Local Committees constituted under the Pr. CCIT (Exemption) and Pr. CCIT (International Taxation), members may be selected from their respective pool of officers.

(c) The senior most Member would be designated as the Chairperson of the Committee.

(d) The Addl. CIT (Headquarters) to such Pr. CCIT would act as a Member- Secretary to the Local Committee.

(ii) The Local Committees so constituted may co-opt other members, if necessary.

(iii) The Pr. CCIT concerned should ensure that the Local Committees are duly re-constituted after transfer/promotion of Members of the existing Local Committees.

(iv) Adequate publicity shall be given regarding constitution and functioning of Local Committees for filing of grievance petitions regarding High-Pitch Scrutiny Assessments. The communication address of such Local Committees shall be displayed at prominent places in the office building.

B. Jurisdiction of Local Committees:

The Local Committees constituted as above shall deal with the grievance petitions of the assessees under the jurisdiction of respective Pr. CCU regarding High-Pitched Scrutiny Assessments completed under both faceless and non-Faceless Assessment regimes. These Committees constituted in Pr. CCIT Region will also handle the grievances pertaining to Central Charges located under the territorial jurisdiction of the Pr. CCIT concerned.

C. Receipt of Grievances:

(i) Grievances related to High-Pitched Scrutiny Assessments completed under the Faceless Assessment regime will be received by NaFAC through dedicated e-mail id: samadhan.faceless.assessment [at]incometax.gov. in. Grievances so received shall be forwarded to Local Committee of the Pr. CCIT concerned by NaFAC, under intimation to Pr. CCIT of the Region/ Pr. CCIT(Exemption).

(ii) Grievances related to High-Pitched Scrutiny Assessments completed under the non­ Faceless Assessment regime will be received by the office of Pr. CCIT concerned, physically or through e-mail. Grievances so received shall be forwarded to Local Committee of the Pr. CCIT concerned.

D. Action to be taken by the Local Committees on grievance petitions:

(i)   A grievance petition received by the Local Committee would be acknowledged. A separate record would be maintained for dealing with such petitions by the Member­ Secretary.

(ii)   Member – Secretary on receipt of taxpayers’ grievances of High-Pitched Assessment, will forward the same to the Chairman and Members of the Local Committee within three days of receipt of the grievance.

(iii) The grievance petition received by Local Committee would be examined by it to ascertain whether there is a prima -facie case of High-Pitched Assessment, non-observance of principles of natural justice, non-application of mind or gross negligence of Assessing Officer/Assessment Unit.

(iv) The Local Committee may call for the relevant assessment records to peruse from the Jurisdictional Pr. CIT concerned.

(vi) The Local Committee may seek inputs from the Directorate of Systems (ITBA/e­ filing/CPC-ITR, CPC-TDS, etc.), on Systems-related issues emanating from the grievance/matter under consideration, if considered necessary.

(vii) Local Committee would ascertain whether the addition(s) made in assessment order is/are not backed by any sound reason or logic, the provisions of law have grossly been misinterpreted or obvious and well-established facts on records have outrightly been ignored. The Committee would also take into consideration whether principles of natural justice have been followed by the Assessing Officer/ Assessment Unit. Thereafter, Local Committee shall submit a report treating the order as High-Pitched/Not High-pitched, along with the reasons, to the Pr. CCIT concerned.

(viii) The Local Committee shall endeavor to dispose of each grievance petition within two months from the end of the month in which such petition is received by it.

(ix)  Member- Secretary will ensure that the meetings of the Local Committees are held at least twice in every month during the pendency of the grievance petitions and that timely reports are submitted to the Pr. CCII concerned.

E. Follow up action by Pr. CCIT:

(i) On receipt of the report of Local Committee, Pr. CCIT concerned may take suitable administrative action in respect of cases where assessment was found to be High-Pitched by the Local Committee, which inter-alia include:

(a) Calling for explanation of the Assessing Officer/Assessment Unit (through Pr. CCIT, NaFAC) and any other administrative action as deemed fit.

(b) Administratively advise the Pr.CIT concerned to prevent any coercive recovery in cases identified as high pitched by the Local Committee.

(ii) The findings of the report of the Local Committee may also be shared by the Pr. CCIT concerned with NaFAC and/or Directorate of Income-tax(Systems), as feedback, for revisiting the SOP/policy on Faceless Assessment and/or addressing the Systems related issues.

F. Monitoring the functioning of Local Committee:

(i) The Pr. CCIT concerned shall review the work of the Local Committee on a monthly basis. Pr. CCsIT shall highlight outcome of work or Local Committees along with the action taken on the suggestions made by the Local Committees in respect of cases where assessment were found to be High-Pitched by the Local Committees, in their monthly D.O. letters to the respective Zonal Member.

(ii) Quarterly Report regarding the functioning of Local Committees shall be furnished by the Pr. CCIT concerned to the O/o Member (IT&R), CBDT under intimation to the respective Zonal Member in the prescribed format (copy enclosed) by 15th of the month following the quarter ended.

3. The purpose of constitution of Local Committees is to effectively and efficiently deal with the genuine grievances of taxpayers and help in supporting an environment where assessment orders are passed in a fair and reasonable manner. It is to be noted that Local Committees cannot be treated as an alternative forum to dispute resolution/appellate proceedings.

4. It is emphasized that the task of constitution of Local Committees as per this Instruction be finalized within 15 days of issue of this Instruction or 30.04.2022, whichever is later, and compliance report may be sent by the Jurisdictional Pr. CCsIT/Pr. CCIT (Intl. Tax.)/ Pr. CCIT (Exemptions) to their respective Zonal Members with a copy to Member (IT&R), CBDT.

5. This issues with the approval of Chairman, CBDT.

 

CBDT Letter [F. No. 225/287/2017/ITA.II], Dated 18.08.2017

Subject : Section 143 of the income-tax act, 1961 - Assessment - Functioning of regional committees to deal with taxpayer grievances from high pitched assessments

Kindly refer to the abovementioned subject.

2. In April, 2017, Board had called for all India information regarding functioning of Regional Committees to deal with Taxpayer Grievances from HighPitched Assessments. Some of the charges had reported that the Committees had identified some cases as ‘High-Pitched’. It was also reported that some of the cases were pending for consideration before the Committees.

3. In this regard, a two page note has been desired by the Revenue Secretary in respect of each high-pitched assessment case identified by the committee under your charge. Separate notes are required for each such case and the same should contain details of additions made, providing opportunity of being heard, findings of the high pitched committee along with name and designation of the A.O. and Range head.

4. Further, since the submission of last report, if any other case has been found to be high pitched by the Committee, separate note on each case as above may also be furnished. The requisite information may kindly be sent to the Board on or before 22.08.2017 via e-mail/fax.

The Central Board of Direct Taxes (CBDT) vide Instruction No.17/2015 dated 09.11.2015 had constituted ‘Local Committees to deal with Taxpayer’s Grievances from High-Pitched Scrutiny Assessment’ (Local Committees) in each Pr. CCIT region. The purpose of the local Committees’ constitution was to deal with Taxpayers’ grievances expeditiously. Considering the launch of the Faceless Assessment regime, the CBDT has issued revised instructions for the constitution and functioning of Local Committees. The following are a few key points of the revised instructions:

1. Constitution of Local Committees

Local Committees are required to be constituted in each Pr. CCIT region across the country, including the Pr.CCIT (Exemption) and Pr.CCIT (International Taxation). Adequate publicity shall be given for filing of grievance petitions regarding High-Pitch Scrutiny Assessments.

2. Receipt of Grievances

NaFAC will receive grievances through dedicated e-mail ID: samadhan.faceless.assessment@incometax.gov.in. For a non-faceless assessment regime, grievances will be received by the office of Pr. CCIT concerned, physically or through e-mail. All such grievances shall be forwarded to Local Committees.

3. Action to be taken by Local Committees

On receipt of grievance, Local Committees would examine:

(a)  Is there a prima facia case of High-Pitched Assessment, non-observance of principle of natural

       justice, non-application of mind or gross negligence of Assessing Officer/Assessment Unit?
(b) Whether any sound reason or logic does not back the additions made in order?
(c) Whether the provisions of the law have grossly been misinterpreted or obvious and well-

      established facts on records have been outrightly ignored?

The Local Committee may call for the relevant assessment records to peruse from the Jurisdictional Pr. CIT concerned.

CBDT Instruction No. 17/2015 [F. No.225/290/2015-ITA-II], Dated 09.11.2015

Subject : Section 143 of the Income-tax Act, 1961 – Assessment - General - Constitution of Local

                Committees to deal with taxpayers grievances from high-pitched scrutiny assessment

Board has consistently been advising the field authorities to be fair, objective and rational while framing scrutiny assessment orders. Role of supervisory authorities in this regard, has also been highlighted by the Board from time to time. It has, however, been brought to the notice of Board that the tendency to frame high-pitched and unreasonable assessment orders is still persisting due to which grievances are being raised by the taxpayers. Such grievances not only reflect harassment of taxpayers but also lead to generation of unproductive work for Department as well as Appellate Authorities.

2. In view of the above, a need has been felt to lay down an institutional mechanism to quickly resolve the taxpayers' grievances arising on account of high-pitched and unreasonable additions made by the Assessing Officers. CBDT has decided that following measures may be taken in the field formation for handling taxpayers' grievances arising from high-pitched scrutiny assessment orders -

(i)      Local Committees to deal with Taxpayers Grievances from high-pitched scrutiny assessment ('Local Committee') are required to be constituted in each Pr. CCIT region across the country. Ideally, the Local Committee may consist of three members of Pr. CIT/CIT rank. The members can be selected from the pool of officers posted as Pr. CsIT, CIT (Judicial) and CsIT (DR), ITAT at the station where the Headquarters of the respective Pr. CCIT is located. The Addl. CIT (Headquarters), to such Pr. CCIT would act as a Member - Secretary to the Local Committee. The senior most Member would be designated as the Chairman of the Committee.

(ii)     The Local Committees so constituted would deal with the grievance petitions related to high-pitched scrutiny assessments completed within the Jurisdiction of the respective Pr. CCIT. These Committees would also handle the grievances pertaining to Central Charges located under the territorial jurisdiction of the Pr. CCIT concerned.

(iii)    Similar committees would also be setup in the charges of Pr. CCIT (Intl. Tax.) and CCIT (Exemptions). In these committees, the Officers working as CsIT (International Taxation/Transfer Pricing) and CsIT (Exemptions) respectively could be selected as Members. The Addl. CIT (Headquarters) to Pr. CCIT (Intl Tax.)/CCIT (Exemptions) would act as a Member - Secretary to these Local Committees.

(iv)    The Committees may co-opt other members, if necessary.

(v)     A grievance petition received by the Local Committee would be immediately acknowledged and separate record would be maintained for dealing with such petitions.

(vi)    It shall be the endeavor of the Local Committee to dispose of each grievance petition within two months from the end of the month in which such Grievance Petition is received by it.

(vii)   The grievance petition received by the Local Committee would be examined by it to ascertain whether there is a prima-facie case of high-pitched assessment, non-observance of principles of natural justice, non-application of mind, gross negligence or lack of involvement of assessing officer. The Committee would ascertain whether the addition made in assessment order are not backed by any sound reason or logic, the provisions of law have grossly been misinterpreted or obvious and well established facts on records have out rightly been ignored. The Committee would also take into consideration whether the principles of natural justice have been followed by the assessing officer.

(viii)  If it is established that unreasonable and high-pitched additions have been made by the assessing officer, a report would be sent to the Pr. CCIT/Pr. CCIT (Intl Tax.)/CCIT (Exemptions), as the case may be, by the Local Committee. The Pr. CCIT/CCIT, after considering the views of the committee, would take suitable administrative action, wherever required. Further, departmental position as determined by the Local Committee in such cases would be appropriately presented before the Appellate Authorities so that litigation is curtailed.

(ix)    It is, however, clarified that the purpose of constitution of Local Committee is to effectively and efficiently deal with the genuine grievances of taxpayers and help in supporting an environment where assessment orders are passed in a fair and reasonable manner. The Local Committee, in no way, can be considered to be an alternative /additional appellate channel.

3. The Board has emphasized that the task of constitution of Local Committees be finalized in this month itself and a report on compliance may be sent by the Pr. CCsIT/Pr. CCIT (Intl. Tax.)/CCIT(Exemptions) to their respective Zonal Members with a copy to Member (IT), CBDT. It has also been desired that the outcome of Local Committee's work may be highlighted in each monthly DOs required to be sent to the Zonal Members.

No More Frivolous or High-Pitched Assessments Allowed: CBDT to Assessing Officers

The CBDT has issued an Office Memorandum dated 07.11.2014 setting out 12 steps that have to taken by the department to ensure a “non-adversarial tax regime”. One of the important points made is that Assessing Officers must cease issuing “long and non-specific questionnaire” and making assessments without proper basis. It has been emphasized that each Range Head has to ensure that “frivolous additions or high-pitched assessments” are not made by the Assessing Officers. Important directives have also been given with regard to the withholding of refunds, recovery of demand, passing of remand orders and filing of appeals. At the end, the CBDT has warned that officers have to adhere to the instructions scrupulously and that non-adherence will be viewed seriously and disciplinary action initiated.

CBDT F. No. 279/Misc./52/2014-(ITJ), Dated 07.11.2014

OFFICE MEMORANDUM

Sub: Further steps towards a non-adversarial tax regime-reg.

On several occasions the Finance Minister has emphasized the need for furthering a non adversarial tax regime. A non-adversarial tax regime cannot be achieved without concerted endeavour at each level, especially at levels where the public interaction is high. Though the Central Board of Direct Taxes (CBDT) has issued instructions from time to time on some of these issues, there is a need for consolidation of earlier instructions and issuance of further directions in this regard. Accordingly, CBDT hereby directs that the officials of the Income-tax Department must adhere to the following guidelines for achieving such objective:

 

(i)         Letter dated 21.08.2014 of Chairman, CBDT on cleanliness and punctuality should be implemented in letter and spirit as these are the basic requirements of an efficient and taxpayer centric organisation.

 

(ii)       Any appointment given to the public must be honoured and such appointments should not be cancelled or postponed without any unavoidable reason, especially when the assessee/representative is willing to attend.

 

(iii)      Despite less than one percent cases being selected for scrutiny assessment , this area of work continues to remain in focus where the tax administration is questioned as adversarial. The selection of cases under Computer Assisted Scrutiny Selection has resolved the issue of subjectivity in selection of cases for scrutiny. However, the process of scrutiny involving long and non-specific questionnaires, the nature of additions made and the high-pitched assessments without proper basis continue to attract adverse attention. Instruction No. 6/2009 entrusted a responsibility on each Range Head to ensure improvement in quality of assessments by issuing directions under section 144A of the Act. There is a need to follow the said Instruction in letter and spirit and accordingly, the Range Heads are required to ensure that frivolous additions or high-pitched assessments without proper basis are not made. The Principal Commissioners of Income-tax/ Commissioners of Income-tax are required to supervise the work of their subordinates to ensure due discharge of these functions.

 

(iv)      Instruction No. 15 of 2008 dated 04.11.2008 provides for review of scrutiny assessment orders by the supervising officers on a quarterly basis. Instruction No. 16 of 2008 dated 04.11.2008 lays down the procedure for Inspection of work of Assessing Officers, Tax Recovery Officers, Range Offices and Commissioners of Income-tax (Appeals). These instructions are issued with the overall aim of capacity building and improving quality of work. Supervisory authorities are required to ensure that these instructions are duly followed.

 

(v)        Instruction No. 7 of 2014 dated 26.09.2014 clarifies that ordinarily in scrutiny cases selected on the basis of AIR/CIB/26AS information, the scrutiny shall be limited to that information. Wider scrutiny would be possible only with the sanction of Principal Commissioner of Income-tax/ Commissioner of Income-tax in specified cases and under the monitoring of the Range Head. (Such cases form 25-30% of the total scrutiny basket, thus limiting the cases of full scrutiny).

 

(vi)      Withholding of refunds due to mismatch of TDS data has been sought to be remedied through Instruction No. 5 of 2013 dated 08.07.2013 which provides for grant of credit on the basis of evidence submitted by the assessee. This Instruction must be followed scrupulously.

 

(vii)     Instruction No. 1914 of 1993 dealing with recovery of demand , stay of demand and grant of instalments has stood the test of time and is equally relevant today. Same is reiterated for implementation in deserving cases. Measures for recovery of tax should be subject to the said Instruction.

 

(viii)   In cases of remand, the Commissioners of lncome-tax (Appeals) should specify the aspect which needs to be verified. The practice of forwarding the entire documents/submission of the assessee for comments of the Assessing Officers should cease. Assessing Officers will be required to submit a remand report only in cases where the remand is on a specific matter.

 

(ix)      Threshold limits have been set for appeals to ITAT, High Courts and Supreme Court at Rs. 4 lakhs, Rs. 10 lakhs and Rs. 25 lakhs, respectively. This, however, does not imply that appeals above these amounts have to be necessarily filed. Where the tax effect is above these amounts, the officer concerned is enjoined with the duty to ensure that the same is filed only if it is feasible to so do on merits of the case.

 

(x)        A review of the proposals for filing SLPs reveals that in most of the cases, the decision to file a reference before the High Court itself was not in order. No substantial question of law existed or the question of law was not correctly drafted. Hence, in stations having more than one Chief Commissioner of Income-tax (CCIT) the decision to file a reference before the High Court will be taken by two CCsiT including the CCIT in whose jurisdiction the matter lies. The Principal CCIT/ CCIT (CCA) concerned may issue directions for pairing of CCsiT for this purpose. In case of disagreement between the two CCsiT, the matter will be referred to the Principal CCIT/ CCIT (CCA). For references in the jurisdiction of the Principal CCIT/ CCIT (CCA), in case of disagreement, the matter will be refe1Ted to the CCIT-II.

 

(xi)      Any regime where taxpayers’ grievances are not attended to in time may be considered adversarial. Time limits have been set out for their disposal under Citizens’ Charter, CPGRAMS, etc. However, the pendency reflects poorly on the monitoring effort. All the supervisory authorities are directed to ensure that the grievances are disposed off within the specified time period

 

(xii)     The issue of summons without adequate caution and due application of mind has caused concern to the Board. Supervisory authorities have to ensure that the summons are issued only in deserving cases. Summons should also clarify if the person has been called as a witness or in his own case, and the matter for which he has been called.

 

2. Officers and staff at all levels are advised to follow the above instructions scrupulously. Non adherence to these instructions will be viewed very seriously and disciplinary action initiated

CBDT Press Release, Dated 07.11.2014

PRESS RELEASE

In its constant endeavour towards a non-adversarial tax regime, the Central Board of Direct Taxes(CBDT) has issued instruction dated 7th November, 2014 to its field offices. Emphasis has been laid on cleanliness in office, punctuality, timeliness in appointment and avoiding unnecessary adjournments. Though less that 1% of returns filed are selected for scrutiny, this area of work has often drawn adversarial comments. Supervisory officers, have been directed to play a more pro-active role in monitoring and guiding assessments towards ensuring that high-pitched assessments without proper basis are not made and that lengthy questionnaires or summons without due application of mind are avoided. They have been directed to ensure Inspections and Reviews in accordance with guidelines issued to enable capacity building within the Department and accountability of the officers.

2. In limited scrutiny cases selected on the basis of AIR/CIB/26AS information, the enquiries will ordinarily be restricted to such information. Refunds are to be granted in accordance with instructions already issued which provide for grant of credit of TDS on the basis of evidence submitted by the assessee. Instructions dealing with recovery / stay of demand and grant of instalments has been reiterated to ensure that no coercive action is undertaken without disposal of applications for stay.

3. Senior officers have been directed to ensure that appeals are filed only on the merits thereof and not merely on the tax effect involved. Cases have separately been brought to the attention of the officers wherein Tribunals / Courts have commented adversely on frivolous filing of appeals. It has also been decided that in multi-CCIT Charges, the decision to file a Reference before the High Court would be taken by two CCsIT.

4. All supervisory authorities have been directed to enable an effective grievance redressal system in their jurisdictions and also that the timelines prescribed under the Citizen’s Charter, the CPGRAMS, etc. for redressing grievances should be invariably followed.

Commissioner (Appeals) is to decide application of stay considering two questions whether assessment is unreasonably high pitched and whether petitioner is put to genuine hardship because of such assessment and where Commissioner (Appeals) without providing an opportunity of hearing to petitioner had passed order declining stay without considering contentions raised by petitioner, said order was in contravention of principles of natural justice and was liable to be set aside

Petitioner filed a stay application under section 220(6) before Commissioner (Appeals) requesting for stay of entire demand raised against it. Commissioner (Appeals) rejected stay application filed by petitioner and directed to pay 20 per cent of demand. Hence, petitioner filed writ petition. In light of Instruction No. 1914, dated 21.03.1996 and subsequent memorandum/circular dated 29.02.2016, Commissioner (Appeals) was to decide application of stay considering two questions whether assessment is unreasonably high pitched and whether petitioner is put to genuine hardship because of such assessment. Since Commissioner (Appeals) without providing an opportunity to petitioner had passed impugned order, impugned order was in contravention of principles of nature justice and hence, was liable to be set aside. [In favour of assessee] (Related Assessment year : 2017-18) – [Hubli Advocates Urban Co-op. Credit Society v. PCIT (2021) 281 Taxman 634 : 128 taxmann.com 66 (Karn.)]

Requirement of depositing disputed tax dues to enable assessee to enjoy stay during pendency of appeals before Commissioner (Appeals) was to be reduced to 10 per cent from 20 per cent as total tax demand was quite high and issues were at first appeal stage and even 20 per cent of tax dues would run into lakhs of rupees

Assessing Officer passed an assessment order raising huge tax demands against assessee towards additions made in respect of bogus unsecured loan received by it and bogus investment in properties made by it. Assessee filed appeals before Commissioner (Appeals) and approached Assessing Officer and requested for stay of demand pending such appeals. Assessing Officer required assessee to deposit 20 per cent of disputed tax demand, upon which, recovery of remaining amount would be stayed. Assessee contended that this being a case of high pitched assessment, he should not be asked to deposit his 20 per cent of total amount as it was beyond his financial capacity. It is inbuilt in circular dated 29.02.2016 itself to either decrease or even increase percentage of disputed tax demand to be deposited for an assessee to enjoy stay pending appeal. In view of fact that total tax demand was quite high and issues were at first appeal stage and even 20 per cent of tax dues would run into lakhs of rupees, requirement of depositing disputed tax dues to enable assessee to enjoy stay during pendency of appeal before Commissioner (Appeals), was to be reduced to 10 per cent. The order passed by the authority concerned stands modified accordingly. [Partly in favour of assessee] (Related Assessment year : 2016-17) – [PCIT v. Dalpatsinh Ukabhai Vasava (2020) 424 ITR 354 : (2019) 266 Taxman 125 : 108 taxmann.com 265 (Guj.)]

Assessee filed application before Assessing Officer for stay of recovery of demand and Assessing Officer dismissed same by simply noting that “petition was rejected and 20 per cent of tax demand was to be collected from assessee as soon as possible”, since Assessing Officer had passed impugned order mechanically and without application of mind, same was to be set aside

Against order of assessment, assessee filed an appeal before Commissioner (Appeals). During pendency of said appeal, assessee filed an application before Assessing Officer for stay of recovery of demand under section 220(6) on sole ground that addition made was sixty times of returned income and assessment order passed was high pitched and biased. Assessing Officer rejected request for stay by simply noting that “petition was rejected and 20 per cent of tax demand was to be collected from assessee as soon as possible”. Assessing Officer had passed impugned order mechanically and without application of mind, thus, same was to be set aside. Further, stay petition filed by assessee was equally mechanical as same was without reference to existence of a prima facie case, financial stringency and balance of convenience; therefore, assessee was to be directed to file a fresh stay petition before Principal Commissioner. [Partly in favour of assessee] (Related Assessment years : 2010-11 to 2013-14) – [Jayanthi Seeman v. PCIT (2020) 421 ITR 320 : 121 taxmann.com 282 (Mad.)]

Principal Commissioner failed to consider genuine hardship of assessee who was required to deposit 50 per cent of disputed tax demand, said order was legally unsustainable

In scrutiny, Income Tax Officer made an addition under section 69 against returned income on basis that assessee was unable to explain source of funds in respect of investment made by him and raised demand accordingly. Income Tax Officer passed an order directing assessee to pay 50 per cent of demand subject to which recovery of balance demand was stayed. Assessee deposited 20 per cent of demand and approached Principal Commissioner seeking for direction to Income Tax Officer to stay recovery of balance demand - Principal Commissioner passed an order confirming 50 per cent of demand made by Income Tax Officer. It was noted that Principal Commissioner had passed a cryptic order without assigning any reasons confirming order of Income Tax Officer demanding 50 per cent of demand amount. Since Principal Commissioner had failed to consider whether assessment orders suffered from being unreasonably high pitched or whether any genuine hardship would be caused to assessee in case assessee was required to deposit 50 per cent of disputed demand amount, impugned order was legally unsustainable. Hence, the order of the Principal Commissioner is not in conformity with the well settled principles of law. Accordingly, the order passed by the Commissioner (Appeals) as well as garnishee notice cannot be held to be valid in the eye of law [In favour of assessee] (Related Assessment year : 2015-16) – [Fincare Business Services Ltd. v. ITO, Bengaluru (2018) 92 taxmann.com 355 (Karn.)]

CBDT Instruction No. 95, dated 21.08.1969 has not been superseded by CBDT Instruction No. 1914, dated 02.12.1993; it even now holds field and, hence, powers under sections 220(3) & 220(6) have to be exercised in accordance with letter and spirit of CBDT Instruction No. 95 dated 21.08.1969, which is binding on all assessing authorities created under Act

CBDT Instruction No. 95, dated 21.08.1969 has not been superseded by CBDT Instruction No. 1914, dated 02.12.1993; it even now holds field and, hence, powers under sections 220(3) & 220(6) have to be exercised in accordance with letter and spirit of CBDT Instruction No. 95, dated 21.08.1969, which is binding on all assessing authorities created under Act. Assessing Officer made high pitched assessment on assessee by rejecting his claim of agricultural income and treating same as regular income from undisclosed sources. Pending appeal before Commissioner (Appeals), assessee filed petition under sections 220(3) and 220(6) seeking stay of disputed demand. Authority disposed off said petition directing assessee to deposit 50 per cent of demand pending appeal. Since impugned order was passed without considering CBDT Instruction No. 95, dated 21.08.1969 and without providing an opportunity of being heard prior to disposal of application, it was liable to be set aside. The respondent is directed to consider the petition filed by the petitioner under sections 220(3) and 220(6), in conformity with CBDT Instruction No. 95, dated 21.08.1969, by providing an opportunity of being heard to the petitioner, and pass orders in accordance with law, as early as possible. [In favour of assessee] (Related Assessment year : 2012-13) – [N. Jegatheesan v. DCIT, Madurai (2016) 388 ITR 410 : 287 CTR 292 : 237 Taxman 490 (2015) 64 taxmann.com 339 (Mad.)]

Revenue authorities, while making assessments as well as deciding appeals, must follow law laid down by High Court; a wilful disregard of law laid down by High Court would amount to civil contempt as defined in section 2(b) of Contempt of Courts Act, 1971

Being highly aggrieved by the action of the respondent - Assessing Officer of ignoring a decision of the jurisdictional High Court directly covering the controversy in issue as well as the assessment orders passed in the previous years and making a high pitched assessment, the petitioner has directly approached this court challenging the assessment order dated 31.03.2015 passed by the respondent Assessing Officer in relation to assessment year 2012-13, to the extent he has made an addition of Rs.116,43,00,000/- by way of disallowance of the final installment of the price paid for milk. Since a preliminary objection has been raised to the maintainability of the petition on the ground of there being an alternative statutory remedy, it may be necessary to address the same at the outset.

The Supreme Court in Union of India v. T. R. Varma AIR 1957 SC 882, held that it is well settled that when an alternative and equally efficacious remedy is open to a litigant, he should be required to pursue that remedy and not invoke the special jurisdiction of the High Court to issue a prerogative writ. It is true that the existence of another remedy does not affect the jurisdiction of the court to issue a writ; but, the existence of an adequate legal remedy is a thing to be taken into consideration in the matter of granting writs.

In State of U.P. v. Mohd. Nooh AIR 1958 SC 86, the Supreme Court held thus :

“If an inferior court or tribunal of first instance acts wholly without jurisdiction or patently in excess of jurisdiction or manifestly conducts the proceedings before it in a manner which is contrary to the rules of natural justice and all accepted rules of procedure and which offends the superior court's sense of fair play the superior court may, we think, quite properly exercise its power to issue the prerogative writ of certiorari to correct the error of the court or tribunal of first instance, even if an appeal to another inferior court or tribunal was available and recourse was not had to it or if recourse was had to it confirmed what ex facie was a nullity for reasons aforementioned. This would be so all the more if the tribunals holding the original trial and the tribunals hearing the appeal or revision were merely departmental tribunals composed of persons belonging to the departmental hierarchy without adequate legal training and background and whose glaring lapses occasionally come to our notice. The superior court will ordinarily decline to interfere by issuing certiorari and all we say is that in a proper case of the kind mentioned above it has the power to do so and may and should exercise it. We say no more than that.”

In State of H.P. v. Gujarat Ambuja Cement Ltd. (2005) 6 SCC 499, the Supreme Court held thus:

“Where under a statute there is an allegation of infringement of fundamental rights or when on the undisputed facts the taxing authorities are shown to have assumed jurisdiction which they do not possess can be the grounds on which the writ petitions can be entertained. But normally, the High Court should not entertain writ petitions unless it is shown that there is something more in a case, something going to the root of the jurisdiction of the officer, something which would show that it would be a case of palpable injustice to the writ petitioner to force him to adopt the remedies provided by the statute.”

Having regard to the principles propounded in the above decisions, this court is of the opinion that the petitioner has made out a strong case to contend that the present writ petition is maintainable despite the fact that the petitioner has availed of an alternative remedy against the impugned order, inasmuch as, the lapse on the part of the Assessing Officer is quite glaring and the high pitched assessment made as a result of ignoring the decision of the jurisdictional High Court results in palpable injustice to the petitioner. Nonetheless, without expressing any opinion on the maintainability of the present petition, considering the fact that the petitioner has already availed of the remedy of appeal before the Commissioner (Appeals) against the impugned order in relation to several points, including the point involved in the present case, this court is not inclined to exercise its extraordinary jurisdiction, inasmuch as, interference by this court would result in examination of the same order, may be, on different points by the Commissioner (Appeals) as well as this court, leading to an anomalous situation.

Be that as it may, this court also cannot be oblivious of the conduct of the Assessing Officer while framing the assessment. As can be seen from the impugned order, the assessee had brought the decision of this court in Mehsana District Co- operative Milk Producers Union Ltd. (supra) which appears to conclude the point in question in favour of the petitioner, to the notice of the Assessing Officer as well as the fact that in the preceding years, the point had been decided in its favour and no addition had been made. However, the Assessing Officer, without assigning any reason as to why the decision of the jurisdictional High Court was not applicable to the facts of the case, nor as to why he was required to depart from the consistent view adopted in the previous years, has held that the expenses on this count cannot be considered as expenditure but application of income and has made an addition of Rs.116,43,00,000/-. The conduct of the Assessing Officer is, therefore, required to be strongly deprecated.

Law laid down by the High Court must be followed by all authorities and subordinate Tribunals when it has been declared by the highest Court in the State. They cannot ignore it either in initiating proceedings as deciding the rights involved in such a proceedings. If in spite of the earlier exposition of law by the High Court having been pointed out and attention being pointedly drawn to that legal position, proceedings are initiated, it must be held to be a wilful disregard of the law laid down by the High Court and would amount to civil contempt as defined in section 2(b) of the Contempt of Courts Act, 1971.

The revenue authorities, while making assessments as well as deciding appeals, may well bear in mind the above principles, lest they may have to face proceedings for willful disregard of the law laid down by the High Court or the Supreme Court.

Subject to the above observations, the petition is disposed of as not entertained. However, having regard to the peculiar facts of the case, the Commissioner (Appeals) is directed to hear and decide the appeal as expeditiously as possible, and preferably within a period of two months from the date of receipt of a copy of this order. Considering the fact that in earlier years the issue had been decided in favour of the petitioner, there shall be no coercive recovery pursuant to the demand notice to the extent of Rs.48,92,85,432/-, which is the component pertaining to the addition in question. Notice is discharged with no order as to costs. – [Kaira District Co-operative Milk Producers Union Ltd. v. DCIT (2016) 386 ITR 633 : (2017) 80 taxmann.com 157 (Guj.)]

Income being assessed at 17 times higher than returned income, rejected stay application required to be re-considered as per observations in Soul v. DCIT

This writ petition is directed against the order dated 06.08.2014 passed by the Additional Commissioner of Income Tax with the approval of the CIT. By virtue of the said order dated 06.08.2014 the stay application filed by the petitioner has been rejected. We have gone through the impugned order dated 06.08.2014. The learned counsel for the petitioner has also taken us through the instruction No. 96 of 1969 as well as instruction No. 1914 of 1993. We have also examined the decision of this court in the case of Soul v. DCIT (2010) 323 ITR 305 : (2008) 173 Taxman 468 (Del.) and, in particular, paragraph 8 thereof where the above mentioned two instructions have been considered as also the earlier decision of this court in Valvoline Cummins v. DCIT: 307 ITR 103 (Delhi). Considering the same, we feel that it would be appropriate if the ACIT reconsiders the application of the petitioner for stay in the light of the observations contained in the said decision [Soul v. DCIT (supra)]. This is so because according to the petitioner the assessment is a high pitched one inasmuch as it is approximately 17 times of the returned income. Consequently, we set aside the impugned order dated 06.08.2014 and remit the matter to the ACIT for a fresh consideration of the stay application filed by the petitioner after taking into account the above mentioned decision of this court. – [Charu Home Products (P) Ltd v. CIT (2015) 229 Taxman 576 : 53 taxmann.com 103 (Del.)]

Assessee were individual assessees not running commercial business and difference between income shown in returns and assessment orders was very high, assessees were granted stay of demand subject to deposit of certain percentage of demand

Assessees were individual assesses. They contended that Assessing Officer added amount transferred from their own bank accounts from Delhi to Chennai, under section 68 as ‘unexplained credit’ and high pitched assessments were made ranging from 2.76 times to 11.24 times, which resulted in huge tax demand. They filed appeal before Commissioner (Appeals) and during pendency of appeal filed application for stay of operation of assessment order - Commissioner (Appeals) negatived relief. Since assessees were not running commercial business and they were only individual assessees and further difference between income shown in returns and assessment orders was very high, assessment orders were to be stayed subject to deposit of certain percentage of demand. [In favour of assessee] (Related Assessment year : 2006-07) – [Dr. Akilan Ramanathan v. JCIT, Chennai (2014) 227 Taxman 98 : 48 taxmann.com 329 (Mad.)]

Assessing Officer determined income of assessee at approximately 74 times of returned income and issued demand notice creating demand of additional tax on basis of assessed income - Assessee filed appeal against assessment order which was pending before Commissioner (Appeals) - It also filed an application for stay of recovery of demand before Commissioner, which was pending before him - In meanwhile, Deputy Commissioner issued a notice under section 226(3) to manager of assessee’s bank directing him to attach its debt under section 222 and to make payment to department of amount mentioned in notice - Since assessed income was approximately 74 times of returned income, assessment order would fall within expression ‘unreasonably high pitched’ as occurring in CBDT Instruction No. 1914 of 1993, dated 02.12.1993 and, therefore, impugned notice deserved to be kept in abeyance till Commissioner would decide stay application pending before him

Although Instruction No. 1914 of 1993 specifically states that it is in supersession of all earlier instructions, yet the position obtaining after the decision of the Delhi High Court in the case of Valvoline Cummins Ltd. v. DCIT (2008) 171 Taxman 241 is not altered at all. This is so because paragraph No. 2(A) of Instruction No. 1914 of 1993, which speaks of responsibility, specifically indicates that it shall be the responsibility of the Assessing Officer and the Tax Recovery Officer to collect every demand that has been raised ‘except the following’, which includes, demand stayed in accordance with the paras B&C. Para B relates to stay petitions. Sub-clause (iii) of paragraph B clearly indicates that a higher/superior authority could interfere with the decision of the Assessing Officer/Tax Recovery Officer only in exceptional circumstances, indicated as – ‘where the assessment order appears to be unreasonably high pitched or where genuine hardship is likely to be caused to the assessee’. The very question is as to what would constitute the assessment order as being unreasonably high pitched under the said Instruction No. 96 and there it has been noted by way of illustration that assessment at twice the amount of the returned income would amount to being substantially higher or high pitched. In the case of Valvoline Cummins Ltd. v. DCIT (supra), the assessee’s income was about eight times of the returned income and the Court was of the view that it was high pitched. In the instant case, the assessed income was approximately 74 times of the returned income and, obviously, that would fall within the expression ‘unreasonably high pitched’.

Therefore, impugned notice should be kept in abeyance till the jurisdictional Commissioner would decide the stay application, pending before him. It was to be clarified that though the assessee would be permitted to carry on day-to-day business operations and to make payments for statutory liabilities out of the said bank account, yet it would not withdraw any money for any other purposes from the said bank account. – [Soul v. DCIT (2010) 323 ITR 305 : (2008) 220 CTR 211 : 173 Taxman 468 (Del.)]

Where a high-pitched assessment was made resulting in a demand of Rs. 1,40,25,762, in view CBDT Instruction No. 96, dated 21.08.1969, assessee’s prayer for stay of tax was to be granted and could not be rejected on the ground that assessee had not shown any valid reason for stay of demand

The petitioner filed a return declaring a total loss of Rs. 8,49,603. The petitioner having regard to the provisions of section 115JB of the Income-tax Act, 1961, declared in the minimum alternate tax payable at Rs. 3,47,829 initially. However, the first respondent-Assessing Officer passed a high pitch assessment raising a huge demand of Rs. 1,40,25,762. Aggrieved by the assessment order, the petitioner has filed an appeal before the second respondent-CIT(Appeals) on 29.01.2007, challenging the various aspects of the assessment order. The petitioner also applied to the first respondent under section 220(6) of the Income-tax Act for stay of the demand raised by the first respondent. The first respondent rejected the same as the petitioner had no valid reason to have an order of stay of demand.

Held that it was not in dispute that a high-pitched assessment had been made assessing a sum of Rs. 5,01,132,504. The CBDT Instruction No. 96, dated 21.08.1969 would squarely apply to the case of the petitioner. The mere statement in the impugned order without any factual foundation that ‘no valid reason had been stated for stay of the demand’ by the Assessing Officer could not be appreciated. When the petitioner had relied on the Department’s own guidelines, the Assessing Officer could have rejected the circular by giving reasons for coming to the conclusion that the circular would not be applicable to the petitioner or accept the same and grant the relief as prayed for by the petitioner. Without doing so, by simply saying that the assessee had no valid reason for the grant of stay, order of Assessing Officer rejecting the assessee’s prayer for stay of demand was not legally sustainable. Having regard to the abovesaid facts and circumstances of the case, with particular reference to the instructions issued by the CBDT, I am of the view that the petitioner is entitled to stay of the collection till orders are passed in the appeal, subject to making certain payment. Accordingly, the writ petition is disposed of and there will be an order of stay of collection of demand of tax for the assessment year 2004-05 till orders are passed in the appeal, subject to the petitioner making payment of a sum of Rs. 20 lakhs on or before 31.03.2007. (Related Assessment year 2004-05) – [M.G.M. Transports (Madras) (P) Ltd. v. ITO (2008) 303 ITR 115 : (2007) 209 CTR 90 (Mad.)]

ITO is a responsible authority of Central Government and he is bound to exercise his jurisdiction within legal limits - If High Court directs ITO to perform a specified duty in a particular manner, it cannot be expected from ITO or anyone else to go beyond that or to partly comply with directions as it would amount to contempt of Court

In response to notices issued under section 148, the assessee filed returns for the assessment years 1992-93 to 1994-95 showing the same amount of income as was reflected in the original returns. However, during the course of assessment proceedings the assessee filed writ petition with the High Court and got further proceedings stayed on the same day. The assessment proceedings were resumed only after stay order was vacated by the High Court, with certain directions as per mutual agreement, which included direction to issue certified copies of documents on which reliance was placed and to give proper opportunity to the assessee to cross-examine all the persons whose statements would be recorded and would be relied upon by the ITO and also, to give an opportunity to the assessee to rebut any document/material on which the department would place reliance. However, the ITO supplied some of the documents to the assessee and, accordingly, the assessment under section 144 for all the years was made. On appeal, the assessee contended that the ITO had not obeyed the binding direction of the jurisdictional High Court as regards the issuance of certified copies; rebuttal of documents relied upon by the department and complete cross-examination of the persons whose statements were recorded and relied upon by the ITO. The Commissioner (Appeals) considering said contentions allowed some relief to the assessee in all the years. On cross appeal :

It was an undisputed fact that during the course of assessment proceedings, the assessee had approached the High Court who, in turn, had directed the assessing authority to issue certified copies of all the documents on which it was placing reliance. It was further ordered that the assessment order would be passed after giving an opportunity to the assessee to cross-examine all the persons whose statements were recorded and relied upon by the assessing authority and was also given an opportunity to rebut any document/material on which the department had placed reliance. Despite the specific directions of the High Court, it was found, as an uncontroverted position, that some of the documents were never supplied to the assessee and some documents were supplied after the conclusion of hearing, disabling the assessee to put up his case effectively. The cross-examination also made, if any, had lost its significance when the allegations made against the assessee were not properly made known to him by supplying the copies of the relevant statements intended to be used against him. The ITO is a responsible authority of the Central Government and he is bound to exercise his jurisdiction within the legal limits. When the High Court has directed the ITO to perform a specified duty in a particular manner, it cannot be expected from the ITO or anyone else to go beyond that or to partly comply with the directions. It is a serious matter and amounts to contempt of the Court. No person can be deprived of his right, which has been granted in the judicial process. In view of the above, the assessee was not granted an adequate opportunity to make up his case which had resulted into the miscarriage of justice in the making of such high pitched assessment. By setting aside the impugned orders, the matter was to be restored to the file of the Assessing Officer for framing the de novo assessments for all the three years as per law after allowing a reasonable opportunity of being heard to the assessee. The assessee would be confronted with and supplied the copies of all the materials intended to be used against him and reasonable time be provided to make out his case and the directions given by the Jurisdictional High Court should be adhered to in letter and spirit. (Related Assessment years : 1992-93 to 1994-95) - [Tejraj Chopada v. ITO (2006) 100 TTJ 922 : (2008) 26 SOT 14 (ITAT Jodhpur) (URO)]