Summary:The article discusses what it describes as a significant weakness in direct tax practice in India: inadequate understanding of the legal and administrative framework governing income tax proceedings. It argues that many tax practitioners, regardless of experience or professional qualification, underestimate the quasi-judicial powers of the Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)], assuming that omissions at these stages can be rectified before the ITAT, High Courts, or the Supreme Court. According to the article, this misconception often results in non-compliance with assessment and appellate notices, leading to best judgment assessments, substantial additions, tax demands, interest, and penalties. It further states that factual evidence forms the foundation of most tax disputes and that failures to produce necessary documents before the AO or CIT(A) frequently result in matters being remanded by higher forums. The article emphasizes the importance of complete factual and documentary compliance at the initial stages of tax proceedings.
Dark Side In Direct Tax Practices (Part-2)
In my previous article on the dark side in direct tax practices, mine self pointed out many seamy sides in the direct tax practice in India, irrespective of the tax advocates, CA, accountants or CMA.
Income tax, being the most complex subject not only in the domain of legal jurisprudence but among all social sciences, renders not only the layman clients as severe victims of misapplication and mishandling of files, but also most of the highly valued degree-holder tax practitioners as equal victims of severe lack of grasping power of the relevant sections, rules and case laws, thus landing themselves along with their clients in grave troubles and disrepute with no reprieve from huge taxation.
One of the most seamy sides in direct tax practice is gross ignorance about the legal and administrative apparatus in the direct tax system. Most of the newcomers and even seasoned consultants with considerable years in direct tax practice are strangely afflicted with a common wrong perception about the legal and judicial structure and about the extent of their power in direct tax administration.
Like lay people, most consultants’ response to and handling of direct tax cases revolves around the apparent hierarchical administrative power and position of the quasi-judicial authorities in particular. As a result, the power of the ITO or A.O. suffers serious myopic prejudice of negligence.
The CIT(A) level is also plagued with a strange notion among practitioners about its gross subjugation of quasi-judicial power under the higher judicial hierarchy, with the ITAT, HC or SC being perceived as possessing limitless power to rectify all the undoings by consultants at the A.O. and CIT(A) stages.
As a result, notice after notice in assessment, reassessment or CIT(A) proceedings is ignored by furnishing no response and requisite documents, thus constraining these lower authorities to pass best judgment assessment orders with huge blanket additions and commensurate taxes, interest and penalties. This brings serious ordeal for clients, which continues even at the CIT(A) stage, based on the incorrect perception that what has not been complied with at the lower stages will be complied with before the Tribunal and that the Hon’ble Members of the Tribunal will delete the taxes, interest and penalties in a gleeful manner.
Some consultants, being more prodigal, take the issue even to the Hon’ble High Court stage on the preposterous hope of obtaining full relief for their hapless clients, who remain under the ceaseless pressure of tax recovery officers of the Department.
This is a very common story in Indian direct tax practice, where the ITO’s power is measured in the manner of a general administrative hierarchy merely because the ITO stands at the bottom of the adjudication mechanism. There is an ostensible confidence that a case can be taken straight to the Tribunal or High Court after being adversely decided by the A.O. or CIT(A).
This approach arises from a gross inability to grasp the actual importance and power of these authorities under the rule book. Unlike many other fields of law, the direct tax adjudication mechanism is completely different, endowing substantial power upon the A.O. and CIT(A). Any omission on the factual aspect of a case—which, in most direct tax cases, constitutes 90% of the foundational merit—can therefore cause serious prejudice.
This remains so despite long-settled judicial dicta regarding the extensive powers of the A.O. and CIT(A), who function as adjudicators as well as investigators at the same time, unlike many other administrative setups in modern administration in other fields (JEE BEE PVT LTD, DELHI HC and MAITHON INTERNATIONAL VS CIT, SC).
The Tribunal, being the highest fact-finding authority, can adjudicate factual or legal issues not properly considered by the lower authorities despite full compliance by the assessee. In non-compliance matters, the appeal may either be dismissed or set aside to the A.O. or CIT(A) stage, depending upon the factual and legal issues involved in each case.
Even where there has been full compliance before the A.O. and CIT(A), if some indispensable documents were absent from the assessee’s side, the Tribunal may remit the matter to the A.O. or CIT(A) stage to make good that omission.
Only on a pure question of law do the Tribunal, HC and SC have the power to adjudicate at higher levels, but with a strong rider: mandatory and complete documentary and factual compliance before the lower authorities.
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