Right from the admission to the finalisation stage, the scheme fails to tick the transparency box.
New Delhi: As part of the “Transparent Taxation” initiatives, the government recently launched the Faceless Appeals Scheme 2020 by notifying it in the Official Gazette. Necessary legislative amendments to the Income-tax Act, 1961 (the Act) were made by the Finance Act 2020 to enable the Government to notify such a scheme. The rationale for introduction of both the faceless assessment and appeals scheme is to impart greater efficiency, transparency, and accountability. The process flow is quite similar in the appeals scheme compared to the assessment scheme with the National Faceless Appeal Centre being the nodal agency for this purpose. The faceless assessment scheme had assessment units who would carry out the assessments while it would be the appeal units in the faceless appeals scheme who would be primarily responsible for making the draft appeal order. If one were to compare the two schemes, the construct of the faceless assessment scheme gave confidence that the stated objectives of introduction of the faceless assessment would be met, but the process flow of the faceless appeals scheme regrettably does not do so as at multiple occasions, right from the admission to the finalisation stage, the scheme fails to tick the transparency box. Let us examine this aspect in detail.
Where the appeal is filed after the expiry of the time prescribed under the Act, the Appeal Unit (AU) may decide to admit or reject the appeal of the appellant. The Scheme does not provide an opportunity to be given to the appellant at this stage. Before rejection should not an opportunity be given to the appellant to counter the view of the AU, even though the appellant is guilty of not filing the appeal in time at the first instance. The delay could be due to multiple factors and some even beyond the control of the appellant and therefore to deny an opportunity to the appellant before passing an order of not admitting the appeal is unfair.
Filing of an additional ground of appeal during the appellate proceedings is though not common but allowed as per law. Once a request is put forth for raising an additional ground, the CIT(A) must give a notice to the Assessing Officer (AO) to seek his comments on the matter. The Scheme provides for all these facets but what is conspicuously missing is that there is no mention of the fact that the response filed by the AO through the NeAC (the nodal agency for assessments) has to be shared with the appellant to give a rebuttal. Similar is the provision in case of filing of additional evidence. The Scheme does not contain any provision to afford an opportunity to the appellant to give his rebuttal on the comments of the AO.
The scheme has an inbuilt mechanism of a review of the draft order passed by the AU. This comes into play when the quantum of tax, interest or penalty as the case may be exceeds a certain threshold (to be prescribed) or the NFAC considers that basis the risk management strategy decided by the CBDT the order needs to be reviewed, it would send the draft order to an AU other than the AU which has passed the original draft order. Upon receipt of the comments of the second AU, the NFAC may send it again to another AU or finalise the order. All this is happening behind the back of the appellant. The question is that isn’t the appellant entitled to know what the need for the review was, more so when the review results in taking a different position as compared to the one taken by the previous AU.
The Supreme Court in the case of Suraj Mall Mohta & Co. [1954] 26 ITR 1 SC, held that when a department is collecting material from different sources against the assessee he is not entitled to be present at that stage but after the material is ready and placed on record then he has to be given an opportunity to rebut the evidence. That being the position of law this scheme of faceless appeals lacks transparency and does not inspire confidence.
Another important aspect in the review process is that doesn’t it amount to interference as far as the function of the CIT(Appeals) is concerned. Section 119 of the Act expressly prohibits the CBDT to not pass any orders, instructions or directions that interfere with the discretion of the CIT(Appeals) or require any authority to dispose of a case in a particular manner. The Supreme Court in the case of Sirpur Paper Mill Ltd Vs CWT while adjudicating on powers conferred on Commissioner under Section 25 of Wealth Tax Act, 1957 observed that “The power conferred by Section 25 is not administrative: it is quasi-judicial. The expression “may make such inquiry and pass such order thereon” does not confer any absolute discretion on the Commissioner. In exercise of the power the Commissioner must bring to bear an unbiased mind, consider impartially the objections raised by the aggrieved party, and decide the dispute according to procedure consistent with the principles of natural justice; he cannot permit his judgment to be influenced by matters not disclosed to the assessee, nor by dictation of another authority… The orders, instructions and directions of the Board issued under Section 13 may control the exercise of the power of the officers of the department in matters administrative but not quasi-judicial. The proviso to Section 13 enacts that no orders, instructions or directions shall be given by the Board so as to interfere with the discretion of the Appellate Assistant Commissioner in the exercise of his appellate functions. It does not, however, imply that the Board may give any directions or instructions to the Wealth-tax Officer or to the Commissioner in exercise of his quasi-judicial function.” In 2019, the Board had come up with a plan to incentivise the CIT(A) for passing quality orders. In a writ petition filed by the Chamber of Tax Consultants, the Bombay High Court held that “any attempt to tempt an income-tax authority, though in the guidelines referred to as incentives for disposal of an appeal in a particular manner, would not stand the test of law”.
That being the accepted legal position with regard to the powers of the CIT(Appeals), this aspect of a review of the draft order itself needs a review.
Finally, the whole issue of the first appellate proceedings being faceless and not allowing the appellant an opportunity of being personally heard and making oral arguments is questionable. In a recent judgment, the Supreme Court in the case of Daffodills Pharmaceuticals v. State of Uttar Pradesh [Civil Appeal No. 9417 of 2019, vide judgment dated 13th December, 2019] has observed that “If there is one constant lodestar that lights the judicial horizon in this country, it is this: that no one can be inflicted with an adverse order, without being afforded a minimum opportunity of hearing, and prior intimation of such a move. This principle is too well entrenched in the legal ethos of this country.’ There are plethora of other judgements of the Apex Court which have enunciated this principle. The Delhi High Court in its decision in the case of Moser Baer India Ltd (decided on 19 December 2008) has elaborately discussed the importance of an oral hearing. The court held that: “It has been reiterated time and again by Courts in India and other jurisdictions all over the world that authorities which have a power to decide and whose decisions would prejudice a party, entailing civil consequences, would be required to accord oral hearing even where the statute is silent.’
“Not only must Justice be done; it must also be seen to be done”; these were the famous words of Lord Justice Hewart in the case of R v Sussex Justices [1923] All ER Rep 233. This concept has been re-iterated by the Courts in India repeatedly and in a very recent judgement the Hon’ble Supreme Court in the case of National Co-operative Development Corporation v CIT [2020] 119 taxmann.com 137 SC, quoted words from a letter written by the eminent jurist Late Sh. Nani Palkhivala. The learned judges write “In the end before parting we may refer to the legal legend Mr. Nani A Palkhivala who while addressing a letter of congratulations to Mr. Soli J. Sorabjee o attaining his appointment as the Attorney General referred to the greatest glory of AG as not to win cases for the Government but to ensure justice is done to the people.”
The Delhi High Court has recently admitted a writ petition challenging the faceless appeals scheme on this aspect of “granting an oral hearing being discretionary”. The faceless appeal initiative, therefore, requires a review to make it successful and above all to inspire confidence in the taxpayers that justice will not only be done through this scheme, but is also seen to be done.
Sachin Vasudeva is Partner, SCV & Co. LLP