Person filing tax return forms. (Photographer: Luke Sharrett/Bloomberg)

Tax Department Seeks To ‘Examine’ Tribunal Orders Against It

A recent office memorandum issued by the Central Board of Direct Taxes has perturbed tax practitioners across the country. The CBDT has set up a committee of five commissioners who will examine cases where the Income Tax Appellate Tribunal has passed ‘perverse or irregular orders’. The committee will also examine cases where the submissions of the revenue department have not been recorded by ITAT.

Both these issues will then be taken up with the ITAT president and Ministry of Law, as per the CBDT memorandum.

All ITAT orders which are against the tax department are anyway examined by the chief commissioner concerned and if the outcome is not acceptable, an appeal is filed before the high court, SR Wadhwa, former chief commissioner, said. Perverse means one, an order that has not gone in favour of the department and two, an order which is so bad that no reasonable person could’ve passed it, he explained.

But what will this committee do? This is tantamount to interference with the judiciary. Anyway, an appeal will be filed with the high court. Now, they will also write to the ITAT president saying such and such bench has passed a perverse order. It will terrify the ITAT benches and their independence will get diluted. 
SR Wadhwa, Former Chief Commissioner, Income Tax Department

The Delhi ITAT Bar Association has raised similar concerns in a letter to its members and may consider a writ petition before the High Court. BloombergQuint has reviewed a copy of this letter. The association has pointed to the Supreme Court’s decision in K Aggarwal’s case where the law secretary’s intervention in the judicial functioning of the ITAT was held to be illegal.

It was not necessary that there should be an actual interference with the course of administration of justice. It is enough if the offending act or publication tends in any way to so interfere. If there are insinuations made which are derogatory to the dignity of the court and are calculated to undermine the confidence of the people in the integrity of the judges, the conduct would amount to contempt.
Supreme Court

ITAT is an independent body entitled to take any decision which it deems fit in accordance with law and no one, other than a high court, can sit over its decisions in any form or manner, the letter said.

We also wonder how and from what source are they going to get the so called perverse or irregular orders. Surely, they cannot examine the hundreds and thousands of orders passed by the Hon’ble Tribunal till date. Their source would certainly be the department representatives all across the country. Surely that source would be riddled with bias and any and every order where the DR’s may have failed could according to them be perverse or irregular.
Delhi ITAT Bar Association Letter

This simply means that these five members of the committee will now assume the role of judicial superintendence over the entire ITAT, the letter said.

Examining ‘perverse’ ITAT orders isn’t the only mandate of this committee. They’ve also been tasked to examine the feasibility of setting up separate tribunal benches for international tax matters. The suggestion of reviving junior department representatives will also be looked at by this committee.

The ITAT Bar’s letter is a bit of an overreaction, Mukesh Butani, managing partner, BMR Legal, told BloombergQuint. It seems the attempt is to enhance the effectiveness of the tax department to defend their orders.

Yes, the particular direction on examining ITAT’s perverse orders, discussing it with the president is vaguely worded but if you look at all the terms of reference in the memorandum, it is solely motivated to strengthen the litigation management machinery of the tax department. I am sure the department understands that the executive cannot interfere with the judiciary. 
Mukesh Butani, Managing Partner, BMR Legal

The five-member committee has been given a month to submit its report.