Abuse of process of law –filing of appeals/revisions by the Tax Authorities in ‘covered’ matters

It has become a custom not to accept decisions of the Appellate Authorities/Tribunals in Tax matters although they are covered by the binding decisions of the Apex Court/ Jurisdictional High Court. Knowing very well that the matters are covered by the binding ‘precedents’, the Tax Department/Revenue have made it a ‘convention’ to challenge the matters in higher forums and do not bring this fact to notice of the court as a result of which precious judicial time of the Court is wasted.

Recently, the Courts have taken a strict view on such malpractices which cause harassment of the assessees and also usurp the valuable time of the Court. In a recent case of CIT vs. Kishan Ratilal Choksey (Income Tax Appeal No. 1001 of 2011 decided on 17 April, 2014), the department did not point out that its appeal for the earlier years in the case of the same assessee had been dismissed by the Bombay High Court. The High Court took a serious view of the matter and imposed an exemplary cost of Rs. 1 lakh on the department for “gross abuse of process of Court“. The Court held thus:

“It is unfortunate that the Revenue insists in arguing Appeals in this manner and for subsequent Assessment Years. The Revenue ought to have been fair and brought to the notice of this Court the fact that its Appeal challenging the very findings and conclusions for prior Assessment Years has been dismissed by this Court on merits. The reasons assigned ought to have been pointed out to us and thereafter, any explanation should have been offered for admission of this Appeal … It is a gross abuse of the process of this Court. It is dismissed with costs quantified at Rs.1,00,000/ (Rupees One lakh). Costs be paid to the assessee within 4(four) weeks from today”.

However, on the assurance of the department that hereafter judicial orders and directions would be abided by in all matters, the order on levy of costs was recalled. The Court made it clear that appropriate averments will have to be made in the memo of Appeal as to whether the orders of the Tribunal for prior assessment years and in the case of very assessee have been either challenged or otherwise. If the challenge is pending even that statement has to be made and if it is decided, the outcome thereof has to be indicated.

 In yet another case of CIT vs. Kirloskar Oil Engines Ltd, (Income Tax Appeal No.2646 OF 2011 decided on 17 April, 2014) the Bombay High Court reprimanded the Department and gave “last opportunity” and warned of “heavy costs” for wasting judicial time by filing appeal on ‘covered matters’.

The brief facts of the case are that the assessee received an incentive/ subsidy from SICOM for setting up a new undertaking. The assessee claimed that the subsidy was a capital receipt but the Assessing Officer held the receipt to be a revenue receipt. The CIT(Appeals) and Tribunal upheld the claim of the assessee as the issue was covered by the decision of the Jurisdictional High Court in Chaphalkar Brothers 351 ITR 309 (Bom) & the decision of the Apex Court in Ponni Sugars 306 ITR 392 (SC). The Department filed an appeal to the High Court. While dismissing the appeal, the High Court held as under:

“We are afraid that if the Revenue persists with such stand and as has been turned down repeatedly, that would defeat the very object and purpose of the schemes and packages devised by the States. That would also result in frustrating the entrepreneurs and defeating the purpose of setting up new industries and particularly in backward areas. The Revenue, therefore, should bear in mind that in every such case and whenever the funds or receipts are from the schemes and packages devised by the State, it should note the object and purpose of the same. If that is of the nature specified in the judgments of this Court and equally that of the Hon’ble Supreme Court, then, the Revenue must act accordingly. We hope that this much is enough so as to dissuade the Revenue from bringing such matters repeatedly to this Court. Ordinarily and for wasting judicial time and which is precious, we would have imposed heavy costs on the Revenue while dismissing this Appeal, but we refrain from doing so by giving last opportunity to the Revenue.”

Recently in the case of  CIT vs. Larsen and Toubro, the Bombay High Court in Income Tax Appeal nos.424/2012, 425/2012 & 483/2012 decided on 10 July 2014, held that frivolous appeals filed by the Government Departments result in harassment of the assessee and waste the precious judicial time of the High Court. Dismissing the appeals, the Bombay High Court imposed Rs. 1 lac in each appeal and directed that this cost be recovered from the erring official and ordered disciplinary action against such official. The Court held thus:

“i) We are surprised if not shocked that such appeals are being brought before us and precious judicial time is being wasted that too by the Revenue. The least and minimum that is expected from the Revenue officers is to accept and abide by the Tribunal’s findings in such matters and when they are based on settled principles of law. If they are not deviating from such principles and are not perverse but consistent with the material on record, then, we do not find justification for filing of such appeals. We have found that merely expressing displeasure orally is not serving any purpose;

(iv) It would be open for the superior/competent authority to recover the costs personally from the officer responsible and equally take disciplinary action against him if the power to decide about filing such appeals is abused or the decision making authority is utilized to harass innocent Assessees.”

In a recent decision of the ITAT, Mumbai in the case of ITO vs. Growel Energy Co. Ltd (ITA no. 338/Mum/2011) decided on 13 June 2014, the Tribunal passed strictures against the AO & CIT & also fined them for filing a frivolous appeal. Dismissing the appeal of the Department, it was observed thus:

“The ITO, the Appellant, as well as the CIT, who has authorized the AO to prefer an appeal, did not apply their mind in the correct perspective and in a very lacklustre and routine manner filed the appeal which, in turn, resulted in wastage of time of the court … At this juncture it may be noticed that the power is vested in the CIT and not with the AO because the Legislature, in its wisdom, thought that a superior/ senior officer can take a more balanced decision so as to avoid filing frivolous appeals in routine manner. However, even the CIT has not given his reasons as to why he has authorized the AO to file an appeal on this issue…. we are of the firm view that the AO has raised a soulless ground which deserves to be dismissed in limine. We could have saved a lot of time had the CIT not given his authorization on such frivolous issues. On the contrary, it is incumbent upon the Commissioner, as a supervisory authority, to admonish the AO for making an addition without basic understanding of legal position…. this is a peculiar case where even the CIT (Admin) who is supposed to supervise the proper functioning of the AO, under his charge, has allowed him to file appeals without properly examining the assessment order and the order of the CIT(A), which results in unnecessary expenditure to the assessee when appeal is filed by the Revenue and the assessee had to undergo the trauma of engaging counsel and paying substantial fees to defend the case when the Revenue has no case at all … Therefore we award a token cost of Rs. 5,000 upon the CIT who has given the authorization and cost of Rs. 10,000 upon the AO who has filed this appeal… The said payment should be made to the assessee within one month from the date of receipt of this order. Registry is also directed to mark a copy to the Chairman, CBDT so that in future the Income Tax Commissioners, who are responsible for filing appeal before the Tribunal, would take proper care to scrutinise the issues before authorising the AO to file appeals before the Tribunal.”

Very recently in the case of CIT vs. Reliance Infrastructure Ltd. (Appeal no. 803 of 2012) decided on 12-09-2014 & 01-10-2014, the Bombay High Court was annoyed for filing appeal in a matter covered by a binding precedent of the Apex Court. The Court sought an explanation from the counsel for the Income Tax Department why appeal u/s 260A of the Income Tax Act has been filed by him when there was an authoritative pronouncement on the issue by the Hon’ble Supreme Court in CIT v/s Tulsyan NEC Ltd. 300 ITR 226 (SC). On his pretext that the decision to file an appeal is taken by the Jurisdictional Commissioner and he has merely abided by his directions, the Court irked by his explanation held thus:

“These state of affairs can hardly be termed as satisfactory. It is unfortunate that the Revenue is unable to make any distinction with regard to the legal position noted in the judgment of the Supreme Court of India and it is bound by the said judgment of the highest court in the country. The Revenue seems to be unaware of Article 141 of the Constitution of India and mandate thereof. Once there is nothing to the contrary, then, the authoritative pronouncement should bind all. The Tribunal then cannot be approached and equally this Court to complain about an adverse order. We are shocked that when such is the concession recorded that the Appeals of this nature are brought before this Court and it’s precious judicial time is wasted.

… It is very unfortunate that we had to secure the presence of the highest officers in the department of Income Tax, for seeking an explanation on the points which we have raised in our order dated 12.09.2014.

.. The only intent to secure personal appearance of higher officials is to impress on the Revenue that larger public interest mandates and requires it not to waste precious time of the highest Court in the State by engaging it in frivolous Appeals and applications. It may be that, at the departmental level, the officers are not satisfied with adverse orders and desire to contest the issue or raise it before the Income Tax Appellate Tribunal. However, when the Tribunal follows and applies the ratio of a judgment of the Hon’ble Supreme Court of India, then, we would expect the officers to gracefully accept an adverse verdict. Where no distinguishing feature can be pointed out, then, the law of the land must be allowed to prevail. The mandate of Article 141 of the Constitution of India is known to all. The further mandate of the Constitution as enshrined in Article 261(1) is giving of full faith and credit to public acts, records and judicial proceedings of the union and of every State. Therefore, the law declared by the Supreme Court binds all and cannot be brushed aside. The repeated attempts to raise the same issues and questions in relation to same Assessee and year after year results in loss of precious judicial time and public revenue. We do not expect hereafter such an irresponsible conduct from the higher officers. Ordinarily, we would have in the absence of any explanation forthcoming, passed severe structures against the department and the officers in particular but we refrain from doing so since the concerned officials present in Court sincerely apologized for the lapse and urged that the Appeal may be disposed against the Revenue and in terms of our earlier orders so also the judgment of the Hon’ble Supreme Court of India, both of which are binding on us. Hence, the Appeal is dismissed.”

Needless to say that the decisions of the Apex Court are binding on all authorities and Courts under Article 141 of the Constitution and the decisions of the Jurisdictional High Court are binding under Article 227 of the Constitution. Judicial Discipline warrants that the decisions of the Jurisdictional High Court & the Apex Court be followed unreservedly by all subordinate Courts & Authorities. The ‘strictures’ passed by the Court are a welcome step to curb the highhandedness of the department but for providing a lasting solution to such malpractices, a strict monitoring system should be evolved to make both the department and the counsel accountable. Moreover, mechanism should be evolved to ensure that the Revenue Authorities concerned comply with the directions of the Court & adopt remedial measures.