Articles

Elephant in the Room Syndrome: Large Pendency of Appeals before CIT(Appeals)

Friends, in a very recent judgement dated October 15, 2024, in the case of ‘Om Vision Infraspace Pvt Ltd vs. ITO’, in R/Special Application Nos. 6953 of 2020, 16617 of 2023 and 2692/6725/14309 of 2024, the hon’ble Gujarat High Court has highlighted the syndrome of a very big elephant roaming in the room, in the form of a grave and serious problem of pendency of around 5.80 lakhs appeals for disposal, before the CIT (Appeals), with majority of the pendency before the faceless hierarchy.

Pendency of Appeals before CIT(Appeals) as on 26.09.2024

In the said judgement, the hon’ble Gujarat High Court has held that there shall be no recovery of any outstanding income tax demands from the respective petitioners, till the pendency of their appeals, as their appeals are pending before the CIT(Appeals), since long four years, without any fault of theirs.

Our hon'ble PM has announced the launching of the Scheme for Faceless Appeals, way back on 25.9.2020, and subsequently all the pending appeals before the jurisdictional CIT(Appeals) as well as the new appeals have been transferred to the National Faceless Appeal Centre, for adjudication and disposal.

However, even after the lapse of four long years, such appeals are still lying pending undisposed off by the National Faceless Appeal Centre. The Finance Act 2023 has enabled the creation of an additional first appellate authority/cadre of JCIT (Appeals) to ensure faster disposal of small value appeals. But practically the quality of the appeal orders being passed by this new cadre/appellate authority has been found not to be of the expected standards of proficiency and are more or less pro-revenue.

In many cases, even the mandatory opportunity of being heard through video conferencing (VC) is not being granted to the appellants. In other cases, where the VC has been granted, but even after the elapse of substantial time period after the VC hearing, no orders have been passed by the first appellate authority. The appellants have even filed and uploaded their appeal submissions multiple times in the appeal response window of E-Proceedings, but with no response from the concerned appellate authorities. Even the link for mandatory virtual hearing has also not been made available yet in many such pending appeals, in the appeal response window. This is resulting in undue financial hardships to the appellants, because there are many cases of high-pitched assessments, wherein atleast 20% of the demand has been coercively recovered, but the appellate relief is still not coming.

The screenshots of one such long pending appeal before the CIT(Appeals) in the faceless hierarchy, are reproduced below, reflecting and evidencing the above-mentioned sorry state of affairs.

As can be seen in the above screenshots, this particular appeal of the appellant is pending before the CIT(Appeals) in the faceless hierarchy since January 2021. The appellant had submitted its appeal submissions 7 times till date, and even the VC hearing had also taken place in July 2023, but still even after the elapse of more than three years since transfer of the appeal to the faceless hierarchy and more than one year from the VC hearing date, the appeal is still pending for disposal, with the refunds of all subsequent years being automatically adjusted against the demand litigated in this appeal.

Friends, I think, one of the significant reasons, for the substantial growth in the direct tax collections, in recent years, can be attributed to such kinds of inordinate delays in adjudication and disposal of appeals by the CIT(Appeals) in the faceless hierarchy, and with the refunds of subsequent years being adjusted against the demand embroiled in such long pending appeals.

The Solution:

Our hon’ble Finance Minister Smt. Nirmala Sitharaman, during her Budget Speech, while presenting the full Budget in the Parliament on July 22, 2024, has announced a comprehensive review of the six decades old Income-tax Act, 1961, to make it concise, lucid, easy to read and understand. The objective is to reduce disputes and litigation, thereby providing tax certainty to the tax payers. The review aims at bringing down the demand embroiled in litigation and is proposed to be completed in six months.

Accordingly, the apex body CBDT has formed an Internal Committee, to oversee the said review work. The said internal committee has also invited public inputs and suggestions in four categories viz.

1. Simplification of Language;

2. Litigation Reduction

3. Compliance Reduction, and

4. Redundant/Obsolete Provisions

An exclusive webpage to facilitate the uploading of public inputs and suggestions has also been launched in the Income Tax e-filing portal, which can be accessed with the following link:

https://eportal.incometax.gov.in/iec/foservices/#/pre-login/ita-comprehensive-review

On 4th November, 2024, the hon’ble FM has chaired a review meeting to review the ongoing comprehensive review work of the Income tax Act, which was attended by the Revenue Secretary, CBDT Chairman and other senior CBDT officials. In the meeting, the Revenue Secretary has apprised that 22 specialised sub-committees have been established to review the various aspects of the Income Tax Act and till date 6500 valuable suggestions have been received through the webpage on the IT portal, since it was launched on 6th October 2024.

Friends, I have also uploaded my simple yet effective suggestion/solution for tackling the above discussed menace of the large and long pending appeals before the CIT (Appeals), by recommending a minor revision in just one word contained in the existing section 250 of the existing Income Tax Act, with the understanding that the said section will continue to exist in the reviewed/new Income Tax Act also, though differently numbered and worded.

Substitution of the word ‘may’ with the word ‘shall’ in subsection (6A) of section 250 of the Income Tax Act

In the said judgement, when asked by the hon’ble Gujarat High Court, as to how such large pendency of appeals is going to be disposed of, the Revenue authorities had enlisted the initiatives such as Vivad se Vishwas Scheme, e-Dispute Resolution Scheme etc.

However, in my humble understanding, besides tackling the outcome viz. reducing the number of pending 5.80 lakhs appeals, through such amnesty schemes, there is an urgent need to hammer the very root cause of such piling up of pending appeals before the CIT (Appeals).

The existing subsection (6A) of section 250 of the Income Tax Act, provides the discretion to the CIT(Appeals) that he/she may hear and decide the appeal, within a period of one year from the end of the financial year in which such appeal has been filed by the appellant.

Thus, in order to resolve this menace of long pending appeals, before the CIT(Appeals), the word ‘may’ should be substituted with the word ‘shall’ in the existing subsection (6A) of section 250 of the Income tax Act, in the reviewed/new Income Tax Act, so as to convert this discretion of adjudicating the appeal within a period of one year, by the CIT(Appeals), into the mandatory requirement of Law. The necessary supporting infrastructure along with the filling of vacancies/new appointments of the requisite number of competent CIT(Appeals) should be ensured to achieve a permanent solution to this serious problem of piling up of and pendency of large number of long pending appeals for disposal before the CIT(Appeals). 

I have uploaded the above suggestion in the suggestions’ webpage of the Income Tax portal, the screenshot of which is also being reproduced below, for ready reference.

Concluding Remarks: Friends, I do hope and believe, that my above discussed suggestion of fixing the maximum time limit for adjudication and passing of the appeal orders by the CIT/JCIT(Appeals) within a period of one year, from the end of the financial year in which the appeal has been filed by the appellant, with simultaneous assurance of meritorious adjudication of appeals, reaches the right eyes and ears, so that a long lasting and permanent solution is being achieved in respect of this growing menace of large number of long pending appeals before the CIT (Appeals), and this big elephant currently just roaming freely in the room, is no longer just being ignored, but is helped gracefully to be sent to its homeplace, the jungle.

[This Article has also been published in Taxmann with the Citation [2024] 168 taxmann.com 455 (Article) and the copy of the same is accessible at the pdf file section below.]