Complete Guide to Income Tax Appeal Mechanism and Procedure

Complete Guide and Understanding of the Income Tax Appeal Mechanism and Procedure

Where any individual or business entity is aggrieved or disagrees with any assessment order or penalty order issued under the Income Tax Act, issued by an Assessing Officer, can file appeal against the same order. The Income Tax Act provides an appeal mechanism with a structural legal hierarchy to challenge the order issued by an Assessing Officer.  The Act provides for the Income Tax department also the right to appeal against the order to the appropriate appeal forum. To reduce the low-value cases under litigation and provide relief to the taxpayers, the Central Board of Direct Taxes (CBDT) has enforced a strict threshold monetary limits which guides when the department can appeal to the appeal forums.

The Income Tax Appeal Hierarchy

1. First Appellate Authority – Appeal to JCIT (A) / CIT (A)

Where the tax payer is aggrieved by the initial order issued by the local jurisdictional Assessing Officer, or National Faceless Assessment Centre (under Faceless Assessment) , then the order can be challenged to the first appellate authority i.e. Commissioner of Income Tax (Appeal ) or Joint Commissioner of Income Tax (Appeal) as the case may be. The appeal before CIT (A) or JCIT (A) can be filed only by the assessee or say taxpayer.

Time limit – The appeal should be filed within 30 days from the date of service of the order ( where the delay can be condoned by the CIT (A) or JCIT(A) if there are reasons available and are sufficient)

Stay of Demand – JCIT (A) or CIT (A) on the application of the assessee can grant stay of demand against the order of the Assessing Officer, if deemed fit.

Filing of Appeal – The appeal must be filed electronically on the Income Tax E-filling Portal in Form -35 along with Statement of Facts, Grounds of Appeal, Copy of Impugned Order of AO, Proof of Payment, i.e, Challan payment of requisite Appeal fees and Memorandum of Appeal.

Power to admit Additional Evidences

JCIT (A) or CIT (A) can admit or allow the submission of additional evidence by recording the reasons in writing in generally following cases –

• AO refused to admit evidence
• Assessee was prevented by sufficient cause to produce such evidence
• AO made order without giving opportunity to produce evidence

Order of JCIT (A) / CIT (A)

They may confirm, reduce or enhance assessment. They also have the powers to set-aside the assessment under section 144 of Income Tax Act. They should pass order within 1 year from the end of the year in which appeal is filed, if possible.

2. Second Appellate Authority – Appeal to Income Tax Appellate Tribunal (ITAT)

Where any taxpayer is dissatisfied or aggrieved by the order of the first appellate authority, then the taxpayer can filed appeal to the Income Tax Appellate Tribunal (ITAT) under the Income Tax Act appeal mechanism. Here at this forum, the appeal can be filed by the tax department also; it is called as departmental appeal where the tax department moved appeal to ITAT against the order of the JCIT (A) or CIT (A).

Time limit – The appeal should be filed within a period of 2 months from end of the month in which order sought to be appealed against is communicated to the taxpayer or the tax department as the case may be. The ITAT may admit or allow an appeal even after the period of 2 months if it is satisfied that there was sufficient cause for not presenting the appeal within the prescribed time limit.

Filing of Appeal – The appeal to ITAT must be filed electronically on the Income Tax E-filling Portal with the following documents –

Stay of Demand – ITAT can grant stay of demand on the application of the assessee for a maximum 180 days. If ITAT fails to issue an order of judgment within 180 days and delay in disposing of the said appeal is not attributable to the assessee/ taxpayer, then in such cases, the ITAT can further, if deemed fit, extend the stay period but the total period shall not exceed 365 days, in any case, including the original period of stay and extension so provided.

However, the stay of demand shall be granted by the ITAT only when the assessee has deposited atleast 20% of the amount of his tax liabilities in such cases.

Memorandum of Cross Objection

The respondent (Assessing Officer or the taxpayer, as the case may be) shall file the memorandum of cross objection within 30 days of receipt of notice of appeal. The memorandum of cross objection is to be filed in Form 36A. There is no filling fee for filling of memorandum of cross objection to ITAT. The ITAT may accept or allow a memorandum of cross objection even after the period of 30 days if it is satisfied that there was sufficient cause for not submitting the same within the prescribed time limit.

Order of ITAT

ITAT may confirm, reduce or set-aside the assessment. If possible, the ITAT shall dispose-off the appeal within a period of 4 years from the end of the financial year in which appeal is filed.

Rectification of Appellate Order by ITAT

ITAT can rectify any mistake in its order which is apparent on record. However, where such rectification of mistake has the effect of enhancing an assessment or reducing a refund or otherwise increasing a liability of the taxpayer, it shall not be made unless the ITAT has given a notice to the taxpayer of its intention to do so and has allowed the taxpayer a reasonable opportunity. Time limit for such rectification –

• Own Motion by ITAT – Within 6 months from the end of month in which the ITAT order was passed
• Application by Assessing Officer/ Taxpayer – Within 6 month from the end of the month in which application was made. In this case, application has to be filed within 6 month from the end of the month in which the order was passed by the ITAT.

3. Third Appellate Authority – Appeal to Jurisdictional High Court

Any tax payer or the tax department aggrieved by the order of the Income Tax Appeal Tribunal where there is a Question of Law involved can appeal against such order of ITAT to the jurisdictional High Court . Here it is to be mentioned that the High Court is not a fact finding forum under Income Tax Act, where there is a substantial question of law being involved rather than disputes over facts in such cases then only appeal can be made to High Court. The Jurisdictional High Court means the respective state High Court where ITAT bench is located.

Time limit – The appeal against the order of ITAT to High Court shall be filed within 120 days from the date on which the order appealed against is received by the assessee (taxpayer) or the tax department as the case may be. The High Court may admit or allow an appeal after the expiry of the period of 120 days, if it is satisfied that there was sufficient cause for not filing the same within that period limit.

Filing of Appeal – The format of appeal is as per High Court Rules generally Memorandum of Appeal is submitted along with copy of ITAT order and other documents. The Fees is also as per High Court Rules (as it varies state to state). The appeal in High Court required a practicing advocate to file and argue as against in case of ITAT or JCIT (A) /CIT (A) where Chartered Accountants can also file appeal on behalf of taxpayer.

Points to be remembered in case of appeal to High Court –

Where the High Court is satisfied that a substantial question of law is involved in any case, it shall formulate that question. The appeal shall be heard only on the question so formulated, and the respondents shall, at the hearing of the appeal, be allowed to argue that the case does not involve such question.

The High Court may determine any issue which—

• Has not been determined by the Appellate Tribunal
• Has been determined by the Appellate Tribunal but wrongly.
• Has a dispute over the legal interpretation of any provisions of statue

Other than the provisions provided under the Income Tax Act, the provisions of the Code of Civil Procedure, 1908 (5 of 1908), relating to appeals to the High Court shall, as far as may be, apply in the case of appeals. The High Court shall decide the question of law so formulated and deliver such judgment thereon containing the grounds on which such decision is founded and may award such cost as it deems fit.

4. Fourth Appellate Authority – Appeal to Supreme Court

The Supreme Court of India is the Apex Judicial Authority. Under the provisions of Income Tax Act, the appeal to Supreme Court can be made against the order of High Court. The appeal in such case should have a Question of Law which needs to be decided by the Supreme Court of India. The appeal to the Supreme Court is to be made where the complete sequential appeal authority hierarchy is followed, means one cannot directly approach the Supreme Court without appealing to other sequential appeal forum prescribed under law such as AO to JCIT(A)/CIT(A) to ITAT to High Court and then Supreme Court.

The decision (including additional observations, remarks and opinions) of the Supreme Court is binding on all the lower courts, tribunals, and authorities in all cases.

Monetary Limit to regulate Appeal by Department

The Central Board of Direct Taxes fixes the monetary limit to regulate the appeal made by the tax department to avoid litigations in small value cases.

Department can file appeal only if the Tax Effect is more than the following amounts:-

Tax Effect means tax amount (including surcharge (if any) and cess) in dispute. It does not include the interest applicable.

If tax department has not filed appeal on a particular issue in a case of particular assessee /taxpayer in a particular year due to above limit , it shall not stop the department from filing appeal on same issue –

• In case of same assessee in another year
• In case of another assessee in any year