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Bombay High Court Sets Aside CBDT Action Plan of Rewarding CITs


Recently, the Bombay High Court has set away a vital portion of the Central Board of Direct Taxes (CBDT) action plan as per which the Commissioners of Income Tax-Appeals (CIT-A) who pass ‘quality’ orders, would have received rewards which could be unfavorable to buyers. This judgment came due to a writ petition filed by the Association of Tax Consultants against the CBDT’s action plan opposing that the “quality orders as envisage by CBDT would result in favor of the Income Tax (I-T) Department’ only”.

CBDT Action Plan for the Financial Year 2018-19

As per the CBDT’s Action Plan for the Financial Year 2018-19, the CITs-A would be allowed additional incentives or performance credits which would depend on the number of rulings they make in favor of the tax department. Their appraisals will rely on “enhancing the assessment, strengthening the stand of the assessing officer or levying penalty”.

‘Quality’ Orders as per CBDT Action Plan

The term ‘quality’ orders include cases where the CIT-A enhance the order of the Income Tax Officer which means the quantum of tax demand is increased or where it strengthens the order of the Income Tax officer. It also included the instances where the CIT-A levy fine on the additions conform by him to a taxpayer’s income.

Issues under CBDT’s Action Plan

  • It highly favors Income Tax Officers only
  • Granting of incentives to CIT-A for ‘quality’ orders in favor of the IT Department only.
  • CBDT’s action plan may prejudice the minds of the CITs-A.

The Petition filed by Chamber of Tax Consultants against CBDT Action Plan

Chamber of Tax Consultants, a not-for-profit body of tax professionals, filed a petition against CBDT Action Plan in the High Court.

Order of the Bombay High Court

  • The Bombay High court said that giving additional incentives to commissioners of income tax (appeals) for pro department rulings should be impermissible and illogical.
  • The High Court order further states that “Any directives by the CBDT which gives additional incentive for an order that the Commissioner (Appeals) may pass having regard to its implication, necessarily transgress in the Commissioner’s exercise of discretionary quasi-judicial powers.”
  • High Court further states that it does not empower the CBDT to issue instructions or directions to make a special assessment or dispose of a case in a specific manner.
  • Justice Sarang V Kotwal and Justice Akil Kureshi said, “Prima facie, we feel that it may be impermissible for the CBDT to priorities the disposal of the appeals and to set the goals for disposal of the certain number of such appeals by the Appellate Commissioner. From the action plan, it is not clear as to the utility of the norms set which the CIT (A) has to achieve. If the purpose of the set of norms is to evaluate the performance of the CIT (A), there would be all the more reason why the CBDT reconsiders the above-quoted portion of the action plans.”

CBDT Future Plan of Action

For the financial year 2019-20, the (Central Board of Direct Tax) CBDT will modify the definition of quality orders to include all the appeal orders which are passed by the CIT which are either decided in favor or against the revenue. This will be through the viewpoint of the Supervisory Commissioner who will check the time dedicated for finding the facts and passing exceptionally perfect order by considering applicable judicial precedents. This will result in the elimination of partiality.

Our Take on this Judgment

This judgment has come as a sigh of relief. The CBDT policy had fascinated a lot of criticism. Such incentives are impermissible and obstruct with the CIT (A) quasi-judicial powers. Moreover, such systems send out a very wrong signal to taxpayers.

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