First Appeal Proceeding & Serious Procedural Fallacies In Income Tax Proceedings

Summary: This article examines the author’s concerns about the treatment of procedural and jurisdictional objections in first appeals against income tax assessment and reassessment orders. It discusses scrutiny selection under CASS, reopening proceedings and procedural safeguards associated with notices, approvals and electronic communication. The author identifies alleged defaults involving notices under Section 143(2), approvals under Section 151, factual inaccuracies in notices under Section 148A(b), mechanical sanction and the availability of e-verification notices on taxpayers’ compliance portals. The article argues that first appellate authorities should address legal grounds challenging the validity of proceedings before examining substantive additions. It criticises the alleged practice of overlooking such grounds and remitting assessments to the Assessing Officer under Section 251(1)(a), potentially depriving taxpayers of relief arising from defects in the original proceedings. Referring to the Supreme Court’s observations in Union Public Service Commission v. Bibhu Prasad Sarangi, the author emphasises the importance of reasons, independent application of mind and substantive justice in judicial and quasi-judicial decisions. The article concludes by highlighting the difficulties faced by taxpayers who lack adequate legal advice or the financial resources to pursue further appeals before the ITAT.

Income Tax Scrutiny, Reassessment and First Appeals

In the income tax law among several revenue centric proceedings normal scrutiny of the annual returns of income filed by the different categories of assesses as enumerated in the section 14 of the income tax act, 1961 are taken in the selective manner under CASS mechanism in consonance with the yearly notified scrutiny selection parameters by the CBDT in exercise of it’s power u/s 119 read with section 143(3) and 144B. Another is the reopening proceeding u/s 147 read with section 148 which is the most potent arsenal in the kitty of the revenue being widely used against the both filers and the non filer of annual returns of income u/s 139 disclosing their taxable income.

That the solitary subject of this article concerning the recent widespread trend in the first appellate orders of the deliberate non consideration of the grave procedural errors committed by the assessing authorities and the other incidental authorities in many of the assessment or reassessment proceedings which automatically render the very assessment or reassessment orders void ab initio the consequent adjudication of the merit issues in the first appeal otiose. That after commencement of the faceless regime u/s 144B these serious procedural defaults on the part of the revenue have aggravated to multifold.

Procedural Defaults in Assessment and Reassessment Proceedings

Notice Service, Incorrect Facts and Mechanical Approvals

Some of the most common defaults are the non service of notice u/s 143(2), non service of PCIT approval u/s 151 before service of 148 notice, incorrect recording of facts in the 148A(b) notice. Mechanical approval by the PCIT for initiation of the reopening proceeding etc.

Section 135A and Availability of E-Verification Notices

Apart from after introduction of section 135A dispensing with the requirement of issuing mandatory enquiry notice u/s 148A(b) before initiation of the reopening proceeding u/s 147 through e- verification notice to the assesses, often and large no such notices are mostly traceable in the e filing compliance portal of the assesses thus precluding the assesses to file their defense replies although in the assessment order record as well as in the departmental database all the said notices are recorded as duly been served to the assesses.

That per the clear statutory mandates of the procedural sections as well as in the several long settled judicial dictums any assessment or reassessment order can not legally survive with said serious procedural defaults.

Adjudication of Legal Grounds and Remand Under Section 251(1)(a)

But when these legal issues are raised before the first appellate authorities by the aggrieved assesses along with the merit issues, the recent trend in most cases clearly manifest the first appellate authorities aversion on non addressing these legal issues at all in the entire appellate orders by not adjudication these legal grounds in appeal by delving straight to the merit issues and surprisingly wherein revenue’s cases when the merit issues are weak or unjust then often by exercising the recently introduced section 251(1)(a) setting aside the assessment file to the A.O for second round of assessment thus deliberately providing to pass a pure merit base assessment order free of these glaring legal fallacies. As a result most of the assessee being deprived of the proper legal advice deprive of the legal advantages incurred in the first round assessment orders.

Reasoned Appellate Orders and the Duty to Address Legal Issues

That already these illegal trends have subjected to severe judicial scrutiny in many benches of the Honble ITAT wherein most of these legally vitiated assessment and reassessment orders with clear observation that in the first appellate proceeding first appellate authorities are legally bound to adjudicate the legal grounds at first before going on the merit issues of each appeal. These judicial strictures by the Honble ITAT are clearly in the line of Honble Apex court long settled dictums in many cases clearly adumbrated the basic jurisprudential principal that the administrative authorities like the A.O and CIT(A) being the quasi judicial authorities are legally bound to administer complete justice to the aggrieved assesses on genuine legal and factual issues by applying the principal of reason.

Supreme Court Observations in Bibhu Prasad Sarangi

In the Honble Apex court landmark judgment in Union Public Service Commission v. Bibhu Prasad Sarangi [2021] 4 SCC 516 While these observations are in the context of the judicial officers, these observations will be equally applicable to the decisions by the quasi judicial officers like us as indeed the Assessing Officer CPC. In the inimitable words of Hon’ble Justice Chandrachud, Hon’ble Supreme Court has made the following observations:

….. Reasons constitute the soul of a judicial decision. Without them, one is left with a shell. The shell provides neither solace nor satisfaction to the litigant. We are constrained to make these observations what we have encountered in this case is no longer an isolated aberration. This has become a recurring henomenon. ………How judges communicate in their ITA No 2376/Mum/2022 M/s P R Packaging Services 5 judgments is a defining characteristic of the judicial process. While it is important to keep an eye on the statistics on disposal, there is a higher value involved. The quality of justice brings legitimacy to the judiciary.

Practical Difficulties in Pursuing Further Appeals

But this well orchestrated glaring injustice will continue to affect those hapless assesses being unable to knock the door of Honble ITAT being bereft of proper legal advise or for financial constraints.

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Cases Discussed

• Union Public Service Commission v. Bibhu Prasad Sarangi — [2021] 4 SCC 516 (Supreme Court). Cited for the importance of reasons and substantive judicial reasoning. The article extends that principle to quasi-judicial tax authorities.