By TIOL News Service

MUMBAI, APRIL 23, 2019: THE ISSUE BEFORE THE DIVISION BENCH IS - Whether setting out of norms for disposal of appeal by the Appellate Commissioners, is not beyond the scope of CBDT's powers enshrined u/s 119 of Income Tax Act. YES is the Verdict.

Facts of the case:

The present petition had been preferred by the Association of Tax Consultants and its office bearers, challenging a portion of "Central Action Plan" prepared by CBDT for the F.Y 2018-2019. This plan contained various provisions made by CBDT setting out targets of tax collection, disposal of cases by income tax authorities and for awarding points for such disposals. The grievances of the assessees related to two areas of this plan. Their first grievance was in respect of time line set and the directions to the CIT(A) for deciding appeals within such time. According to assessees, such targets and time limits would put unnatural pressure on the CIT to decide the cases in a hasty manner, which had every possibility of denying a fair hearing to the assessee. Second grievance was with respect to allocation of units for disposal of what had been referred to as "quality orders". The asessees pointed out that these quality orders were those which result in favour of the Department. According to assessees, granting more weightage to such orders, would have the possibility of influencing the outcome of the Appeals before the Appellate authorities.

The Petitioners of the PIL had also challenged the same plan. The challenge however was confined to the portion of the plan, where the CIT(A) had been given higher weightage for disposal of Appeals by quality orders.

High Court held:

++ from the perusal of the action plan, it can be seen that in order to achieve certain disposal targets of pending Appeals before the CIT(A), the CBDT has made detail provisions for expeditious disposal of such Appeals. The Plan contains incentive for quality orders and provides that additional credit of two units shall be allowed for each quality appellate order passed. On the question of higher weightage for "quality orders", this Court in order dated Mar 22, 2019 had observed that it is not clear from the action plan as to the utility of the norms set which the Commissioner has to achieve. If the purpose of setting of norms is to evaluate the performance of the Commissioner, there would be all the more reason why such portion of the action plan be reconsidered by the CBDT. Accordingly, the counsel for CBDT was directed to explain about the utility of the norms that the Commissioner would need to achieve and the outcome of the CBDT's deliberations on the recommendation for reconsideration. In response to this order, the counsel for CBDT clarfied the issues stating that the concept of awarding credits has been brought in by the Board to ensure parity in the performance of CIT(A) as he is required to dispose of small appeals involving meagre tax effect as well as large and complicated cases, involving multiple issues, requiring greater effort and devoting of time. Further, a two pronged strategy has been detailed in the CAP for respect of disposal of appeals filed with CIT(A), having proportionate focus on optimizing disposal in terms of numbers and on maximizing disposal of appeals involving high quantum of demand;

++ as far as broad targets for revenue collection projected over the different regions, is concerned, the internal distribution between the regions has been carried out on scientific basis. Only because certain targets for tax collection are set out, would not render the policy arbitrary or unreasonable. In the context of the disposal norms to be met by the CIT(A), it is not impermissible for any organization to set out certain output norms to judge the output performance of the person concerned. In absence of any such norms, it may be extremely difficult to judge the quantitative performance of a person concerned. Setting out of norms for disposal by the Appellate Commissioners, per say, therefore cannot be said to be either impermissible or beyond the scope of CBDT's powers. The Court does not have the wherewithal to test such norms on the basis of reasonableness. It cannot be said that the guidelines have undertone of giving priority to the issues which concern the revenue more than the assessees. As noted the directives include giving priority to old cases of small assessees. If the CBDT also recognizes that appeals involving high tax effect are most likely to be more voluminous, involving complex legal disputes, the prescription of higher units for disposal of such cases, can neither be stated to be arbitrary nor unreasonable, nor can be seen as restricting the discretion of the Appellate Commissioner;

++ the provision of Section 250(6A) provides that the CIT(A) where it is possible may hear and decide the Appeal within a period of one year from the end of financial year in which such Appeal is filed before him. This provision does not lay down any fix time limit for the CIT(A) to dispose of the Appeals filed before him. It only requires that the Appeal be disposed of when it is possible, within a certain time frame. This however does not indicate that the guidelines issued by CBDT in the action plan, are contrary to sub-section (6A) of section 250. What the CBDT has done is to lay down broad guidelines for disposal of Appeals category-wise. Coming to the assessee's second limb of the grievance, it needs to be recalled the policy provided for incentive for quality orders. This clause states that with a view to encourage quality work by Commissioner (Appeals) additional credit of 2 units shall be allowed for each quality appellate order passed. Ofcourse subject to CCIT upon examination of the order finds of deserving higher weightage. 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 u/s 271(1) has been levied by the CIT(A). All these contingencies necessarily point to circumstances where the order passed by CIT(A) is in favour of the Revenue. Any directives by the CBDT which gives additional incentive for an order that the CIT(A) may pass having regard to its implication, necessarily transgresses in the Commissioner's exercise of discretionary quasijudicial powers;

++ in terms of the provisions contained u/s 119(1), the Board may from time to time issue such orders, instructions and directions to other income tax authorities as it may deem fit, for proper administration of the Act and such authorities shall observe and follow the orders, instructions and directions of the board. While granting such wide powers to the CBDT under sub-section (1) of section 119, the proviso thereto provides that no such orders, instructions or directions shall be issued, so as to require any income tax authority to make a particular assessment or to dispose of a particular case in a particular manner. In exercise of these powers thus the CBDT cannot issue any instructions or directions to any income tax authority to make a particular assessment or to dispose of a case in a particular manner. When the CBDT guidelines provide greater weightage for disposal of an Appeal by the Appellate Commissioner in a particular manner, this proviso of sub-section (1) of section 119 would surely in a breached. It is neither possible nor necessary to judge the actual effect of such guidelines on the orders passed by the appellate authorities. 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. Under the circumstances the CBDT has now decided to withdraw the guidelines for the coming year. In the opinion of this Court in its existing form for the past financial year also the same cannot be allowed to have effect. Since the appellate Commissioners have already passed the orders, the correction of these orders cannot be doubted en masse only because they were passed under the shadow of the said policy.

(See 2019-TIOL-902-HC-MUM-IT)