THE CHAMBER OF TAX CONSULTANTS vs. THE CENTRAL BOARD OF DIRECT TAXES DEPT. AND ANR.

The Chamber of Tax Consultants through its President Mr.Hinesh R. Doshi Address : 3, Rewa Chambers, Ground Floor, 31, New Marine Lines, Mumbai – 400 020. 2. Mahendra Sanghvi 10, LA Citadella, 99, Maharshi Karve Road, Mumbai – 400 020. ... Petitioners Versus

The Central Board of Direct Taxes, Department of Revenue, Ministry of Finance, Government of India, North Block New Delhi – 110 001. 2. Union of India through the Secretary, Department of Revenue, Ministry of Finance, Government of India, North Block New Delhi – 110 001. … Respondents ….... • Mr. S. E. Dastur, Senior Advocate a/w Mr. Vipul Joshi, Mr. Harsh   Kothari,   Mr.   Abhishek   Padwalkar   &   Mr.   Dharan   V. Gandhi for Petitioners. • Mr. Anil Singh, ASG, a/w Mr. Sham V. Walve for Respondent No.

Nesarikar CNR No : HCBM020315562018 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:34:21

ACELEGAL D­201, 2nd Floor, Vashi Station Complex, Vashi, Navi Mumbai – 400 703. 2. Sneha Sarbhushan C­104, Rachana Heights, Near Old Post Office, Panvel – 410 206. ... Petitioners Versus

Union of India Through the Secretary, Ministry of Finance, Department of Revenue, Government of India, MSEB Building, 2nd Floor, Estrella Battery Compound, Labour Compound, Dharavi, Matunga, Mumbai – 400 019. 2. Chairman, Central Board of Direct Taxes, North Block, New Delhi – 110 001. … Respondents ….... • Ms. Ritika Agarwal a/w Ms. Deepti Jethva or Petitioners. • Mr. Anil Singh, ASG, a/w Mr. Sham V. Walve for Respondent No.

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The Petitioners of the Public Interest Litigation have also   challenged   the   same   plan.   The   challenge   however   is confined to the portion of the plan, where the CIT Appeals have been given higher weightage for disposal of Appeals by quality orders.

The CBDT has framed the said plan for the financial year 2018­2019. The preamble of this document sets out the purpose for framing the said plan and reads as under; Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:34:21

Chapter I of the plan sets out targets for tax collection. It contains goals for major head wise direct tax collection for the financial year 2018­19. Such targets are broken up region wise, keeping in view revenue potential of the region.

The pendency of appeals with CsIT (A) and demand locked therein has been increasing over the years. Analysis of the work done last year reveals the following: Revenue involved Pending On Disposals New filings Pending On 01.04.2017 01.04.2018 A1 more than 50 crores 1295 1033 579 841 A2 1 to 50 Cr 34488 9813 11694 36369 A3 10 L to 1 cr 76771 23723 35701 88749 B Less than 10 Lakhs 215619 86205 1743 131157 C Current Less than 10 L 0 2706 67433 64727 328173 123480 117150 321843 (a) Total appeals pending where demand is less than 10 Lakh are 1,95,884 as on 01.04.2018, which shows a decline of about 9% from the corresponding figure as on 01.04.2017. However, the pendency is still very large, and includes 1,15,706 appeals where demand is less than Rs. 2 lakhs. A special focus is required on such cases during the current year. (b) In regard to high demand appeals, there is a decline of 35% in A1 category but an increase in pendency of A2 and A3 categories of 5 % and 16% respectively. (c) The appeals pending as on 01.04.2018 include 22256 appeals that are more than 5 years old. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:34:21

The results of last year s action plan strategy in litigation management at the level ‟ of CIT(A) are encouraging. There has been a reduction in overall litigation, particularly in cases involving very high quantum of demand, as also in cases with tax demand of less than Rs.10 lakhs which have a wide-spread impact on taxpayers. It is therefore reasonable to continue with a similar action strategy for the current fiscal, to meet the core objectives of budget collection, reduction in outstanding demand and litigation management. Accordingly, a two-pronged strategy as in last year, with slight modifications to deepen the impact, shall be adopted this year, too, having proportionate focus on optimizing disposal in terms of numbers and on maximizing disposal of appeals involving high quantum of demand.

1 It is seen that the appeals pending in different categories are not evenly distributed amongst PCCIT regions, as also within each PCCIT region. Hence the targets for disposal are being set at the level of PCCIT regions, and at micro level there shall be norms for disposal of appeals by individual CITs(A). In order to ensure optimum distribution of work and maximum disposals, the PCCIT/CCITs may redistribute the cases in such a manner as to attain/exceed the targeted disposals. The allocations of pending appeals may also be reviewed periodically to ensure that each CIT(A) delivers results in accordance with the norms laid down hereunder. Further, the PCCITs/CCITs shall endeavor to ensure disposal of older appeals on priority, particularly appeals that have been pending for more than 5 years.

2 Accordingly, the targets and norms for FY 2018-19 in respect of disposal of appeals pending with CsIT (A) in each PCCIT Region are set out as under: A. Each PCCIT Region shall ensure: a. Disposal of at least 25% of appeals that involve demand of Rs.10 lakhs or more in categories A2, and A3 and 100% of appeals pending as on 01.04.2018 that involve demand of Rs.50 crore and above (category A1); b. Disposal of at least 90% of appeals that involve demand of less than Rs.2 lakhs (new category B3); c. Disposal of at least 70% of appeals that involve demand of less than Rs.10 lakhs, inclusive of the targeted disposal in B3 (less than 2 lakh demand) category. B. Each individual CIT (A) shall be expected to dispose of a minimum of 550 appeals, or achieve a minimum of 700 units during the year. In PCCIT regions where the average number of Category B3 appeals pending with CITs(A) is more than 500, each individual CIT(A) shall be expected to achieve a minimum of 800 units during the year. C. In Regions where the targeted disposal as at A above translates into numbers of units that fall short of the norms for individual CITs(A) stated at B above, the PCCITs concerned shall scale-up the targets stated at A above so as to ensure satisfaction of the norms. Such scaling-up shall be done, as far as possible, in respect of Category A2 appeals followed by Category A3 appeals. D. Correspondingly, in Regions where the targeted disposal as at A above translates into numbers of units that are significantly higher than the norms for individual CITs(A) stated at above, the PCCITs concerned may scale-down the targets stated at A above, in consultation with the Member (A&J). Such scaling- down shall be done, to the extent possible, only in respect of Category B appeals. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:34:21

3 The above targets, along with demarcation of units, are represented by the following Table: TABLE 4 Taget Category Unit Per Appeal Remarks 25% A (>10 lakhs) A1 Above 50Cr 3 No inter­se priority except 100% disposal of A1. A2 Above 1 Cr to 50 Cr 2 A3 Above 10 Lakhs to 1 Cr 1 70% B (<10 lakhs) B1 Filed before 1.4.2015 (2­10 lakhs) 1 No inter­se priority except 90% disposal of B3 B2 Filed from 1.4.2015 to 31.3.2018 (2­10 lakhs) 1 B3 All appeals filed before 31.03.2018 (demand <2 Lakhs) 1 Balance C (<10 lakhs) C Current Appeals filed during FY 2018­19 1 May be disposed of with approval of PCCIT/CCIT

4 For the purpose of evaluation of performance of an individual officer holding additional appellate charge(s) during the year/part-year, the aggregate disposal including in the additional charge(s) held, shall be considered.

5 The individual norm of 550 appeals or 700 units stated above may also be varied by the PCCIT concerned in respect of CITs (A) within his jurisdiction, having regard to the number and categories of appeals pending for disposal with the CITs(A), so as to attain maximum output and optimum work allocation. However, each PCCIT Region as a whole must achieve the targets of disposal of 25% of appeals involving demand exceeding Rs.10 lakhs and above, 90% of appeals involving demand less than Rs.2 lakhs and 70% overall in Category B appeals.

The above targets should cumulatively result in a significant increase in disposal of appeals with CITs(A) and substantially reduce the pending appeals carried forward, as well as unlock the demand locked therein of about Rs.4.5 lakh crore. ACTION ITEMS: (1) Category A appeals involving demand above Rs. 50 Crore and pending as on 01.04.2018 shall be disposed of by 31.12.2018. (2) The priority for disposal of appeals in different Categories shall be as under: Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:34:21

From the above noted portion of the plan it can be seen that in order to achieve certain disposal targets of pending Appeals   before   the   CIT   Appeals,   CBDT   has   made   detail provisions for expeditious disposal of such Appeals. Part 3 of Chapter III pertains to incentive for quality orders and provides that additional credit of 2 units shall be allowed for each quality appellate order passed. Such term quality cases or quality orders has also been defined in the said part.

In the background of such facts on 22/03/2019, we had on the question of higher weightage for “quality orders” made following observations; “5. With respect to the Petitioners’ second part of the   challenge,   we   are   of   the   opinion   that   the   CBDT should reconsider the same.  From the action plan, it is not clear as to the utility of the norms set which the Commissioner has to achieve.  If the purpose of setting of norms   is   to   evaluate   the   performance   of   the Commissioner, there would be all the more reason why the   above­quoted   portion   of   the   action   plan   be reconsidered by the CBDT. Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:34:21

On   the   next   date   of   hearing,   the   learned Counsel for the Respondent would apprise us about the utility of the norms that the Commissioner would need to achieve and the outcome of the CBDT’s deliberations on our recommendation for reconsideration.”

In response to this order, the counsel for CBDT placed on record a communication issued by CBDT dated 04/04/2019, clarifying the issues raised in the said order dated 22/03/2019. Relevant portion of this communication reads as under; “Kindly refer to interim order of Bombay High Court in captioned matter wherein the petitioners have challenged the CAP 2018­19 issued by the CBDT on two grounds viz, (i) directions issued by CBDT for   disposal   of   certain   number   of   Appeals   of   specified   categories within specified time and (ii) incentivization of CsIT(A) for quality orders where enhancement has been made, order of AO has been strengthened and penalty has been levied by the CIT(A). Hon'ble Court has directed that on the next date of hearing, I.e. 11.04.2019, Department

In this regard, I am directed to provide following inputs of CBDT for apprising the court on the twin issues: (a) As regard the utility of the norms that CIT(A) is required to achieve,   it   is   stated   that   the   Department   has   been   formulating Central Action Plan (CAP) for the purpose of identifying the core areas   of   departmental   functioning   and   setting   targets   therein including that of CIT(A). The concept of awarding credits has been brought in by the Board to ensure parity in the performance of CIT(A) as he is required to dispose of small appeals involving meagre tax effect as well as large and complicated cases, involving multiple issues, requiring greater effort and devoting of time. Further, Litigation management particularly w.r.t appeals pending before Commissioners of Income Tax (Appeals) is one of the key priority areas of the CBDT. A two pronged strategy has been detailed in the CAP for respect of disposal of appeals filed with CIT(A),. having   proportionate   focus   on   optimizing   disposal   in   terms   of numbers   and   on   maximizing   disposal   of   appeals   involving   high quantum of demand. (i) As per Central Action Plan (CAP) for the FY 2018­19, the Department has laid out targets and norms for disposal of appeals pending with CsIT (A) in each PCCIT Region. CITs(A) in   each   PCCIT   charge   shall   be   expected   to   dispose   of   a Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:34:21

In the background of such facts, learned Senior Counsel Mr.S.E. Dastur, for the Petitioners raised following contentions; (i) Any   directives   from   the   CBDT   to   the   Appellate Commissioner to dispose of Appeals expeditiously, has a possibility of miscarriage of justice. The assessee may not get full opportunity of hearing if the Commissioner (Appeals)   is   under   pressure   to   decide   the   Appeals within a time frame. (ii)  The learned Counsel drew our attention to sub­section (6A) of section 250 of the Income Tax Act, 1961 (for short ‘the Act’); Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:34:21

In support of his contentions learned Counsel relied on following decisions; In case of  P.K. Ghosh, IAS & Anr. Vs. J .G. Rajput, reported in (1995) 6 Supreme Court Cases 744, in which it was observed as under; “10. A basic postulate of the rule of law is that 'justice should not only be done but it must also be seen to be done.' If there be a basis which cannot be treated as unreasonable  for  a  litigant  to  except  that  his   matter should not be heard by a particular Judge and there is no compelling   necessity,   such   as   the   absence   of   an alternative,   it   is   appropriate   that   the   learned   Judge should   rescue   himself   from   the   Bench   hearing   that matter. This step is required to be taken by the learned Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:34:21

Learned Counsel Ms. Ritika Agarwal appearing for the Petitioner   of   the   Public   Interest   Litigation   in   addition   to adopting the arguments of Mr.Dastur further submitted that the policy   of   the   Government   which   transgresses   the   statutory limits, should be struck down.

On the other hand learned ASG Mr.Anil Singh opposed the Petitions. He submitted that the targets for tax collection and disposal of income tax appeals, would have no effect on a fair hearing   that   the   assessee   must   get   from   the   Commissioner (Appeals). These targets and parameters for judging the output of   a   Commissioner   (Appeals)   are   well   within   the   scope   of CBDT's powers. Like any other organization, the CBDT also lays down   targets   for   tax   collection.   In   order   to   judge   the quantitative   output   of   the   appellate   Commissioners,   certain disposal norms are set. No directives have been issued to dispose of any number or kind of Appeals within a rigid time frame, if the same cannot be done having regard to the interest of justice. With   respect   to   Petitioners'   later   part   of   the   challenge   to Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:34:21

Having   heard   learned   Counsel   for   the   parties   and having perused documents on record, we may first consider the Petitioners' challenge to the first part of the circular. We have reproduced the relevant portion of the circular at length. Perusal of this portion would show that the CBDT has set out broad targets   for   revenue   collection   projected   over   the   different regions.   Internal   distribution   between   the   regions   has   been carried out on scientific basis. For any organization, setting of goals and targets is neither impermissible nor unknown. Only because certain targets for tax collection are set out, would not render the policy arbitrary or unreasonable. In the context of the disposal norms to be met by the appellate Commissioner also, Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:34:21

In the context of the precise norms set by the CBDT for disposal, firstly it has to be the decision of the organization to set   out   appropriate   norms.   The   Court   does   not   have   the wherewithal to test such norms on the basis of reasonableness. When an expert body like CBDT sets out disposal norms for the Commissioner Appeals to achieve, it has the necessary expertise Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:34:21

With this preamble we may peruse the disposal norms more minutely. These norms provide different units for disposal of the Appeals depending on; the age and the valuation. For example the policy provides the category 'A' where the revenue effect is more than Rs.10 lakhs. The cases involving tax effect of more than Rs.50 Crores upon disposal would receive 3 units. For cases between Rs.1 Crore and 50 Crores the disposal unit would be two and for the rest, it would be one unit. The category 'B' is cases where the revenue effect is less than Rs.10 lakhs. Here the policy   trifurcates   the   cases   between   those   filed   before 01/04/2015 and in the range of Rs.2 to 10 lakhs, those filed from 01/04/2015 to 31/03/2018 and the tax effect is between Rs.2 to 10 lakhs and all case filed before 31/03/2018 where the tax effect is less than Rs.2 lakhs. Category 'C' are the cases where Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:34:21

We do not think that these guidelines in any manner breach the reasonableness or can be stated to be arbitrary or illegal.   These   guidelines   are   for   general   directives   and prescriptions to on one hand enable the revenue to collect taxes which are otherwise due and on the other hand to assess the Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:34:21

In this context, we may also refer to sub­section (6A) of section 250 of the Act, which reads as under; “In every appeal, the Commissioner (Appeals), where it is possible, may hear and decide appeal within a period of one year from the end of the financial year in which such appeal is filed before him under sub­section (1) of section 246A.”

Coming   to   the   Petitioners'   second   limb   of   the grievance, we may recall the policy provided for incentive for quality orders. This clause states that with a view to encourage quality work by Commissioner (Appeals) additional credit of 2 Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:34:21

All   these   contingencies   necessarily   point   to circumstances   where   the   order   passed   by   the   Commissioner (Appeals) is in favour of the revenue. For example this policy refers to the enhancement made by the Commissioner or a case where   the   Commissioner   has   levied   penalty   under   section 271(1) of the Act. This necessarily refers to enlargement of the assessee's liability before the Commissioner as compared to what may  have  been  determined  by  the  Assessing  Officer.   In our opinion, such policy is wholly impermissible and invalid. Any Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:34:21

It is well laid down through series of judgments in field of   administrative   law,   interference   or   controlling   of   the discretion of a statutory authority in exercise of the powers from an outside agency or source, may even be superior authority, is wholly impermissible. This general principal of administrative law finds statutory embodiment in sub­section (1) of Section 119 of the Act.  As  is well  known,  under  sub­section (1) of section   119,   the   Board   has   the   power   to   issue   orders   and instructions for proper administration of the Act. This provision reads as under; “119. (1) The Board, may from time to time, issue such orders   and   directions   to   other   income­tax authorities   as   it   may   deem   fit   for   the   proper administration of this Act, and such authorities Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:34:21

In terms of the provisions contained in sub­section (1) of Section 119 of the Act, thus the Board may from time to time issue such orders, instructions and directions to other income tax authorities as it may deem fit, for proper administration of the Act and such authorities shall observe and follow the orders, instructions and directions of the board. While granting such wide powers to the CBDT under sub­section (1) of section 119 of the Act, the proviso thereto provides that no such orders, instructions or directions shall be issued, so as to require any income   tax   authority  to  make  a  particular  assessment  or  to dispose of a particular case in a particular manner. In exercise of these powers thus the CBDT cannot issue any instructions or directions  to any income tax  authority  to  make a  particular assessment or to dispose of a case in a particular manner.

When the CBDT guidelines provide greater weightage Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:34:21

Under the circumstances the CBDT has now decided to withdraw the guidelines for the coming year. In our opinion in its existing form for the past financial year also the same cannot be allowed to have effect. We are conscious that the appellate Commissioners have already passed the orders. Correction of these orders cannot be doubted en masse only because they were passed under the shadow of the said policy. Nevertheless Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:34:21

In the result, the Petition is allowed in part; (i) The following portion of the impugned Action Plan of CBDT is set aside. “Incentive for quality orders : (i) With a view to encourage quality work by CITs (A),additional credit of 2 units shall be allowed for each quality appellate order passed.  The CIT (A) may claim such credit by reporting such orders in their monthly DO letter to the CCIT concerned. Quality cases would include cases where ­ (a) enhancement has been made, (b) order has been strengthened, in the opinion of the CCID, and (c) penalty u/s 271(1) has been levied by the CIT (A).” (ii) The   concerned   CCIT   shall   examine   any   such appellate orders referred to him by the CIT (A), Uploaded on - 21/08/2020 Downloaded on - 28/10/2026 03:34:21