HC sets aside CBDT’s plan of rewarding CITs-appeal

MUMBAI: The Bombay high court has set aside that portion of CBDT’s action plan that sought to incentivise commissioners of income tax-appeals (CITs-A) who pass ‘quality’ orders, which could be detrimental to taxpayers.
“Any temptation in the guidelines, referred to as incentives for disposal of an appeal in a particular manner would not stand the test of law,” the high court held in its written order made available on April 22.TOI, in its edition dated March 27, had reported on the interim order where the high court had asked the Central Board of Direct Taxes (CBDT) to reconsider this aspect and apprise it on the steps that would be taken.
As the financial year 2018-19 was coming to a close, CBDT apprised the court that it would carry out the requisite amendments in the action plan for the next financial year 2019-20.

However, coming down strongly against the plan to incentivise appellate commissioners for quality orders, the court held: “...the guidelines in its existing form for the past financial year also cannot be allowed to have effect.”
CBDT’s action plan for the financial year 2018-19 had set out that the CITs-A would be allowed additional performance credits of two units for every quality appellate order passed. The term ‘quality’ orders included cases where the CIT-A enhances the order of the I-T officer (in other words, the quantum of tax demand is increased) or where he strengthens the order of the I-T officer. It also included instances where the CIT-A levies a penalty on the additions confirmed by him to a taxpayer’s income.
When taxpayers dispute their tax demands, raised by the I-T officer, they approach the CIT-A. This is the first level of appeal. Based on facts of the case and legalities involved, orders passed by the appellate commissioner can swing either in favour of the taxpayer or the I-T department.
Tax experts had pointed out that CBDT’s action plan may prejudice the minds of the CITs-A. This led to The Chamber of Tax Consultants, a not-for-profit body of tax professionals, filing a petition in the high court. Speaking to TOI, Hinesh R Doshi, president of the Chamber of Tax Consultants, termed the verdict as a major victory for taxpayers.
He also referred to CBDT’s future plan of action. For the financial year 2019-20, the board would modify the definition of quality orders to include all appeal orders passed by the CIT (A), whether decided in favour or against the revenue, where the supervisory commissioner is of the view that the CIT(A) has devoted more time. This would refer to the time spent for ascertaining the facts and passing exceptionally well-reasoned order, which takes into consideration applicable judicial precedents. “Thus, the grounds for bias would be eliminated,” Doshi said.
The high court noted that while the CBDT has wide powers under section 119(1) to issue orders, instructions and directions to other I-T authorities, as it may deem fit, for proper administration of the I-T Act, it does not empower the CBDT to issue instructions or directions to make a particular assessment or dispose a case in a particular manner. It also observed that appellate commissioners have already passed orders under the shadow of the incentivisation programme contained in the action plan. In this background, tax experts point out that this order of the high court gives a better standing to aggrieved taxpayers, when they appeal against orders of the appellate commissioners.
The Chamber of Tax Consultants had also challenged the directions issued by the CBDT in its action plan for disposal of a certain number of appeals of specified categories, within a specified period of time. The high court did not find this direction as objectionable.