[Analysis] Practical Aspects of Income Tax Litigation

  • Blog|Income Tax|
  • 7 Min Read
  • By Taxmann
  • |
  • Last Updated on 28 February, 2024

Income Tax Litigation

By D.C. Patwari – IRS | Former Pr. CCIT & DGIT (Inv.)

Table of Contents

  1. Myths About Tax Litigations
  2. Faceless Assessment Scheme: Purpose
  3. Structure For Faceless Assessments
  4. Procedure of Faceless Assessment
  5. Communication And Electronic Records
  6. Video Hearing in Faceless Assessments
  7. Practical Aspects in Faceless Assessments
  8. Representing Before AO in Search and Survey Cases
  9. Preparation of SOF and Grounds of Appeals
  10. Preparation of Paper Books Before CIT(A) & ITAT
  11. Faceless Appeals and Submissions
  12. Handling Appeal Before Central CIT(A)
  13. Practical Aspects of Arguments Before ITAT
  14. Use of Judicial Decisions

1. Myths About Tax Litigations

  • Long submissions are required at each stage.
  • We should avoid submitting evidences at the Assessing Officer level.
  • Submitting details towards the fag-end helps in avoiding investigations by the taxman.
  • Asking for cross examination of witness during assessment can be counter-productive.
  • Passive and non-cooperative approach is good.
  • If a court decision is in favor on any issue, nothing more is required.

2. Faceless Assessment Scheme: Purpose

  • Eliminate interface between Assessing Officer and Assessee.
  • Optimize utilization of resources through economies of scale and functional specialization.
  • Team-based assessment.
  • Dynamic jurisdiction.

3. Structure For Faceless Assessments

  • A National e-Assessment Centre to facilitate and control e- assessment.
  • Regional assessment Centre under PCCIT for making assessments.
  • Assessment units for identifying issues and determination of income.
  • Verification units for enquiry, cross verification, examination of witness, books etc.
  • Review units for reviewing drafts assessment order.
  • Technical unit to advice on technical, legal, and other matters.
  • All officers are masked and only National Faceless Assessment Centre is known.

4. Procedure of Faceless Assessment

  • Notice u/s 143(2) served by NEAC.
  • Taxpayer get 15 days’ time for filing a response.
  • Following cases are assessed under Faceless scheme where:
    1. Furnishes return u/s 139.
    2. Furnishes return u/s 142(1), 148 .
    3. Fails to furnish return u/s 142(1).
    4. Fails to furnish return u/s 148.
    5. Search, survey and where FT&TR reference was made, not covered.
  • NEAC assign the case selected to specific assessment unit through automated allocation system.
  • Once a case is assigned, assessment unit can request NEAC:
    1. Obtaining further information/evidences from assessee.
    2. Conduct enquiry by verification unit.
    3. Seek technical assistance from Tech unit.
  • On receiving request, NEAC issues notice to assessee calling details/information.
  • Taxpayer can submit response in time.
  • In case taxpayer does not respond in time, NEAC can issue notice u/s 144.
  • In either situation assessment unit will prepare draft assessment order and send it to NEAC.
  • NEAC based on risk criteria can assign draft assessment order to review unit.
  • Review unit can concur or suggest modification. If it has concurred, the order is final but in case of modification it will be assigned to other assessment units through automatic allocation system.
  • After considering the suggestions of review unit, new assessment unit again finalizes the order by providing opportunity to assessee if amendment is done.
  • NEAC deals with another draft assessment order and finalize it.
  • If assessee is eligible for DRP, it can go against such order to DRP.
  • NEAC, after completion of assessment, transfer all electronic records to the Jurisdictional Assessing Officer (JAO).
  • Additional/Joint commissioner of Faceless assessment unit will be involved from the beginning till end.
  • NEAC at any stage can also transfer the records to JAO with the approval of the Board.

5. Communication And Electronic Records

  • All communications between NEAC and taxpayer are to be exclusively in e-mode.
  • All internal communications within tax department to be in e- mode only.
  • Communication to taxpayer delivered by way of:
    1. Placing authenticated copy in taxpayers registered account.
    2. Sending authenticated true copy to registered email of taxpayer and AR.
    3. Uploading authorized copy on the assessee’s mobile app, followed by real time alert to taxpayer.

Taxmann.com | Research | Income Tax

6. Video Hearing in Faceless Assessments

  • Where AO is not satisfied with submissions made and propose addition while making assessment.
  • No personal hearing allowed in faceless assessment scheme.
  • Video hearing, if asked by taxpayer to explain the issue, has to be allowed by AO.
  • Assessee and A R can participate in video hearing to explain or clarify.

7. Practical Aspects in Faceless Assessments

  • Notices to be complied in time.
  • Issue wise response to be given and if details to be submitted, to be given in annexures.
  • Legal submissions also to be given at information gathering stage itself.
  • To respond to show cause notice/ draft order seriously and completely.
  • Video hearing in important matters.
  • Approach in video hearing.

8. Representing Before AO in Search and Survey Cases

  • Involve physical hearings, but notices and submissions are made online.
  • To obtain copy of seized/impounded documents and statements recorded.
  • Assessment proceedings will be mostly based on investigation wing report.
  • General or business-related queries to be replied without any document.
  • Query related to seized documents or statements to be replied giving logical explanation of those.
  • Dumb documents and documents not connected to assessee should be clearly replied to.
  • Query wise reply to be given along with paper books duly indexed and numbered.
  • Where addition is proposed based on statements of witnesses, cross-examination to be asked.
  • Show cause on any issue or final show cause to be replied discussing each aspect on facts and law.
  • Attempt to be made to bring every issue in normal provisions other than 68 to 69 C.
  • All possible evidences to be submitted so that no need for additional evidences later.
  • Reply should be to the point but complete.
  • Only relevant case laws to be relied upon.
  • Where income and application of income are there, telescoping should be asked.
  • Should discharge onus on all matters and if Tax dept. is not discharging its onus, same should be highlighted.

9. Preparation of SOF and Grounds of Appeals

  • Statement of facts should be as exhaustive as possible on each issue.
  • All inconsistencies to be highlighted.
  • Mention some relevant Judicial decisions as well.
  • Grounds of appeal should be precise and to the point.
  • For each addition, there can be one ground or at the most two if alternative relief is sought.
  • Initial one or two grounds can be on illegality of search, natural justice etc.
  • Each ground can have one/two reasons for allowing the same.
  • Grounds for charging interest and penalty initiation too.
  • If cross examination of witness is not allowed, then to specifically take this ground.
  • Residual ground to modify, add, alter, etc.

10. Preparation of Paper Books Before CIT(A) & ITAT

  • Paper book contains the key documents for arguments before CIT(A) & ITAT.
  • It should be separate for documents with the AO and additional evidences.
  • For admission of additional evidences, proper request U/R 46A to be made.
  • Basic documents – audit report, statements recorded, retractions, sample documents etc in the beginning and then specific documents and evidences, ground wise.
  • All relevant documents and evidences must be filed upto CIT(A) as ITAT may not allow additional evidences.
  • Proper index and certificate to be put.
  • Two copies of paper book to be filed before CIT(A) & 3 copies in ITAT.

11. Faceless Appeals and Submissions

  • From 25th September 2020, all appeals have come under faceless scheme except search, survey, international tax appeals and black money appeals.
  • Like assessments, faceless appeals are also jurisdiction-less.
  • National Faceless Appeal Centre assigns appeals to appeal units through automated allocation system.
  • Condonation of delay application also to be disposed off by appeal units.
  • Appeal unit admits appeal and the same is intimated to taxpayer by NFAC.
  • NFAC becomes the point from where all communication to and from taxpayer handled.
  • Admission of additional evidence by appeal unit.
  • If any remand report is required in any appeal, the same is assigned to JAO.
  • If any Additional ground is taken, same is also handled by the appeal unit who decides the admissibility of that or not?
  • CIT-Appeal unit issues draft appeal order u/s 250 to NFAC.
  • Based on quantum and risk parameters Faceless appeal Centre can send it for review.
  • Another appeal unit will review such order which can either concur with it or suggest modification.
  • In case of modification, new appeal unit will do the needful and finalise it.
  • In case of necessity PCCIT, NFAC can transfer faceless appeals to CIT(A) after board’s approval.
  • Video hearing to be taken in important cases/issues.
  • Stay of demand application not provided in faceless appeal scheme, hence, to be handled by JAO.
  • Reply to be crystal clear on each addition made by using the format:
    1. Addition by AO
    2. Facts and evidence
    3. How addition is incorrect on fact and law
    4. Conclusion in bullet points
  • Important arguments to be highlighted.

12. Handling Appeal Before Central CIT(A)

  • Appeals of searches and survey.
  • Most of the additions based on facts and documents seized.
  • Summary of additions to be prepared and chart of income and application as per assessment order.
  • Focus should be to shift on normal income as against deemed income u/s 68 to 69C.
  • Cross examination of witnesses, if not granted by AO, to be asked.
  • All possible evidences and arguments to counter the additions should be filed here.
  • Highlight on evidences to counter the statements recorded.
  • In case of remand proceedings before AO, complete details and explanations to be filed with a copy marked to CIT(A).
  • In case of adverse remand report, counter of all negative remarks should be done with proper conclusion.
  • If not possible to defend the issue, then to take alternative argument of addition of Gross Profit or income earned only.
  • Focus on onus and always discharge onus.
  • If it is difficult to defend the case on merit, then shift focus on technical defect and take additional ground and use relevant decision to plead relief.

13. Practical Aspects of Arguments Before ITAT

  • Highest fact-finding authority hence arguments mainly on facts.
  • Technical grounds to be argued first if supported by Judicial decision.
  • Many decisions are available on nullifying assessment on various technical lapses hence these should be focused.
  • Gist of arguments to be prepared in bullet points on facts and relevant decisions.
  • Paper books to be filed in advance.
  • List of paper book pages and paras relied upon to be given in the gist of submission.
  • In Assessee’s appeal- to lead arguments against order and to counter DR’s comments.
  • In department’s appeal- effectively counter DR’s arguments and defend CIT(A)’s order.
  • Speak relevant, to the point and brief but effectively.
  • If the case is covered by any decision of Tribunal bench, High Court or Supreme Court, copy of that should be brought and given and to read relevant part.
  • Time is the essence so do not waste it in court room.
  • Know the mood of the bench.
  • Be truthful and never lie in bench.
  • Speak clearly and confidently.
  • Be very respectful.
  • Highlight on inconsistencies, lack of natural justice and onus.

14. Use of Judicial Decisions

  • Judicial decisions to be based on facts of the case.
  • On legal issue, prepare analysis of facts of the case and facts in judicial decision and draw parallel.
  • While citing decisions, use relevant ratio and decision by quoting it.
  • In order of preference- SC, Jurisdictional HC, other HC, special bench, same ITAT and other ITAT.
  • If direct decision of Jurisdictional ITAT is available, it should be relied upon for quick relief.
  • Irrelevant decision should not be given.
  • On technical issues, direct judicial decision should be relied first, whereas on factual issues, judicial decisions should come in the end.

Disclaimer: The content/information published on the website is only for general information of the user and shall not be construed as legal advice. While the Taxmann has exercised reasonable efforts to ensure the veracity of information/content published, Taxmann shall be under no liability in any manner whatsoever for incorrect information, if any.

Leave a Reply

Your email address will not be published. Required fields are marked *

Everything on Tax and Corporate Laws of India

To subscribe to our weekly newsletter please log in/register on Taxmann.com

Author: Taxmann

Taxmann Publications has a dedicated in-house Research & Editorial Team. This team consists of a team of Chartered Accountants, Company Secretaries, and Lawyers. This team works under the guidance and supervision of editor-in-chief Mr Rakesh Bhargava.

The Research and Editorial Team is responsible for developing reliable and accurate content for the readers. The team follows the six-sigma approach to achieve the benchmark of zero error in its publications and research platforms. The team ensures that the following publication guidelines are thoroughly followed while developing the content:

  • The statutory material is obtained only from the authorized and reliable sources
  • All the latest developments in the judicial and legislative fields are covered
  • Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
  • Every content published by Taxmann is complete, accurate and lucid
  • All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
  • The golden rules of grammar, style and consistency are thoroughly followed
  • Font and size that's easy to read and remain consistent across all imprint and digital publications are applied