Income Tax Appeals and Writs

The right to appeal an adverse or erroneous order or adjudication passed by Taxation or Revenue authorities is extremely valuable and necessary to protect the rights and interests of the taxpayer/assessee.

Chapter XX of the Income Tax Act 1961 (the Act) contains the necessary provisions with respect to Income Tax appeals and revision before the fact-finding and adjudicating quasi-judicial income tax appellate authorities i.e. the Commissioner of Income Tax (Appeals) and the Income Tax Appellate Tribunal (ITAT), as well as the Constitutional Courts (made up of jurisdictional State High Courts and the Supreme Court of India) as the final and apex courts of appeal in taxation law related matters.


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Appellate Hierarchy

Income Tax Appeal under the Act generally follows the below stated (in ascending order) appellate and jurisdictional hierarchy (which may differ due to subject matter, rank of adjudicating authority, issues in dispute, relief sought etc)


Commissioner of Income Tax (Appeals) or CIT(Appeals)
– First Appeal

The first appellate authority, empowered to hear an appeal filed by taxpayer/assessee the both on issues of fact finding by the lower income tax authorities (eg. Assessing Officer or AO) as well as questions of law or mixed questions of law and fact.

 
Income Tax Appellate Tribunal (ITAT) – Second Appeal

As the immediately superior appellate authority to the CIT(A), an Income Tax appeal before the ITAT can be filed by an aggrieved party (taxpayer/assessee and/or by the AO etc) against an ‘appealable order‘, usually passed in appeal by the CIT(Appeals).

The ITAT is also the final fact finding quasi-judicial authority and can hear an appeal both on issues of fact finding by the lower Income Tax authorities including the CIT(Appeals) as well as questions of law or mixed questions of law and fact.

 
High Court – Limited Third Appeal and Writ Jurisdiction

An Income Tax (limited) appeal lies to the jurisdictional High Court from every order passed in appeal by the Income Tax Appellate Tribunal (ITAT), where the concerned High Court is satisfied that the case involves a substantial question of law.

The State High Courts are also Writ Courts, empowered thereunder to issue such ‘Writs‘, when the said authorities act beyond their legal powers or jurisdiction or upon the satisfaction of other legal grounds which justify the issuance of such discretionary powers to protect the rights and interests of taxpayer/assessees concerned.

 
Supreme Court of India – Final/Highest Court of Appeal and Writ Jurisdiction

An Income Tax appeal lies to the Hon’ble Supreme Court of India from an order passed in appeal by the concerned High Court, in respect of an order earlier passed in appeal by the relevant Income Tax Appellate Tribunal (ITAT), which the said High Court certifies to be one fit for appeal to the Supreme Court or through a Special Leave Petition (SLP) where such certificate is denied.

The Supreme Court may also be approached for issuance of Writs against extra-jurisdictional orders passed by any adjudicatory or appellate authority (including the concerned State High Court).


Important Issues

Circular No.21 of 2015 issued on 10 December 2015 by the Central Board of Direct Taxes (CBDT), revised the monetary limits for filing of appeals on merit, by the Income Tax Department before the Income Tax Appellate Tribunal (ITAT), the High Courts and SLP before Supreme Court, as a measure for reducing litigation.

  • The said Circular also clarified that such appeal is not to be filed merely because the ‘tax effect’ in a case exceeds the monetary limits prescribed (see below), and filing of appeal in such cases is to be decided on merits of the case.
  • By virtue of the said Circular, the Commissioner of Income Tax (CIT) cannot direct the Assessing Officer (AO) to file an Income Tax appeal to the ITAT against the order of the Commissioner of Income Tax (Appeals) or CIT(Appeals) in those cases in which the tax effect does not exceeds Rs.10 lacs (appeals/SLPs cannot be filed in cases where the ‘tax effect’ does not exceed the monetary limits of Rs.20 lacs for appeals before the High Court and Rs.25 lacs for SLPs before the Supreme Court of India).

Tax effect” means the difference between the tax on the total income as assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of which dispute has arisen and against which the appeal is intended to be filed (hereinafter referred to as “disputed Issues”) subject to the following

  • The tax will not include any interest thereon, except where chargeability of interest itself is in dispute;
  • In case the chargeability of interest is the issue under dispute, the amount of interest shall be the tax effect;
  • In cases where returned loss is reduced or assessed as income, the tax effect would include notional tax on disputed additions; and
  • In case of penalty orders, the tax effect will mean quantum of penalty deleted or reduced in the order to be appealed against.


Assessment year and Composite Order

Appeals can be filed by Commissioner of Income Tax only with reference to the tax effect in the relevant assessment year. However, in case of a composite order of any High Court or appellate authority, which involves more than one assessment year and common issues in more than one assessment year, appeal shall be filed in respect of all such assessment years even if the tax effect is less than the prescribed monetary limits in any of the year(s), if it is decided to file appeal in respect of the year(s) in which tax effect exceeds the monetary limit prescribed. Further, in case where a composite order/judgment involves more than one taxpayer, each taxpayer shall be dealt with separately.


Appeal on merit irrespective of Tax Effect

Adverse judgments relating to the following issues will still be contested on merits notwithstanding that the tax effect entailed is less than the monetary limits specified above or there is no tax effect

  • Where the Constitutional validity of the provisions of an Act or Rule is under challenge;
  • Where Board’s (CBDT) order, Notification, Instruction or Circular has been held to be illegal or ultra vires;
  • Where Revenue Audit’s objection in the case has been accepted by the Department;
  • Writ matters;
  • Matters pertaining to other direct taxes, i.e., other than Income-Tax;
  • Where the tax effect is not quantifiable or not involved, such as case of registration of trust or institution under section 12A.


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Substantial Question of Law

An Income Tax appeal before the jurisdictional High Court is filed in the form of a ‘Memorandum of Appeal’ stating precisely therein, the substantial question of law so involved. Where the High Court is satisfied that a substantial question of law is involved in any case, it will formulate that question.

  • The said appeal will be heard only on the question(s) so formulated, and the respondents shall, at the hearing of the appeal, be allowed to argue that the case does not involve such question(s).
  • However, nothing takes away or abridges the power of the said Court to hear, for reasons to be recorded, the appeal on any other substantial question of law not formulated by it, if it is satisfied that the case involves such question.


High Court Adjudication and Judgement

The concerned High Court decides the question(s) of law so formulated and its judgment thereon containing the grounds on which such decision is founded. In its adjudication of the relevant matter, the concerned High Court may determine any issue which—

  • Has not been determined by the concerned ITAT or
  • Which has been wrongly determined by the ITAT, by reason of a decision on the above mentioned question(s) of law


Refusal of Certificate by High Court and SLP

Where the concerned High Court refuses the said certificate, pursuant to the provisions of the Income Tax Act 1961 (the Act), there is no statutory right to an appeal before the Supreme Court of India.

  • In such situation, the concerned party can file a Special Leave Petition (SLP) within 90 days of the date on which the said High Court order sought to be appealed against is communicated to the said party and fees payable for filing a SLP will be as specified in the Supreme Court Rules 2013 at the relevant time of filing.
  • The Supreme Court, on hearing the parties, can either grant leave to hear the appeal or refuse the same on merits and dismiss the SLP.
  • Where such SLP is admitted and leave is granted, a date will be fixed for a final hearing and the concerned parties to the appeal can submit written and oral submissions as well as evidence before the final decision is made.


Writ Jurisdiction

The authority to issue a Writ has been provided to the High Courts via the provisions of the relevant Article of the Constitution of India. The Supreme Court of India is the highest Court of Law in India and thus its legal powers and authority to issue a Writ as provided via the provisions of the relevant Article of the Constitution of India, is the also the highest Writ issuing power.

  • Access to Writ jurisdiction is not automatic and the same may be denied, even in circumstances where the same may be legally justifiable. This may be the case if an alternative remedy exists that may do justice to the petitioner concerned or where the Writ relief has been lost through delay or relevant acts/omissions of the said petitioner, whilst in some other situations, the petitioner may be required to seek the Writ before the jurisdictional High Court, if not so done already.
  • In general, the petitioner can file a Writ petition before the concerned High Court/Supreme Court of India if the Income Tax authority concerned has exercised powers, passed (or refused to pass) orders or taken steps (through acts or abstenance from acts/omissions) against the said petitioner, when the same is either beyond the lawful powers provided or assigned by law to such authority or exercised etc. in the absence of any such lawful power or authority.


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