Appeals and Revisions in Income Tax

When it comes to income tax, taxpayers often find themselves at odds with the decisions made by assessing officers. To ensure fairness and justice, the Income Tax Act, 1961 provides avenues for redressal through appeals and revisions. These mechanisms enable taxpayers to challenge and seek rectification of assessment orders that they deem erroneous or prejudicial.

Introduction to Appeals and Revisions in Income Tax

The provisions for appeals and revisions are designed to offer taxpayers a structured path to contest and rectify decisions that affect their financial liabilities. Appeals allow taxpayers to seek a higher authority’s review of an assessment order, whereas revisions enable certain authorities to correct errors or address issues in the orders passed by lower authorities.

Appeal in Income Tax

An appeal process begins with an assessment order passed by the Assessing Officer (AO) under various sections such as Section 143(3), 144, 153A and 147(1). When an assessee is dissatisfied with such an order, the first level of appeal is to the Commissioner (Appeals) under Section 264A within 30 days of the order’s issuance.

The specific time limit for filing an appeal under Section 249(2) is within 30 days from the date of service of the assessment order. However, if the Commissioner is satisfied that there was sufficient and reasonable cause for the delay, the appeal may be admitted even after the expiry of the given time limit.

The appeal process has been streamlined to be conducted electronically using Form 35. The second level of appeal is to the Income Tax Appellate Tribunal (ITAT), which must be filed under Section 253 within 60 days of the order passed in the first appeal. This level of appeal is open to both the assessee and the AO, unlike the first appeal, which is available only to the assessee.

The ITAT is the highest fact-finding authority. An appeal to the High Court is permissible under Section 260A only when a substantial question of law is involved. With the leave of the High Court, the assessee can approach the Supreme Court under Section 261. Additionally, an assessee can file a Special Leave Petition under Article 136 of the Constitution.

Burden of Proof

The burden of proof typically lies on the assessee to demonstrate that their income is exempt from taxation. However, this is not always the case, as illustrated by different court rulings. In Ena Chaudhuri v. CIT, the court held that the appellant failed to produce evidence to support the claim that her income was exempt from tax and thus the burden of proving such exemption rested on her.

Conversely, in L.M.L. Fibres Ltd. v. Dy. Commissioner of Income Tax, the court ruled that the mere fact of making payments to creditors without deducting tax at source could not be inferred as an intention to evade tax. The court emphasised that the burden of proving the assessee’s motive was on the revenue, which it failed to do. Therefore, the question of who carries the burden of proof can vary based on the circumstances of each case of taxation law.

Revision Under Section 263 of the Income Tax Act

The Commissioner of Income Tax (CIT) may call for and examine the records of any proceeding under the Income Tax Act if he is of the opinion that the order passed is erroneous and prejudicial to the interest of the revenue. In such cases, the CIT has the power to hear both sides, modify or enhance the assessment or cancel the assessment and order a fresh one.

This revisionary power ensures that any detrimental errors in the assessment process are corrected to protect the revenue’s interest. If the assessee is aggrieved by the order under Section 263, they can appeal to the Income Tax Appellate Tribunal (ITAT) under Section 253.

Revision Under Section 264 of the Income Tax Act

Under Section 264, the CIT has the authority to call for any records and make inquiries as deemed fit, provided the action is not prejudicial to the assessee. This can be done either suo moto or on an application by the assessee. Unlike Section 263, there is no provision for a higher appeal against an order under Section 264 within the Income Tax Act. The only recourse for the assessee in this scenario is to file a writ petition under Article 226 of the Constitution in the High Court.

Section 264 empowers the CIT with a wide range of revisionary authority to revise assessment orders, acting as a quasi-judicial function. The CIT must exercise this power judiciously, without being influenced by irrelevant issues or directives from other authorities, including circulars. The CIT can grant relief to the assessee or choose not to interfere but cannot enhance the assessment. This authority allows the CIT to consider new arguments or deductions not previously raised before the Assessing Officer.

The scope of Section 264 was highlighted in the case of Rashtriya Vikas Ltd. vs. Commissioner of Income-Tax, where the Revisional Court’s verdict was quashed for not considering the merits of the assessee’s claim. The matter was returned for reconsideration, emphasising the necessity of evaluating the merits in revision petitions.

Orders violating natural justice principles can also be remedied under Section 264. The provision stipulates that modifications can only be made within one year of the original order’s date. If an assessee applies under Section 264, the application must be made within one year from the date of communication of the order or the date when the assessee becomes aware of it, whichever is earlier.

The proviso to Section 264(3) allows the CIT to admit an application for revision if the assessee is prevented by ‘sufficient cause’ from making the application within the specified period. ‘Sufficient cause’ should be interpreted liberally to advance substantial justice, as affirmed in the case of Dwarka Nath v. ITO, where it was held that the CIT must grant an oral hearing before deciding on a revision application.

In exercising the authority under Section 264, the CIT must act impartially, consider the arguments objectively and adhere to the principles of natural justice. For instance, in Harish Wadhwa v. ITO, the Karnataka High Court held that an order passed without application of mind and consideration of the case facts deserved to be set aside, directing the Tribunal to redo the exercise after giving the assessee an opportunity to present their arguments.

The CIT’s decision should be free from external influences, including undisclosed matters or directives from other authorities, to ensure a fair and just resolution.

Difference Between Appeals and Revisions in Income Tax

Appeals and revisions in income tax serve distinct purposes and follow different procedures. While both mechanisms allow taxpayers to challenge assessment orders, they have unique characteristics and applications. Here’s a comparative overview of appeals and revisions:

Appeals focus on providing a structured judicial review of assessment orders, allowing both factual and legal challenges. They involve a tiered process, starting from the Commissioner (Appeals) and potentially escalating to the Supreme Court. On the other hand, revisions primarily aim to rectify errors or provide relief under the CIT’s administrative discretion, with limited options for further appeal.

Conclusion

Both appeal and revision serve as important mechanisms for assessees to challenge and rectify assessment orders that they find prejudicial. While the appeal process involves a formal review by the Commissioner (Appeals) and is a right vested solely in the assessee, the revision process allows for both assessees and the Commissioner of Income Tax to address erroneous orders. Understanding these options and their respective processes is essential for assessees seeking to protect their interests and ensure fair tax administration.