Income Tax Recovery proceedings cannot proceed During Pending Appeals: Gujarat HC

Om Vision Infraspace Private Limited Vs ITO (Gujarat High Court)

In a significant ruling, the Gujarat High Court has determined that income tax recovery proceedings cannot be initiated while appeals are pending before the Commissioner of Income Tax (Appeals) [CIT(A)]. This decision addresses ongoing concerns regarding the backlog of appeals, which have led to prolonged delays and significant distress for many taxpayers.

The ruling stems from a case involving Om Vision Infraspace Private Limited, which, along with other petitioners, raised concerns about the delays in the disposal of their appeals before the CIT(A). During the hearings, advocates representing the petitioners highlighted that some appeals had been pending for over four years without resolution. The petitioners argued that despite the backlog, the Income Tax Department had initiated recovery proceedings, leading to unnecessary stress and hardship for taxpayers.

The court session began with the appearance of learned advocates for the petitioners, including Ms. Vaibhavi K. Parikh, Mr. Ashutosh S. Dave, and Mr. Dhinal A. Shah. They were joined by Senior Standing Counsel Mr. Karan Sanghani, who represented the Income Tax Department. During the hearing, it was noted that the petitioners were protected from any coercive actions by the Income Tax Department through previous court orders.

On September 17, 2024, the court expressed concern over the long-standing delays faced by the CIT(A) in hearing appeals, which have resulted in a substantial backlog of over 580,000 pending cases nationwide. This number includes both faceless and non-faceless appeals, highlighting the systemic issues faced by the tax appeal resolution process.

The court’s order also addressed the need for accountability from the tax authorities. It requested detailed information from various officials, including the Chairman of the Central Board of Direct Taxes (CBDT) and the Finance Secretary, regarding the status of pending appeals. Specifically, the court sought data on the average lifespan of an appeal, the allocation of cases among different commissioners, and potential remedial measures to reduce the backlog.

In a follow-up order on October 1, 2024, the court noted the response from the Income Tax Department, which confirmed that as of September 26, 2024, there were approximately 580,188 appeals pending. This included 390,878 faceless appeals and 80,170 non-faceless appeals. The court criticized the lack of detailed information provided regarding the average life of these appeals and the lack of concrete measures to address the delays.

Despite the assurances from the Income Tax Department regarding efforts to expedite the appeal process, the court emphasized the need for a more systematic approach to handle the overwhelming number of pending cases. The court pointed out that taxpayers should not be subjected to recovery proceedings while their appeals remain unresolved.

The judges underscored that any actions for recovery of dues should cease during the pendency of appeals. This decision is particularly relevant for taxpayers who have been adversely affected by the ongoing delays, as it provides them with temporary relief from immediate financial pressure while their cases are being adjudicated.

In conclusion, the Gujarat High Court’s ruling serves as a reminder of the pressing need for reform within the income tax appeal system. With thousands of cases lingering unresolved, the court has urged tax authorities to take proactive steps to address the backlog and improve the efficiency of the appeals process. The next hearing is scheduled for October 15, 2024, when further progress on the matter will be evaluated, including the response from the involved officials regarding the measures to expedite pending appeals.

FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT

1. Heard learned advocate Ms. Vaibhavi K. Parikh, learned advocate Mr. Ashutosh S. Dave and learned advocate Mr. Dhinal A. Shah for the respective petitioners and learned Senior Standing Counsel Mr. Karan Sanghani for learned advocate Mrs. Kalpana K. Raval and learned Senior Standing Counsel Mr.Varun K. Patel for the respective respondents.

2. All these matters are pending before this Court on the ground that the Commissioner of Income Tax (Appeals) are not disposing the pending Appeals on one hand and the recovery proceedings are initiated by the respondent-Income Tax Department for the outstanding demand.

3. This Court passed the following order on 17.09.2024 :

“1. Heard learned Senior Advocate Mr. Tushar Hemani for learned advocate Ms. Vaibhai Parikh for the petitioner and learned Senior Standing Counsel Mr. Karan Sanghani for the respondent.

2. Learned Senior Advocate Mr. Hemani submitted that the appeal filed by the petitioner before the CIT(Appeals) is pending for more than four years and the same is not being heard. It was further submitted that though the petitioner is protected by this Court by permitting the petitioner to operate the bank account as per order dated 26.03.2020, till this date, no further progress has been made with regard to hearing of the appeal by the CIT(Appeals).

3. Learned Senior Advocate Mr. Hemani further submitted that there are more than five lakhs appeals pending across the country to be heard by the CIT(Appeals) in the faceless regime.

4. On the other hand, learned Senior Standing Counsel Mr. Sangani, submitted upon instructions from Commissioner of Income Tax [NaFAC] that the efforts are being made by the respondent-Department to hear the appeals expeditiously. However, it is not disputed by learned Senior Standing Counsel Sangani that in the month of February,2024, more than three lakhs appeals were pending.

5. Be that as it may, we take a serious note of the pendency of the appeals before the CIT (Appeals) for more than three years. It would be in the interest of all to join the following respondents to resolve the issues of pendency of appeals which has clogged the system.

(i) The Chairman,
Central Board of Direct Tax,
Department of Revenue North Block,
New Delhi-110001.

(ii) The Finance Secretary,
Ministry of Finance,
North Block, New Delhi-110001

(iii) Principal of Chief Commissioner
of Income Tax
(NaFAC),
National Faceless Appeal Centre, Delhi,
Through, Delhi, Situated at North Block,
New Delhi-110001

6. The respondents are requested to file their response/affidavit on the following:

i) Pendency of appeals before the Commissioner of Income Tax (Appeals).

ii) The average life of the appeal.

iii) How many total appeals are allocated to each Commissioner of Appeals on average basis.

iv) If there is any inordinate delay, such as noticed in the instant case, what are the remedial measures that may be suggested by the Central Board of Direct Taxes.

7. Issue Notice to the newly added respondents returnable on 1^st October, 2024.

Direct service through email is permitted”

4. Thereafter, on 01.10.2024, the following order was passed :

“1. Learned Senior Standing Counsel Mr. Karan Sanghani has tendered affidavit-in-reply on behalf of respondent Nos.3 to 5 in response to the order dated 17.09.2024. The same is ordered to be taken on record.

2. On perusal of the affidavit-in-reply filed on behalf of respondent Nos.3 to 5, it reveals that the total appeals pending before the appellate authority as on 26.09.2024 are as under:

3. However, it is not stated in the affidavit with regard to the allocation of the above appeals between 279 Commissioner of Income Tax (Appeals) who are working in a faceless manner and 64 CIT(A) who are working as in a Non-faceless manner and 100 JCIT (Appeals) who are allotted the appeals where appeals of disputed demand is less than 10 lakh and the appeals arising out of the order passed under Section 154 by the CPS.

4. In the affidavit, no data is given with regard to average life of the pending appeal as, such data is stated to be not readily available with National Faceless Appeal Centre (NFAC). Let the same may be submitted before the next date of hearing.

5. With regard to the issue of allotment of the appeals to each Commissioner of Appeals on average basis, it is stated as under:

“6. With reference to the total appeals allocated to each Commissioner of Appeals on average basis, it is humbly submitted that the total number of CIT(A) faceless and nonface less are 279 and 64 respectively and total number of pending appeals as on 26.09.2024 is 4,71,048. the average pendency with faceless CIT(A) is around 1400 cases as on 26.09.2024 and it is around 1252 with non-facelss CIT(A).”

6. With regard to remedial measures suggested by Central Board of Direct Taxes for reduction of the backlog of the pending appeals, it is stated that the CBDT has issued the guidelines for the priority/out of turn disposal on 19.03.2024 and 100 JCIT (Appeals) are appointed in the year 2023 and as per Section 345MA of the Income-Tax Act, 1961, e-Dispute Resolution Scheme, 2022 is notified and under Finance Act, 2024, new measures have been introduced and Vivad se Vishwas Scheme, 2024 is also introduced by Finance Act, 2024 and Commissioner (Appeals) have been empowered to set aside the ex-parte assessment orders.

7. Except the above remedial measure, no other measures are stated in the affidavit with regard to as to how the pending appeals with the CIT (Appeals) which is around 1400 cases per Faceless CIT (Appeals) shall be heard and within what time span such appeals shall be disposed of by the concerned CIT (Appeals). No measures are mentioned with regard to bunching of similar appeals or repeated issues for different succeeding years in appeals, covered matters etc. which would speedily dispose of such appeals by CIT (Appeals).

8. Be that as it may. In the facts of the case by order dated 26.03.2020, the petitioner is already protected by restraining the respondent from taking any coercive action.

9. In view of the above observations, let there be a fresh additional affidavit-in-reply be filed by respondent Nos.3 to 5 before the next date of hearing as placing on record the data with regard to the average life of the appeal as well as the remedial measures to dispose of the appeals pending before the CIT (Appeals) and time bound programme for disposal of backlog of 5,80,188 pending appeals as on 26.09.2024.

10. Stand over to 15.10.2024. To be listed on Top of the Board.”

5. Pursuant to the aforesaid both the orders, the respondent Nos.3 to 5 have tendered the affidavits-in-reply. On perusal of the affidavits-in-reply filed on both the occasions, it appears that respondent Nos.3 to 5 instead of addressing the issue of pendency of the Appeals pending before the CIT(Appeals) has tried to justify the proceedings undertaken by the CIT(Appeals) for the disposal. We are at pain to note that in spite of giving specific directions in paragraph No.9 of the order dated 01.10.2024, the respondent Nos.3 to 5 have ignored the same and repeated what is stated in the earlier affidavit with an addition only reference to annual Central Action Plan 2024-25 and Vivad se Vishwash Scheme, 2024 for issue of pendency of more than 5,80,000 Appeals before the CIT (Appeals).

6. Be that as it may, if the respondents are not interested in resolution of the issue of pendency of the Appeals the manner in which it ought to have been resolved by classifying the Appeals as per the issues concerning the recurring issues, covered issues, etc., we are of the opinion that no recovery should be made from the assessees during the pendency of the Appeals. Therefore, in all these petitions, there shall be no recovery of any outstanding dues from the petitioners whose Appeals are pending during pendency of these petitions.

7. Issue Rule.