2019 (4) TMI 1489 - HC - Income Tax

Disposal of appeal by CIT(A) - Central Action Plan prepared by CBDT - priority for disposal of appeals in different Categories - Incentive for quality orders - possibility of miscarriage of justice - possibility of consciously or subconsciously influencing the mind of the authority about the ultimate outcome of the Appeal - Power of CBDT u/s 119 to issue any instructions or providing directions to require any income-tax authority to pass an order in a particular manner. Priority for disposal of appeals in different Categories - HELD THAT - We do not think that these guidelines in any manner breach the reasonableness or can be stated to be arbitrary or illegal. These guidelines are for general directives and prescriptions to on one hand enable the revenue to collect taxes which are otherwise due and on the other hand to assess the work output of the Appellate Commissioners which in any organization is of considerable importance. We also do not think that the guidelines have undertone of giving priority to the issues which concern the revenue more than the assessees. What the CBDT has done is to lay down broad guidelines for disposal of Appeals category-wise. There is neither firm directives that certain class or kinds of Appeals must be decided before a particular date, nor there is any negative implication of a particular Commissioner (Appeals) not being able to do so. The guidelines of the CBDT in this respect therefore must be seen as directory and not mandatory. Incentive for quality orders - The term quality cases is explained as those including cases where (a) enhancement has been made, (b) order has been strengthened, in the opinion of the CCID, and (c) penalty under section 271(1) has been levied by the CIT (A) - HELD THAT - All these contingencies necessarily point to circumstances where the order passed by the Commissioner (Appeals) is in favour of the revenue. For example this policy refers to the enhancement made by the Commissioner or a case where the Commissioner has levied penalty under section 271(1) of the Act. This necessarily refers to enlargement of the assessee's liability before the Commissioner as compared to what may have been determined by the Assessing Officer. In our opinion, such policy is wholly impermissible and invalid. Any directives by the CBDT which gives additional incentive for an order that the Commissioner (Appeals) may pass having regard to its implication, necessarily transgresses in the Commissioner's exercise of discretionary quasi-judicial powers. It is well laid down through series of judgments in field of administrative law, interference or controlling of the discretion of a statutory authority in exercise of the powers from an outside agency or source, may even be superior authority, is wholly impermissible. This general principal of administrative law finds statutory embodiment in sub section (1) of Section 119 of the Act. As is well known, under sub section (1) of section 119, the Board has the power to issue orders and instructions for proper administration of the Act. Suffice it to record that such guidelines have a propensity to influence the appellate Commissioners and be tempted to pass an order in a particular manner so as to achieve a greater target of disposal. Any temptation though in the guidelines referred to as incentives for disposal of an Appeal in a particular manner, would not stand the test of law. Nevertheless to allow the implementation of this policy, on the orders passed by the Appellate Commissioners even for the past financial year, would amount to an illegal prescription to prevail and operate. The following portion of the impugned Action Plan of CBDT is set aside. Incentive for quality orders (i) With a view to encourage quality work by CITs (A), additional credit of 2 units shall be allowed for each quality appellate order passed. The CIT (A) may claim such credit by reporting such orders in their monthly DO letter to the CCIT concerned. Quality cases would include cases where (a) enhancement has been made, (b) order has been strengthened, in the opinion of the CCID, and (c) penalty u/s 271(1) has been levied by the CIT (A). (ii) The concerned CCIT shall examine any such appellate orders referred to him by the CIT (A), decide whether any of the cases reported deserve the additional credit and convey the same through a DO letter to the CIT (A), which can be relied upon while claiming the credit at the year end. Petition is allowed in part

Summary

Issues Involved:
1. Timeline and targets for disposal of appeals by the Commissioner (Appeals).
2. Allocation of units for disposal of "quality orders" and its implications.

Detailed Analysis:

Timeline and Targets for Disposal of Appeals:
The Petitioners challenged the portion of the "Central Action Plan" prepared by the Central Board of Direct Tax (CBDT) for the financial year 2018-2019, which set timelines and targets for the disposal of appeals by the Commissioner (Appeals). They argued that such targets would put undue pressure on the Commissioner, potentially denying a fair hearing to the assessee.

The Court noted that setting targets and goals for revenue collection and disposal of appeals is a common practice for any organization and is not inherently arbitrary or unreasonable. The CBDT's plan categorized appeals based on the tax effect and set different units for their disposal. For instance, appeals involving tax effects of more than ?50 crores would receive 3 units, while those between ?1 crore and ?50 crores would receive 2 units.

The Court found that these guidelines were broad and directory, not mandatory, and did not breach reasonableness or legality. The guidelines aimed to enable revenue collection and assess the work output of the Appellate Commissioners. The Court emphasized that the guidelines should not be seen as restricting the discretion of the Appellate Commissioner or denying a fair hearing to the assessee.

Allocation of Units for Disposal of "Quality Orders":
The Petitioners also challenged the allocation of additional units for "quality orders," which were defined as orders where enhancement was made, the order of the Assessing Officer was strengthened, or penalty under section 271(1) was levied by the Commissioner (Appeals). The Petitioners argued that this incentivization could influence the outcome of appeals, compromising the independence and judicial autonomy of the Commissioner (Appeals).

The Court agreed with the Petitioners, stating that such incentivization transgresses the Commissioner's exercise of discretionary quasi-judicial powers. The Court referred to sub-section (1) of Section 119 of the Income Tax Act, which prohibits the CBDT from issuing instructions that require any income tax authority to make a particular assessment or dispose of a case in a particular manner.

The Court found that the guidelines for incentivizing "quality orders" had the potential to influence the appellate Commissioners to pass orders in favor of the revenue, which is impermissible. Consequently, the Court set aside this portion of the CBDT's Action Plan.

Conclusion:
The Court allowed the Petition in part, setting aside the portion of the CBDT's Action Plan that provided additional credit for "quality orders." The rest of the guidelines, including the targets for disposal of appeals, were upheld as reasonable and within the scope of the CBDT's powers. Both Petitions were disposed of accordingly.