Appeals against tax penalties: Commissioner Appeals has jurisdiction, rules High Court

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Case Name:

Director of Income Tax vs Ravi Vijay & Anr. (High Court of Rajasthan)

S.B. Civil Writ Petition No.11458/2011

Date: 9th July 2012

Key Takeaways:

1. Appeals against penalties under Section 271FA of the Income Tax Act are maintainable before the Commissioner Appeals.

2. The court emphasized the importance of literal interpretation of statutes when the language is clear.

3. The status of the appellate authority relative to the authority passing the order is not relevant in determining appeal jurisdiction.

Issue:

Is an appeal against a penalty order passed under Section 271FA of the Income Tax Act, 1961 maintainable before the Commissioner Appeals?

Facts: 

The Director of Income Tax, who's basically at the same level as a Commissioner, imposed a penalty on some taxpayers under Section 271FA of the Income Tax Act. The taxpayers weren't happy about this, so they tried to appeal to the Commissioner Appeals. 

Now, the Commissioner Appeals initially said, "Nope, I can't hear this appeal." But then, when the case went to the Income Tax Appellate Tribunal (ITAT), they disagreed. The ITAT said, "Actually, the Commissioner Appeals can and should hear this appeal." This back-and-forth is what led to this case in the High Court.

Arguments:

The petitioners (that's the tax department) argued:

1. "Hey, it doesn't make sense for an appeal to go from one Commissioner-level officer to another. Usually, appeals go to higher authorities, right?"

2. They suggested that maybe the appeal should go to the ITAT instead, or perhaps there shouldn't be an appeal at all.

The respondents (the taxpayers) countered:

1. "Look, the law is pretty clear. Section 246A(1)(q) of the Income Tax Act says all penalties under Chapter XXI can be appealed to the Commissioner Appeals."

2. They pointed out that just because the ITAT hears some appeals doesn't mean it should hear all of them.

Key Legal Precedents:

The judgment mentions a previous case, State of Rajasthan Vs. the Deputy Commissioner of Income Tax (SB Civil Writ Petition No. 5399/2011), where the court had said there was an alternative legal remedy (i.e., an appeal) available for challenging orders under Section 271FA.

Judgement:

The High Court sided with the respondents. They said:

1. Yep, Section 246A(1)(q) is crystal clear. If it's a penalty under Chapter XXI (which 271FA is), it goes to the Commissioner Appeals.

2. Just because some other penalties go to the ITAT doesn't mean this one should too.

3. The court emphasized that when the law is clear, we shouldn't try to interpret it in complicated ways that go against what it plainly says.

So, in short, the court dismissed the tax department's petitions and said, "The Commissioner Appeals can and should hear these appeals."

FAQs:

1. Q: Does this mean all penalty orders can be appealed to the Commissioner Appeals?

  A: Not necessarily. Only those under Chapter XXI of the Income Tax Act, unless there's a specific provision saying otherwise.

2. Q: Why didn't the court agree to send these appeals to the ITAT?

  A: Because the law specifically mentions the Commissioner Appeals for these types of penalties. The court felt it shouldn't change what the law clearly states.

3. Q: Does the rank of the officer passing the order matter for determining where the appeal goes?

  A: According to this judgment, not really. What matters is what the law specifically says about where the appeal should go.

4. Q: Could this decision be appealed further?

  A: Potentially, yes. The losing party could try to appeal to a higher court if they believe there's a significant legal question at stake.

5. Q: How does this affect taxpayers?

  A: It clarifies the appeal process for penalties under Section 271FA, ensuring taxpayers know they can appeal to the Commissioner Appeals if needed.

The above two petitions have a common legal issue for determination without any determinative variation on facts and hence are being disposed of by a common order.

These petitions have been filed against the orders of Income Tax Appellate Tribunal (ITAT) holding that an appeal against an order of penalty imposed under Section 271 FA falling under Chapter 21 of Income Tax Act, 1961 (herein after the `1961 Act') was maintainable before the Commissioner Appeals with reference to 246A (1) (q) of the 1961 Act. The Tribunal so holding has set aside the order of Commissioner Appeals-III Jaipur finding to the contrary and remanded the matter to Commissioner Appeals to be heard on merits.

Learned counsel for the petitioners submits the order of the ITAT is liable to be set aside on the ground that the Tribunal erred in holding that an appeal against an order passed under Section 271 FA falling under Chapter XXI of the 1961 Act was maintainable before the Commissioner Appeals. It is submitted that the order of penalty under Section 271 FA is an order passed by the Director Income Tax, who is equivalent to Commissioner Income Tax with reference to Section 116 (c) of the 1961 Act and that as generally an appeal provides for rectification of orders passed by lower authorities by their higher authority, no statutory appeal from an order of Director Income Tax (a person equivalent to a Commissioner of Income Tax) to Commissioner of Income Tax holding an equivalent rank under the 1961 Act is conceivable. He submits that an appeal against an order of Director Income Tax (Commissioner) passed under Section 271 FA before an equivalent officer i.e. Commissioner Appeals is impliedly not visualised under Section 246A (1) (q) of the 1961 Act and a literal reading of the provision would be an erroneous interpretation. A reference to Section 253 of the 1961 Act has been made and it is submitted that Section 253 (1) (c) of the 1961 Act provides for an appeal to ITAT— a higher authority—against the orders passed under Section 271 and 272A of the 1961 Act, as the said orders are passed by the officers of the rank of Commissioner Income Tax. Counsel submits that in this view of this matter, this court ought to, resorting to the rule of “reading down”, hold that Section 246A (1) (q) of the 1961 Act does not provide for an appeal to Commissioner Appeals against an order of penalty passed by Director Income Tax (Commissioner rank) under Section 271 FA of the 1961 Act and the appeal is liable to be heard by the ITAT—a superior authority. Counsel further oddly and contrary to his earlier submissions submits that even otherwise this court has entertained writ petitions directly against orders under Section 271 FA of the 1961 Act, from which an inference ought to be drawn that no appeal at all is available under the 1961 Act from an order of penalty passed under Section 271 FA of the 1961 Act.

Per contra, counsel for respondents would submit that appeals are creatures of statute and are to be availed only as provided. It is submitted that the appellate authority under a statute has to be determined by a plain and literal reading of the statute and the status of the appellate authority qua the authority which has passed the order is not germane. Counsel has submitted that the Revenue Appellate Authority under the Rajasthan Tenancy Act is an officer belonging to the Rajasthan Administrative Services while it hears appeals from orders passed by Sub Divisional Officers who are members of the Indian Administrative Services—a higher services. The submission is that in the instant case the Commissioner Appeals is not even subordinate to the Director Income Tax (Commissioner) in the pecking order and hence the submissions of the petitioner's counsel in this case are a non sequitur. It is submitted that in the case at hand a reference be had to the plain language of Section 246A clause (q) of the 1961 Act which provides that all orders of penalty falling under Chapter XXI are appealable to Commissioner Appeals. It is submitted that an order of penalty under Section 271 FA is an order under Chapter XXI of the 1961 Act and consequently appealable to the jurisdictional Commissioner Appeals. It is submitted that a literal reading of the Statute should be not abandoned for a stretched interpretative exercise entailing a result contrary to the plain language used by the law makers. It is submitted that as long as the statute i.e. Section 246A (1) (q) is not challenged and set aside—its inexorable effect would be entertaining and hearing of appeals against order of penalty under Section 271FA by the Commissioner Appeals. Counsel submits that a reference to Section 253 (1) (c) of the 1961 Act by the petitioner's counsel is for the present case misdirected as the said provision provides for appeals against orders passed under Section 271 and 272A of the 1961 Act and not against the orders passed under Section 271 FA of the Income tax Act. Counsel submits that the orders passed under Section 271 and 272A of the 1961 Act even while falling under Chapter 21 would not be appealable under Section 246A (1) (q) of the 1961 Act for the reason of a specific provision for appeal in respect thereof having been made to the exclusion of the otherwise general provision under Section 246A (1) (q) of the 1961 Act. It is submitted that in the absence of specific provision for appeal under Section 253 of the 1961 Act—as in the case of orders of penalty under Section 271 and 272A, an appeal against orders of penalty under Chapter XXI would be governed by other relevant provision which in the instant case is 246A (1) (q) of the 1961 Act. It is submitted that merely because writ petitions has been entertained directly against orders under Section 271 FA of the 1961 by this court, it is not a ratio determined by this court that appeals against orders passed under Section 271 FA of the 1961 Act are not maintainable. Counsel submits that entertaining of writs even while an alternative statutory remedy is available is a matter of discretion of this court in a given case and nothing turns on it to read a universal rule therein. Counsel submits that in any event the aforesaid argument is bad for contrariety in a much while on the one hand it is contended that an order of penalty under Section 271FA of the 1961 Act is appealable not under Section 246A (1) (q) to the Commissioner Appeals but under Section 253 of the 1961 Act before the ITAT, on the other it is contended that no appeal is at all provided for and hence only writs are maintainable. Reference has been made to the judgment of this court in State of Rajasthan Vs. the Deputy Commissioner of Income Tax, (SB Civil Writ Petition No.5399/2011) decided on 13-7-2011, wherein this court in the context of a challenge to an order passed under Section 271 FA of the 1961 Act has held that the petitioner therein had efficacious alternative legal remedy to challenge the said order under the statute i.e. by way of appeal and therefore the writ laid before the court was not maintainable.

Heard learned counsel for the parties, and perused the material available on record of writ petition.

The question before this court is whether an order passed under Section 271 FA of the 1961 Act by the Director Income Tax, who holds the rank of a Commissioner in the Income Tax Department is appealable under Section 246A (1) (q) of the 1961 Act to the Commissioner Appeals. Section 246A (1) (q) of the 1961 Act provides for appeals before the Commissioner Appeals against an order of penalty passed under Chapter 21 of the 1961 Act. Section 271 FA admittedly falls within Chapter 21 of the 1961 Act. To my mind therefore on a plain reading of the said provision an appeal against an order passed by an officer of the rank of Commissioner Income Tax under Section 271 FA of the 1961 Act is maintainable before the Commissioner Appeals. From a mere reading of the provision for filing appeals against orders passed under Section 271 and 272A (also under Chapter XXI) of the 1961 Act before the ITAT, this court cannot on analogy hold that because the said orders passed by an officer of the rank of Commissioner of Income Tax are appealable before the ITAT under Section 253 of the 1961 Act, an order under Section 271 FA of the 1961 Act also passed by an officer of the rank of Commissioner Income Tax should also be appealable before the ITAT. In my considered view even though orders of penalty under Section 271 and 272A of the 1961 Act fall under Chapter XXI, appeals therefrom stand excluded before the Commissioner Appeals under the general provisions of Section 246A (1) (q) by virtue of a specific provision under Section 253 (1) (c) of the 1961 Act. Consequently, in my view an order under Section 271 FA (Chapter XXI) of the 1961 is plainly appealable under Section 246A (1) (q) of the 1961 Act and no amount of interpretative exercise can displace law as enacted. Further it is an admitted fact that in the course of the demand notice under Section 156 of the 1961 Act following the order of penalty under Section 271 FA of the 1961 Act, the assessee was informed that the said order was appealable before the jurisdictional Commissioner (Appeals)--in the instant case Commissioner Appeals III Jaipur. For the aforesaid reasons, I find no error in the orders dated 13-5-2011 in appeal No.No.1207/JP/2010 and 4-2-2011 in appeal No.No.1195/JP/2010 passed by the ITAT. The above two writ petitions are consequently dismissed. Stay applications also stands dismissed.

(Alok Sharma),J.