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Assessing Remedies: A Comparative Analysis of Appeals and Revisions for Taxpayers Under Income Tax Act, 1961

ABSTRACT

In the realm of taxation, when an assessment order by the Assessing Officer detrimentally affects the interests of the taxpayer, avenues for redressal come into play. The Income Tax Act, 1961, grants the taxpayer the right of appeal, empowering them to seek recourse for grievances through appellate authorities, or alternatively, the option of revision by the Commissioner of Income Tax. In this paper, we delve into the nuances of these remedies. We explore the procedures, limitations, and implications of appeals and revisions, shedding light on the rights and responsibilities of both taxpayers and tax authorities. Through case analyses and legal precedents, we dissect the burden of proof, the authority’s discretion, and the adherence to natural justice principles. Furthermore, we also discuss a few judicial interpretations, offering insights into the evolving landscape of tax litigation. Ultimately, this paper underscores the pivotal role of both avenues in upholding the rights and obligations enshrined in the Indian Constitution, thereby ensuring equitable resolution of tax disputes.

INTRODUCTION

The assessee has two options, when the assessment order passed by the Assessing Officer causes prejudice to his interest. The right of appeal is vested in the assessee through the Income Tax Act, 1961, which guarantees the right to seek redressal for grievances, through Articles 226 and 32 to the High Court and the Supreme Court, which guarantees protection of assessee’s fundamental rights, respectively.

The assessee can take up either appeal or revision. In this Article, the author compares the remedy through appeal and revision.

The first appeal against the order of the Assessing Officer shall lie to the Commissioner (Appeals) u/s 246A. However, the orders refusing to grant registration u/s 12AA and approval u/s 80G are exceptions. The right to move for the first appeal lies vested only with the assessee and not with the Assessing Officer since the former is the aggrieved party while the latter is the one who makes the assessment.

In cases where an appeal is not preferred or barred by limitation (lapse of time), an application to the Commissioner of Income Tax for revision of the assessment order u/s 264 can be preferred as an alternative. Such a revision can be done either on an application by an assessee or can be taken up suo moto by the Commissioner of Income Tax. Another type of revision u/s 263 is also taken up by the Commissioner of Income Tax, whenever the order of the Assessing Officer is found to be erroneous and prejudicial to the interest of revenue. The right to appeal of an assessee is only a statutory right and not an inherent right.

APPEAL

An appeal begins with an Assessment Order passed by the Assessing Officer u/s 143(3), 144, 153A, 147[1], etc.  When an assessee is not satisfied with such an order, he may first appeal to the Commissioner (Appeals) u/s 264A[2] within 30 days of passing such an order. The time limit for filing an appeal u/s 249(2) is within 30 days from the date of service of the assessment order. However, when the Commissioner is satisfied that there was sufficient and reasonable cause for delay, an appeal may be admitted even after the expiry of the given time limit.

This is now done electronically in Form 35. The second appeal lies in the Income Tax Appellate Tribunal (ITAT). Such an appeal is filed u/s 253 within 60 days of the order passed in the first appeal.[3] This is open to both parties. i.e., the assessee as well as the Assessing Officer, unlike the first appeal. The Income Tax Appellate Tribunal is the highest fact-finding authority and only when there is a substantial question of law involved an appeal to a High Court shall lie u/s 260A[4]. with the leave of the High Court, the assessee can approach the Supreme Court u/s 261. Also, assessee can file Special Leave Petion under Article 136.

The burden of proof generally lies on the assessee to prove that his/her income is exempt from the tax ambit. However, every coin has two sides, and so does this. Not always does the assessee have to bear the burden of proof. In the case of Ena Chaudhuri v. CIT[5], the Court held that the appellant had failed to produce any evidence to support that her income was exempt form tax and that the burden of proving such exemption lies upon the appellant only. On the other side, the Court held through the case of L.M.L. Fibres Ltd. v. Dy. Commissioner of Income Tax[6] that the mere fact that the assessee had made payment to its creditors without deducting tax at source cannot be assumed as an inference of the fact that the assessee had any motive to evade payment of tax. The Court further observed that the burden to prove the motive of the assessee in the present case was upon the revenue, in which the revenue had failed. Thus, the question of “who should carry the burden of proof” varies based on the circumstances.

REVISION U/S 263[7]

The Commissioner may call for and examine the records of any proceeding under the Act, when he is of the opinion that the order passed is erroneous and prejudicial to the interest of the revenue. In such cases, the Commissioner shall hear both sides and shall have powers to give orders, modify or enhance the assessment, or cancel the assessment and order a fresh one in its place. A further appeal in this regard can be made by the assessee to the Income Tax Appellate Tribunal u/s 253.

REVISION U/S 264[8]

The Commissioner may call for any records and make any inquiries under the provisions of this Act and pass any order as he deems fit, on a condition that it shall not be prejudiced in favour of the assessee. Such an action can be taken either suo moto or on an application by an assessee. In this case, there is no remedy for a higher appeal provided under the Income Tax Act. The only remedy available in this case is filing a Writ petition under Article 226 of the Constitution of India in the High Court against the Income Tax Department.

As discussed earlier, Section 264 deals with the revision of an order of assessment made by the Assessing Officer. S.264 grants the power to revise the assessment order. It is a quasi-judicial function. He cannot allow unimportant issues to affect his judgment, neither via disclosure to the assessee nor through a directive from another authority, including any circular. Under section 264, the commissioner can either grant relief to the assessee or do not interfere. However, he cannot enhance the assessment. The CIT has the authority (under Section 264) to provide the AO instructions.

The amendment of Section 264 empowers the CIT a wide range of revisionary authority. While exercising the revisional powers, the CIT is free to consider any argument, even not raised before the Assessing Officer. A new deduction request submitted by the assessee in a revision petition will be considered on merits. On these lines, the verdict of the Revisional Court was quashed in the case of Rashtriya Vikas Ltd. vs Commissioner of Income-Tax[9] on the grounds of it not considering the merits of the assessee’s claim and the matter was returned to the Revisional Court for consideration of merits.

Even an order that has disregarded the natural justice principles may be remedied by revisional powers. U/s 264. The opening lines of S.264 characterize the scope of the orders which may be changed under that area. A modification request may lie as it were after an arrangement had been passed by the concerned authority.

Any order that is changed by the CIT on his own must be changed within one year of the original order’s date. On the off chance that, in any case, an assessee makes an application U/s 264, a similar one should be made in one year from the date of correspondence of the request, or the date on which, he any other way comes to know about it, whichever is prior. Proviso to S.264(3) empowers the CIT to admit and entertain an application for revision U/s 264(1) if the assessee is prevented by ‘sufficient cause’ from making the application within the specified period. The word ‘sufficient cause’ occurring in the proviso to S.264(3) should receive a liberal construction to advance substantial justice. It was held through the case of Dwarka Nath v. ITO[10] that before deciding on an applicant’s application under Section 264, the CIT must grant the applicant an oral hearing. When addressing a revision petition, an oral argument before the CIT cannot be substituted for a written submission. The CIT ought to set a hearing date and give the applicant a chance to voice his opinion. The authority granted by S. 264 is a judicial one.

The CIT must exercise this authority with impartiality, consider the aggrieved party’s arguments objectively, and settle the dispute by following natural justice. In the case of Harish Wadhwa v. ITO[11], the Karnataka High Court held that “when an order is passed without application of mind and without adverting to the facts obtaining in the case it (the order) deserves to be set aside to the Tribunal with a direction to redo the exercise after affording an opportunity to the assessee to put forth his arguments.” Thus, the CIT cannot allow matters not disclosed to the assessee or dictation from another authority, such as a circular, to affect his decision.

CONCLUSION

Thus, it can be inferred from the above discussion that the assessment is the first step to determine the taxable income, following which either the assessee can prefer an appeal to a higher authority if the order passed by the Assessing Officer is unsatisfactory or is adversely affecting his interests, or the CIT can prefer a revision on finding that the order passed by the Assessing Officer is against the government revenue or upon the request of the assessee/taxpayer. The CIT thus plays a crucial role in granting the appropriate remedy to the assessee when such remedy is sought through revision. On the other hand, the assessee has an equally vital role when it comes to the appeal process as the present system expects him to approach the Court within the limitation period as prescribed, in line with the maxim – Vigilantibus Non-Dormientibus Jura Subveniunt – the law assists only those who are vigilant over their rights and not the ones who sleep over their rights. Thus, the law indirectly protects the fundamental rights of the assessee granted by the Constitution of India through this grievance redressal mechanism, thus upholding the noble vision of the makers of the Indian Constitution.

[1] Income Tax Act, 1961

[2] Section 264A, Income Tax Act, 1961

[3] Section 253, Income Tax Act, 1961

[4] Section 260A, Income Tax Act, 1961

[5] Ena Chaudhuri v. CIT [(2023) SCC OnLine Cal 121]

[6] L.M.L. Fibres Ltd. v. Dy. Commissioner of Income Tax, [(1992) 106 CTR (SC) 370]

[7] Section 263, Income Tax Act, 1961

[8] Section 264, Income Tax Act 1961

[9] Rashtriya Vikas Ltd. vs Commissioner of Income-Tax [1992]196ITR694(ALL)

[10] Dwarka Nath v. ITO [(1965) 57 ITR 349 (SC)]

[11] Harish Wadhwa v. ITO [(2021) 126 taxmann.com 156 (Kar.)]

*****

Author: R Ranga Priya | Final Year BA LL.B student at SASTRA Deemed University

Co-Author: Aarathi Namboodiri | Final Year BBA LL.B student at SASTRA Deemed University

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