Tax Alert | Delivering clarity - 22 June 2021 - Deloitte
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Tax Alert | Delivering clarity
22 June 2021
National Faceless Appeal Centre bound by decision of jurisdictional High Court, having
jurisdiction over Assessing Officer
The Agra Bench of the Income-tax Appellate Tribunal has rendered its decision that, National
Faceless Appeal Centre is bound by the decisions of jurisdictional High Court (having jurisdiction
over the Assessing Officer) even if there are conflicting decisions of the non-jurisdictional High
Court(s)
Background:
• The taxpayer1 is in the business of storage of potatoes in cold storage.
• The taxpayer in its income-tax return for the Financial Year (FY) 2017-18, relevant to Assessment Year
(AY) 2018-19, had claimed deduction for employee contribution towards Employee State Insurance
(ESI) and Provident Fund (PF) (i.e. labour welfare) which were deposited after relevant due date under
the relevant law but before the due date for filing the income-tax return. The taxpayer had claimed
deduction under section 43B of the Income-tax Act, 1961 (ITA) and had relied on an earlier decision2 of
the jurisdictional Allahabad High Court (HC) in this regard.
Section 43B of the ITA relates to certain deductions which are allowed only on actual payment
(amongst others, which includes, any sum payable by the assessee as an employer by way of
contribution to any provident fund or superannuation fund or gratuity fund or any other fund for the
welfare of employees).
• During the course of audit proceedings, the Assessing Officer (AO) disallowed the deduction of
employee contribution towards ESI and PF by relying on an earlier decision3 of the Gujarat HC.
• Aggrieved, the taxpayer filed an appeal before the Commissioner of Income-tax (Appeals) [CIT(A)]
against the AO’s order. The CIT(A), National Faceless Appeal Centre (NFAC) Delhi, upheld the AO’s
order on the basis that, as there were more than one HC decisions on the issue under consideration,
the final verdict was still evolving.
• Aggrieved, the taxpayer filed an appeal before the Agra Bench of the Income-tax Appellate Tribunal
(ITAT) against the CIT(A)’s order.
1 Mahadev Cold Storage - [2021] 127 taxmann.com 722 (Agra Tribunal)
2 Sagun Foundry (P.) Ltd. v. CIT [2017] 78 taxmann.com 47 (Allahabad HC)
3 CIT v. Gujarat State Road Transport Corpn. [2014] 41 taxmann.com 100/223 Taxman 398/366 ITR170 (Gujarat HC)
©2021 Deloitte Touche Tohmatsu India LLPDecision of the ITAT:
• As NFAC is a new concept, the ITAT observed the following with respect to faceless appellate
adjudication by the Revenue:
─ The Hon’ble Prime Minister on 13 August 2020 launched the platform for Honouring the Honest.
─ The Finance Act, 2020 (FA 2020) vide amendment in section 250(6C) of the ITA expanded the
scope of e-assessment to include e-appeals.
As per section 250(6C) of the ITA, the Central Government may, for the purposes of giving effect
to the scheme made under sub-section (6B), by notification in the Official Gazette, direct that
any of the provisions of this Act relating to jurisdiction and procedure for disposal of appeals by
Commissioner (Appeals) shall not apply or shall apply with such exceptions, modifications and
adaptations as may be specified in the notification.
─ As per the memorandum to The Finance Bill, 2020 (FB 2020), while, filing of appeals before the
CIT(A) had already been enabled in electronic mode, the appeal process under CIT(A) was not
yet in electronic mode. While a taxpayer could file an appeal through his registered account on
the e-filing portal, the process that followed in appeal was neither electronic nor faceless.
Accordingly, it was proposed to insert sub-section (6A) in section 250 of the ITA to enable launch of
e-appeal scheme (amongst others for disposal of appeal to impart greater efficiency, transparency
and accountability; eliminate interface between CIT(A) and appellant during appellate proceedings
to the extent technological feasible, etc.).
─ The Central Board of Direct Taxes (CBDT) notified the faceless appeal scheme vide Notifications
No. 76 and 77 of 2020 dated 25 September 2020 (Notifications).
─ As per the Notifications, before passing the final appellate order in appeal, it passes through
various stages of scrutiny. Enough safeguards were provided with a view to achieve its objects to
impart consistency, efficiency, transparency, and accountability. Further, an order passed by
NFAC, is subject to challenge before the income-tax tribunal having the jurisdiction over the
jurisdictional AO.
• In the case under consideration, the AO was situated within the jurisdiction of Income-tax Appellate
Tribunal, Agra (falling within the jurisdiction of Allahabad HC).
• The decision of the jurisdictional HC was binding on the authorities / tribunal / courts situated in the
territorial jurisdiction of the HC. Further, even if there was conflicting decision of the jurisdictional HC
and non-jurisdictional HC, then also, the jurisdictional HC decision was binding on the quasi-judicial
authorities / courts / tribunal situated within the State. The ITAT relied on the following in this regard:
─ As per an article of the National Judicial Academy4, the decision of the HC is binding on the
courts/ tribunal situated within the territorial jurisdiction of the HC.
4 Article dated 14 September 2018 written by Hon’ble Justice (Retired) B. S. Chauhan of Supreme Court
©2021 Deloitte Touche Tohmatsu India LLP─ Article 227 of the Constitution of India provides that the supervision and control of all the
tribunal / other authority situated within the jurisdiction of the HC.
─ The Supreme Court (SC) in an earlier decision5 had held that the law declared by the highest
court in the State was binding on authorities or tribunals under its superintendence and they
could not ignore it. The said position was reiterated by the SC in another case6 and similar
principles were upheld in other cases7.
In view of the above, the ITAT observed the following:
• Though, centralised NFAC had been created by the notification, however, it had to be ensured that
whenever any appellate order was passed by NFAC, then, decision of jurisdictional HC (having
jurisdiction over the AO) should be followed and applied by the NFAC. Merely because there was
conflicting decision of non-jurisdictional HC, the relief should not be refused to the taxpayer.
• As per the notification, an appeal against an order passed by the NFAC under the Scheme is before the
ITAT having jurisdiction over the jurisdictional AO. Further, as per section 260A of the ITA, appeal
against ITAT order lies with the HC - HC had been defined under section 269 of the ITA means in
relation to any State, the HC for that State.
Thus, appeal against Agra ITAT in the case under consideration would lie to the Allahabad HC and
therefore, the decision rendered by the HC was not only binding on the ITAT but also on NFAC (though
sitting in Delhi) which was deciding the issue pertaining to Agra ITAT jurisdiction (i.e. Allahabad HC
jurisdiction).
• The practice of NFAC in following the decision8 of the non-jurisdictional HC (i.e. Gujarat HC) against the
binding decision9 of the jurisdictional HC (i.e. Allahabad HC) was in contradiction of the objects for
which the notification was issued by the CBDT for creating the centralised NFAC.
• Having categorically held the allowability of claim under section 43B of the ITA, by jurisdictional HC, it
was not expected from the Revenue to apply inapplicable and not binding decision in the case under
consideration.
• Further, the NFAC had in an earlier decision10, granted similar relief, thereby breaching the principle of
consistency.
5 East India Commercial Co. Ltd. v. Collector of Customs AIR 1962 SC 1893
6 Baradakanta Mishra v. Bhimsen Dixit AIR 1972 SC 2466
7 K. N. Agarwal v. CIT [1991] 189 ITR 769 (Allahabad HC); State of A.P. v. CTO [1988] 169 ITR 564 (A.P. HC); Union of India v. Kamlakshi
Finance Corpn. Ltd. AIR 1992 SC 711; Voest-Alpine Ind. GmbH v. ITO [2002] 122 Taxman 413 (Calcutta HC); CIT v. Ralson Industries Ltd.
[2007] 288 ITR 322 (SC); PCIT v. Sungard Solutions (I) (P.) Ltd. [2019] 105 taxmann.com 67 (Bombay HC)
8 CIT v. Gujarat State Road Transport Corpn. [2014] 41 taxmann.com 100/223 Taxman 398/366 ITR170 (Gujarat HC)
9 Sagun Foundry (P.) Ltd. v. CIT [2017] 78 taxmann.com 47 (Allahabad HC)
10 Order dated 9/3/2021 in ITBP/NFAC/S250/2020-21/1031333008(1)
©2021 Deloitte Touche Tohmatsu India LLPIn view of the above, the ITAT held that, NFAC was bound by the binding decision of the Jurisdictional
Allahabad HC, as the AO was situated within the territorial and subjective jurisdiction of HC. Hence, the
appeal of the taxpayer was allowed by respectfully following the decision11 of jurisdictional HC.
Comment:
This ruling has held that whenever any appellate order is passed by NFAC, then, decision of jurisdictional
HC (having jurisdiction over the AO) should be followed and applied by the NFAC. Further, merely
because there are conflicting decisions of non-jurisdictional HC, the relief should not be refused to the
taxpayer.
Taxpayers with similar facts may evaluate the impact of this ruling to the specific facts of their cases.
11 Sagun Foundry (P.) Ltd. v. CIT [2017] 78 taxmann.com 47 (Allahabad HC)
©2021 Deloitte Touche Tohmatsu India LLPDeloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company
limited by guarantee, and its network of member firms, each of which is Deloitte refers to
one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by
guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each
of its member firms are legally separate and independent entities. DTTL (also referred to as
“Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/about
for a more detailed description of DTTL and its member firms.
This material and the information contained herein prepared by Deloitte Touche Tohmatsu
India LLP (DTTI LLP) is intended to provide general information on a particular subject or
subjects and is not an exhaustive treatment of such subject(s). This material contains
information sourced from third party sites (external sites).
DTTI LLP is not responsible for any loss whatsoever caused due to reliance placed on
information sourced from such external sites. None of DTTI LLP, Deloitte Touche Tohmatsu
Limited, its member firms, or their related entities (collectively, the “Deloitte Network”) is,
by means of this material, rendering professional advice or services. This information is not
intended to be relied upon as the sole basis for any decision which may affect you or your
business. Before making any decision or taking any action that might affect your personal
finances or business, you should consult a qualified professional adviser.
No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by
any person who relies on this material.
©2021 Deloitte Touche Tohmatsu India LLP. Member of Deloitte Touche Tohmatsu Limited
©2021 Deloitte Touche Tohmatsu India LLPYou can also read
