Karnataka CA Association Proposes Solutions for Income Tax Appeal Backlogs

Introduction

The Karnataka State Chartered Accountants Association (KSCAA) has presented a detailed representation to Smt. Nirmala Sitharaman, the Union Minister of Finance and Corporate Affairs. This document addresses significant delays and backlog issues regarding appeals filed with the Commissioner of Income Tax (Appeals) (CIT(A)) under sections 246/246A of the Income-Tax Act, 1961. The lengthy unresolved appeals, some exceeding four years, are attributed to several factors including the Vivad se Vishwas scheme, disruptions caused by COVID-19, and the introduction of faceless appeal schemes.

In recognition of this persistent backlog, KSCAA suggests the establishment of a new appellate authority known as the Joint Commissioner of Income Tax (Appeals) to help manage the workload. Their analysis cites an Internal Party Audit indicating that the CIT(A) has a target to dispose of 150 appeals by June 30, 2024. This situation necessitates the development of streamlined Standard Operating Procedures (SOPs) to ensure fair and efficient handling of appeals.

Key Issues and Proposed Solutions

1. Timelines for Appeal Disposal

Mandatory Timelines: Develop binding timelines for the disposal of appeals, especially in cases where submissions have been made by appellants. Current guidelines are merely directory in nature and should be revised for expedited processing.
Natural Justice: Establish a six-month period from the date of the first hearing notice to accommodate requests for adjournments made by appellants. It has been observed that notices are frequently issued in short intervals, hindering proper preparation.

2. Standardized Procedures

Video Conferencing: Mandatory provision for video conference hearings should be implemented, reinforcing the principles of natural justice as supported by various judicial precedents.
Show Cause Notices: The FAA should be instructed to issue show cause notices after considering appellant submissions to facilitate productive discussions during hearings.
Opportunity to Cure Defects: Appellants should be allowed to rectify defects in their submissions instead of risking dismissal based on technicalities.
Further Enquiries: Direct the FAA to conduct further inquiries regardless of whether responses have been received to hearing notices, as permitted under section 250 of the Act.
Ex Parte Orders: Discourage the issuance of ex parte orders in cases where the appellant fails to attend, pushing for a merits-based decision.

3. Clarity on Procedures

Grounds of Appeal Disposal: Encourage the FAA to address all grounds raised in appeals explicitly, ensuring comprehensive speaking orders are issued.
Consideration for Early Hearing Petitions: Clarity should be provided to appellants regarding the procedures for early hearing requests.
Rectification Applications: Expedite the handling of apparent mistakes rectification applications to ensure timely processing.

4. Jurisdictional Considerations

Adherence to Jurisdictional Rulings: In light of faceless proceedings, the FAA must adhere to jurisdiction-specific ITAT and High Court rulings to maintain consistency and avoid reliance on non-jurisdictional precedents.

5. Stay of Demand Applications

Consideration of Stay Requests: The FAA should be directed to review and decide on stay applications for pending appeals, as current practices show neglect in processing such requests.

Addressing Technical Issues

Challan Modifications: Allow appellants to amend challan particulars for errors related to minor codes or payment categories, with provisions for expeditious correction by assessing officers.
Authorized Representative Details: Incorporate functionality in the income tax portal for adding details of Authorized Representatives (ARs) to ensure notices are also dispatched to them.

Conclusion

The KSCAA urges for the consideration of the outlined recommendations to enhance the efficiency and fairness of the appeal process. The challenges faced by taxpayers, professionals, and industries due to procedural inefficiencies require timely and effective solutions. The association requests that the concerned authorities reassess the appeal handling process to align it with the principles of natural justice.