Author name: CBCL

[By Sagnik Sarkar] The author is a student at the Tamil Nadu National Law University. Introduction In her 2019 Union Budget speech, Finance Minister Nirmala Sitaram announced the introduction of a ‘faceless e-assessment’ scheme in income tax matters, to curb unsavory practices which arise out of the physical contact traditionally required between the Income Tax Department and taxpayers in assessment proceedings. The highlight of this scheme is the elimination of the human interface through the use of technology: the Assessing Officer and the taxpayer will not interact with each other directly, and the identity of the Assessing Officer will not be revealed to the taxpayer. The scheme was given legislative backing through, amendments to the Income Tax Act, and the subsequent notification of the E-Assessment Scheme, 2019 under the newly inserted Sections of the Act. This scheme was met with widespread approbation and soon became quite successful. The success of the E-Assessment Scheme seems to have prompted the Central Government to extend the core feature of this scheme, the elimination of the direct human interface between the Department and the taxpayer, to other income tax proceedings. Through amendments to the Income Tax Act, and the subsequent notifications of the Faceless Appeal Scheme, 2020  and the Faceless Penalty Scheme, 2021 under the newly-inserted Sections of the Act, the Central Government has introduced similar mechanisms for dealing with statutory appeals to Appellate Commissioners and adjudicating penalties imposed under the Act. Now, in the 2021 Union Budget speech, the Finance Minister has made a commitment to introduce a similar faceless mechanism for the adjudication of matters before the Income Tax Appellate Tribunal (ITAT). A common, and central, feature of all the faceless mechanisms in question, the system of ‘dynamic jurisdiction’, seems to suffer from the vice of unconstitutionality due to manifest arbitrariness. The New System of ‘Dynamic Jurisdiction’ Until the introduction of the system of ‘dynamic jurisdiction’, assessment proceedings, appellate proceedings before Appellate Commissioners, and penalty proceedings, were required to be conducted by designated Department officials with territorial jurisdiction over the taxpayer in question. [i] The Central Government, by notifying the E-Assessment Scheme, the Faceless Appeal Scheme, and the Faceless Penalty Scheme, has now replaced this requirement with a system of ‘dynamic jurisdiction’. Under the new system, a computerized system randomly allocates every stage of an assessment proceeding, an appeal to the Appellate Commissioner, and a penalty proceeding, to different units across the country. It is no longer necessary for a jurisdictional Department official to conduct the proceedings in question. Hence, by way of example, it is theoretically possible, and quite probable, for the assessment proceeding of a taxpayer resident in Kolkata to commence at a unit in Delhi, continue at a unit in Hyderabad, and conclude at a unit in Chennai. Analogous factual situations can arise in cases of appellate proceedings before Appellate Commissioners, and penalty proceedings, too. This system of dynamic jurisdiction appears to fall foul of the constitutional guarantee of the right to equality before the law in Article 14 of the Constitution. The Constitutional Infirmity of ‘Dynamic Jurisdiction’ Earlier, under Section 256 of the Income Tax Act, 1961, Benches of the ITAT could statutorily refer questions of law arising in matters before it to the territorial High Court for adjudication. Now, decisions of ITAT Benches can be statutorily appealed to the jurisdictional High Court only on substantial questions of law, under Section 260A of the Act. Additionally, there is always the possibility of making a constitutional challenge to every stage of an income tax proceeding before the High Court. This has been confirmed by the Supreme Court in Nagendra Nath Bora (1958). Consequently, income tax proceedings, in various stages, are frequently challenged before the jurisdictional High Courts. This was recognized by the Law Commission in its 115th Report of Tax Courts (1986). Thus, the High Courts frequently express their opinion on diverse questions of Income Tax Law. The decision of a High Court, on a question of Income Tax Law, is binding on the income tax authorities within its jurisdiction: including Assessing Officers, Appellate Commissioners, and the regional Bench of the ITAT. This has been held by the Supreme Court in a number of cases, notably in East India Commercial Co. Ltd. (1962). Similarly, points of law in the decisions of regional Benches of the ITAT, and the Appellate Commissioners, are binding on income-tax authorities subordinate to them in their jurisdiction. This too is a well-established position of law confirmed in a number of cases, notably Kamalakshmi Finance Corporation Ltd. (1991). Thus, in summation, the decision of a High Court on a question of Income Tax Law percolates down and ultimately binds, every income tax authority within its territorial jurisdiction, including the regional Bench of the ITAT. In practice, High Courts frequently take contradictory views on the same, or similar, the question[s] of income Tax Law. This was very astutely recognized by the Law Commission in its 115th Report of Tax Courts (1986). Consequently, income tax authorities in one part of the country are bound to reach a different conclusion compared to their peers in another part of the country, on questions of law in respect of which the territorial High Courts in question differ. This practical reality creates a serious constitutional infirmity in the system of ‘dynamic jurisdiction’. Article 14 of the Constitution guarantees equality before law. In E.P. Royappa (1973) and Maneka Gandhi (1978), the Supreme Court has held that equality cannot co-exist with arbitrariness. Thus, it has been held by the Supreme Court in Shayara Bano (2017) and Navtej Singh Johar (2018), when a statutory provision is manifestly arbitrary, it will be unconstitutional. In Shayara Bano, the Supreme Court has recognized that the clinching indicator of manifest arbitrariness, is a distinction made without adequate determining principle. The system of ‘dynamic jurisdiction’ randomly allocates every income tax proceeding, and every stage of them each, to officials across the country. Randomness, by definition, is characterized by the lack of a determining principle. Hence, for no reason at

[By Yash Jain and Jaskaran Singh Saluja] The authors are students at the Institute of Law, Nirma University, Ahmedabad. Introduction The Income Tax Appellate Tribunal (“ITAT”) is referred to as the ‘Mother Tribunal‘ for being the oldest tribunal in the country. For years the ITAT has been discharging its role admirably and effectively. In view to transforming the taxation regime, the Commissioner of Income Tax (“CIT”) was made faceless. Subsequently, to reduce the cost of compliance, increase transparency and utilize resources efficiently, the Finance Bill, 2021 (“Bill”) proposes a National Faceless ITAT Centre. Clause 78 of the Bill shall be inserted by the Central government to dispose of appeals by the ITAT. The said clause seeks to amend Section 255 of the Income Tax Act, 1961 (“Act”) that provides for the powers and procedure of the ITAT. The amendment will impart greater efficiency, transparency, and accountability to eliminate the interface between the ITAT and related parties. That means all procedures relating to ITAT shall now be carried out electronically. The faceless ITAT could broadly accelerate the rate at which disputes are settled. Apart from saving time and expenses, this system will bring more transparency and speedy justice to the litigants. However, a deeper analysis reveals flaws in the design and implementation of the new arrangement. The Bill heralds in the appearance of the supposed faceless Tribunal. The faceless ITAT raises certain legal ambiguities and concerns for the taxpayers regarding the nature and working of the structure. In this article, the authors will discuss numerous incongruities enduring while the proposition of faceless ITAT comes into the picture. These inconsistencies include the violation of the fundamental rule of conducting oral hearings in ITAT, transgression of natural justice principle and ITAT being the final fact-finding authority. To conclude, the authors believe that such the proposition of establishing faceless ITAT is a serious attack against the autonomy of the judicial capacity. Discrepancies in the Proposition of Faceless ITAT a)    Oral Hearing as a Fundamental Canon The legal apparatus over the world are broadly categorized into two types, i.e., Common law system and Civil law system. The Common Law Nations emphasize oral hearings and evidence and rely on cross-examination of witnesses, whereas, the Civil Law Nations emphasize written communication and evidence during the proceedings. As traced from the evolution of the Indian legal society, India has embraced the Common law system from the pre-independence era, which consequently affirms the strong rationale and opinion of the Indian judiciary to prevail the oral hearing and cross-examination over the written procedure. The same is also held by the Supreme Court in the case of Byram Pestonji Gariwala v. Union Bank of India & Ors. Further, the faceless evaluation has an intrinsic issue of one-sided communication and the absence of interaction. It is apposite to say that written communications are made with a few presumptions that the receiver would comprehend what is tried to be told by the sender, as everybody evaluates his response based on his own grasp. This may create huge misunderstandings merely because of the inability to effectively explain a point of fact, whereas, in the case of oral hearings, it can be clarified through open discussions and thereby, consuming lesser time. Numerous landmark judicial pronouncements have upheld the significant value of oral hearing as a fundamental standard in our Indian legal system. In Naresh Shridhar Mirajkar & Ors. v. State of Maharashtra, the Constitution bench of nine judges of the Supreme Court has well-settled that “all the cases brought before the courts, whether civil, criminal, or others, must be heard in open court. A public trial in open court is undoubtedly essential for the healthy and fair administration of justice and also serves as a powerful instrument for creating confidence of the public in the fairness of Indian judiciary”. The bench further held that “public confidence in the administration of justice is of such great significance that there can be no two opinions on the broad proposition that in discharging their functions as judicial tribunals, courts must generally hear causes in open and must permit the public admission to the court-room”. The Apex court has also relied on the same rationale while passing the judgment in the matter of Pradyuman Bisht v. Union of India & Ors., wherein the court peculiarly directed the learned Additional Solicitor General to take up the matter pertaining to the installation of closed-circuit television (CCTV) cameras in the tribunals such as ITAT, where the open hearing takes place in the same manner as it happens in courts because the Tribunals stand tantamount to courts as far as the object of installing CCTV cameras is concerned. Moreover, in the P. N. Eswara Iyer v. The Registrar, Supreme Court of India, the observations of the Supreme court are a jewel in the crown. The court strongly affirmed that oral hearing is a judicial process in the Indian legal system that is actively functional when there is the presence of viva-voce and it weakens if presented in written or printed form. Therefore, the orality in proceedings cannot be offered a permanent holiday. Notably, Rule 29 of the Income Tax Appellate Tribunal Rules, 2017, clearly denotes that the suits before the tribunal shall be heard in open court and it’s on the discretion of the Tribunal to decide that the proceedings in the exceptional situation will not be heard in an open tribunal. However, by the introduction of faceless ITAT, what was earlier the exception will now be the rule. However, the proposed initiation of the national faceless ITAT has completely deviated from the well-established concept of the oral hearing in the Indian judiciary which will be rendered as a departure from the Common law tradition of the Indian legal system. b)    Contravention of Natural Justice Principle One of the most celebrated principles of natural justice is audi alteram partem i.e. no one will be judged without ‘fair hearing’. It has two facets: firstly, an opportunity to make a representation must be given,

[By Samridhi] The author is a student at Law Centre-1, Faculty of Law, University of Delhi. The Union Budget 2021-22 has brought with itself a further increase in the safe harbour limit provided to the real estate in instances where a sale is affected under the value which, as per Section 43CA and Section 50C, is ‘adopted, assessed or assessable by any authority of a State Government’ in order to pay the assigned stamp duty on the sale. Such a value ‘adopted, assessed or assessable’ is also known as circle rate or guideline rate. This is the Government’s third attempt to boost the real estate sector. The first such increase in the safe harbour was enacted by Finance Act 2018 by providing a safe limit of 5% through the amendments of Section 43CA and Section 50C. Finance Act 2020 increased it to 10% and the Finance Act 2021 has increased it further to 20%. Though the real estate sector is joyous at this gift from the Central Government but the celebration remains short-lived as the abovementioned safe harbour limit will only last until June 2021. The Government’s explanation behind bringing forth such increases is to provide an incentive to the middle class to invest in the real estate sector, hence, the cap of Rs. 2 crores have been imposed. But in such circumstances, it remains pertinent to analyse whether such amendments will truly bring forth the change expected in the short span of time or will it remain an empty promise. Background Section 43CA was brought forth by Finance Act, 2013, in effect since April 1, 2014. It provided that if an immovable property is sold below the circle rate for the purposes of stamp duty valuation, then the sale will be considered to be at the circle rate for computation of income under ‘Profits and gains of business or profession’. On the other hand, Section 50C was enacted through Finance Act, 2002, and in effect since April 1, 2003. This section provides a legal fiction whereby if an immovable property is sold below the circle rate then for the purposes of stamp duty valuation, the circle rate will be deemed to be the value of the sale. Both the sections were enacted by the government with an agenda of curbing the involvement of black money in the real estate sector, which continued to be in circulation through practices such as undervaluation of property and to seek an increase in revenue collection from the real estate sector. Given the volatile and diverse nature of the real estate sector, the State Governments were given the liberty to decide on the valuation of the property for the purposes of arriving at the circle rate, which is the minimum rate at which the property must be sold in a given area. This liberty has been exploited by the State Governments to invent their own formulas through Valuation Officer for deciding the circle rate and the ‘fair market value’, which remains the current market value for a property. This practice provided a huge disparity between the ‘fair market value’, decided by a Valuation Officer to be the actual market rate, and the ‘assessed value’. In some areas, the circle rate far exceeded the actual market rate while in some areas the circle rate remained far below the actual market rate. Though the liberty given to the State Governments was done in an attempt to accommodate the volatility of the real estate sector but the practice of reviewing such rates at a period of 3 to 5 years has led to the stagnancy of the real estate sector. Thus, in an attempt to energize the sector that the government initiated the reform in 2018 by providing a ‘safe harbour limit’. The limit denotes the breathing space to the sector as it provides them the much-needed elbow space to negotiate with the buyers. Analysis But the sections remain riddled with several other ailments which have led to an increase in litigation and undue hardships. A sale of immovable property involves a factual matrix that remains unique to each and every case. This uniqueness finds no accommodation in the provisions. It is a usual circumstance in our country where for the purposes of marriage or to relieve the debt on a family, the property is sold at any rate available to the seller. This provides the seller with a double whammy, as not only he is forced to sell the property at a lower price but, as per Section 43CA, he also bears the burden of being taxed for the differential sum between the circle rate and the transaction amount that he never earned. While Section 56(2)(x), which was enacted through Finance Act 2017, provides the same burden on the buyer, where the tax is levied on the notional value when the immovable property is acquired on a price below the fair market value price. The rigidity of the sections was noted by the Delhi High Court in CTA Apparels Pvt. Ltd. v. Govt. of NCT of Delhi Collector of Stamps, where the High Court stated that the circle rate is only a guidance and not the sole factor for determining the value of the property. Moreover, the circulation of black money in the real estate sector has not been curbed by these reforms/ This is due to the huge disparity in the market rate and the circle rate. For instance in the case of Delhi, the rates in areas such as Panchsheel Park, Vasant Vihar, et al remain below the circle rate and in other areas the rates remain far above the circle rate. The State governments such as Delhi & Maharashtra are beginning to take steps to help provide some leeway to the real estate sector by bringing in much-needed reforms through reduction of the circle rate or reduction in stamp duty value. This disparity in the prices in the same State only provides further evidence to the fact that the reforms have been

[By Samridhi] The author is a student at Law Centre-1, Faculty of Law, University of Delhi. Status Quo On 24 November 2020, the Allahabad High Court delivered a judgment on an issue involving the revocation of the registration certificate by the Assistant Commissioner because the assessee had failed to file the returns for a period of six months. The Court while ruling in favour of the assessee noted that the administration of quasi-judicial functions by the people ‘who do not have a legally trained mind’ had led to discharging of the functions in an arbitrary manner. The Court found that the Commissioner’s failure to verify the assessee’s claims that the returns were filed and the Appellate Authority’s admission that the averments made by the assessee could not be verified at the appeal stage was ‘manifestly arbitrary’ and ‘militates against the whole purpose of a statutory appeal’. The Court granted the assessee a cost of Rs. 10, 000 to compensate for the unnecessary harassment and wastage of financial resources. These observations merit serious consideration in the backdrop of the Government’s increasing inclination to expand the powers of quasi-judicial authorities and the Executive. This has led to an increase in the litigation at the doors of High Courts due to arbitrary orders being passed by such authorities which remain incongruent with established legal principles. This is evident through several High Court judgments where the lack of application of legal mind leads to a frequent overturning of the orders issued. A recent example can be noted through the Kerala High Court’s judgment in the matter involving the validity of the proceedings initiated under Section 130 of the Central Goods and Services Act, 2017 (“CGST Act”). The Court discovered that the notice issued by the Income Tax Department (“Department”) against Veer Pratab Singh did not show anything which could have suggested an intention to evade taxes. Despite the lacunae in the notice, the authorities rejected Mr. Singh’s contentions and confiscated the goods. The High Court found that the proceedings initiated by the Department were legally unsustainable as there was no evidence through Mr. Singh’s act or omission that could provide grounds for establishing an intention to evade taxes. This highlights the dismal failure of the Department’s proceedings and rulings. Deloitte had calculated that the Department is successful in only 11.5% of appeals, while the global average is at 65%. The resultant chaos in implementation of taxation statutes has made the assessees vulnerable to such arbitrary actions initiated by the Department under the boundless power which operates outside the purview of the Legislature. The vulnerability is demonstrated from the increasing arrests of the assessees under the CGST Act where the ambit of Section 69, which grants the power to arrest, has been exploited by the Commissioners to establish ‘reasons to believe’. It was reflected in the judgment pronounced by the Bombay High Court that a mere paraphrasing of the requirements of Section 41 of the Code of Criminal Procedure, which provides for the situations when such power to arrest may be exercised, will not be sufficient to form ‘reasons to believe’ and effectuate an arrest. While the lackadaisical approach towards constituting the GST Tribunal has robbed the assesses of an opportunity to avail a judicial mind on the validity of the orders. It compels the aggrieved assessee to go to the High Court which continues to suffer from a logjam thereby leading to prolonged pendency, to challenge the orders. Need for Review of the Executive Powers It is contended that the economic offenses are distinct in nature and a separate mechanism needs to be developed for their regulation. Moreover, the delegated functions to the Executive are necessary for a nation where legislative proceedings are repeatedly disrupted. Moreover, there is an urgent need to boost economic growth and attract investments to facilitate post-lockdown recovery and implementation of government schemes and initiatives. It is a well-established fact that the collection of taxes in the government’s coffers reflect economic prosperity. This prosperity can be achieved by providing certainty with respect to taxation provisions in order to attract investment and instill confidence in the minds of the assessees to pursue economic growth and profits without fear of harassment. The same has been reiterated by the Supreme Court through Justice Chandrachud where he stated that, “There is a significant value which must attach to observing the requirement of consistency and certainty. Individual affairs are conducted and business decisions are made with the expectation of consistency, uniformity, and certainty. To detract from those principles is neither expedient nor desirable.” But the Executive has been known to detract to principles which have been found to be undesirable, and such principles have found the assent of the appellate authorities in several instances where a wrong interpretation leads to a decision either in favour of the Department or a dismissal. In either circumstance, the assessee has to go to the High Court. A recent example can be found in the Allahabad High Court’s judgment which pronounced that a bare reading of Sections 73 and 74 of the CGST Act provides that a show-cause notice is mandatory to be served before determining the leviable tax on ‘deemed supply’ and the orders and arbitrary penalty amount were set aside. Besides, the disruption of legislative proceedings or the distinction of economic offenses cannot provide a ground for the Legislature to abdicate its responsibility of being diligent in executing its legislative functions and employ ambiguous and equivocal terms to provide a wide ambit of powers to the Executive to implement unclear legislative intentions. The interpretation of such statutory provisions only leads to a surge in the judicial burden as it increases the number of cases filed to seek clarification and resolution of disputes with respect to incorrect assessment. Moreover, tax certainty cannot be provided by ousting the inclusion of law members at the frontline through the establishment of the Board for Advance Ruling (‘Board’) in place of the Authority of Advance Ruling (‘Authority’). This initiative by the