ITAT Faces Disruptions After Amendments by Finance Acts and Tribunal Reforms

Praveen Kumar Bansal – [2025] 178 taxmann.com 742 (Article)

I. Introduction:

The Income Tax Appellate Tribunal (“ITAT”) was constituted on 25.01.1941 by virtue of section 5A of the Income Tax Act, 1922. The intention behind establishing the ITAT was to deliver impartial, easy and speedy justice. Hence, ‘Nishpaksh Sulabh Satvar Nyay’ was adopted as the motto of the ITAT. ITAT stands out for its uniqueness of imparting justice to the litigants, by an inexpensive, easily accessible forum free from technicalities, regarded for its expert knowledge on the subject of Direct Taxes, besides rendering expeditious justice. More often than not, ITAT is referred to as ‘Mother Tribunal’ being the oldest Tribunal in the country. More importantly, it is the success of the ITAT, which has prompted the Government of India to constitute similar Appellate Tribunals for indirect taxes i.e. Customs, Excise, Service Tax Appellate Tribunal (CESTAT), Central Administrative Tribunal (CAT), Railway Claims Tribunal, Foreign Exchange Appellate Board, National Green Tribunal (NGT), Competition Appellate Tribunal (COMPAT), Securities Appellate Tribunal etc. The present article is focused on discussing some of the practical aspects, which comes across before the ITAT and the suggested reforms therein.

II. Practical issues and the suggested reforms therein:

Difficulties:

1. New rules of appointment of members not effective: The appeal before the ITAT is being filed either by the assessee or by department. The ITAT consist of 63 benches in 30 cities which hear the appeal. Wherever matter is being heard by the Division Bench it consists of two members i.e. one judicial member and other accountant member. Earlier the ITAT is regarded to be temple of justice with regards to matters pertaining to Direct Taxes. This was so because the persons being appointed as members were of exceptional quality and conduct. Earlier for becoming a member in ITAT the minimum age was 35 years and retirement age was 62 years. Hence it was a regular service. However, things changed from the passing of the Finance Act, 2017. There were multiple rounds of litigation and multiple legislations were passed between 2017 and 2021. However, not dwelling on the history of the litigations as that is not the subject of this article, it is pertinent to note the latest enactment being the Tribunal Reform Act, 2021. By enacting the Tribunal Reforms Act, 2021 and framing the rules there under, the minimum age of becoming a member has been prescribed to be 50 years and appointment is being made for a fixed term of 4 years with a provision of reappointment. The reappointment also is not an automatic process, rather the member applying for such reappointment will have to sit for the entire selection process just like he/she did at the time of joining the ITAT for the first time. What is noteworthy is that 16(2) of the rules made under this act debars such members to practice before Tribunal after retirement from the service of that Tribunal.

2. There have been material changes in the constitution of the search-cum-selection committee which recommends names of the persons to be appointed as members of the ITAT. The most glaring error in the constitution of such search cum selection committee is that the Revenue Secretary is a part of such Search cum selection committee. This is in gross violation of the basic structure of the Constitution of India as it casts a cloud of doubt on the independence of the members being appointed to the ITAT. The rationale behind such a doubt is that the Revenue Department under the Ministry of Finance, Government of India is a party to the all the cases being decided by the ITAT. This would, even if it does not lead to bias, become a cause of concern among the private litigants i.e. Tax Payers. It is a Cardinal Principle of Justice that not only justice be delivered, but the process of delivering justice must be fair and transparent to the Public’s perception. The inclusion of Revenue Secretary in the Search cum Selection Committee will become a major cause for the loss of public faith in the ITAT. Recently, these fears have come true also as it is seen that retired Chief Commissioner/Board Members are being appointed as accountant members. Generally the persons being appointed from the Income Tax Department after retirement carry an inherent bias towards the tax payers as during the entire term of their service in the Revenue department, they are taught that they have to maximize revenue collection. Such conditioning which is hard-wired into such persons is in fact detrimental to the institution of the ITAT. Members from the Revenue department except a few have very little or no experience of judicial work and are not conversant in writing the orders. No doubt that they may have done judicial work while discharging the duty as CIT(A), however they join the ITAT close to retirement as it is a tenure posting now of four years and not a regular posting and by that time almost10-15 years have elapsed from the time they were discharging quasi-judicial function as a CIT (A). Upon attaining seniority, these officer of Revenue department discharge administrative duties and do not remain in touch with essentials of judicial functioning such as writing judicial orders. It is a well known fact and even Hon’ble Supreme Court has appreciated the fact that Income Tax is a complex and complicated subject. The members being appointed for a term of 4 years struggle with the subject as many of them do not have the required expertise required in such a brief period of service. Hence the term of 4 years is acting detrimental to the health of the ITAT.

2.1 In other words, the ITAT should not become a ground for re-employment of the retired persons, as this adversely impacts the employment opportunity of young persons who are having experience and expertise in Income Tax practice. One more aspect needs to be considered is that when the appointment is made for a short period, there is no judicial discipline as the appointment is only for four years. Even the judicial precedents are ignored.

2.2 Further, one of the issues is that it takes a very long period for the Governement to appoint the members from the recommendations made by Search cum Selection committee. The same is evidenced from the fact that the vacancies for which advertisement was issued in the month of October,2022 were filled only in the month of March,2024, and the vacancies which were advertised in the Month of April, 2024 have not been filled up till date. The appointment of members for a term of 4 years will lead to recurring vacancies and the lackadaisical approach of the government will ensure that such vacancies remain pending and the functioning of the ITAT comes to a halt. There will come a situation when a chunk of members appointed for a term of 4 years would demit office and a massive shortage of members would arise and cause a crippling effect on the functioning of the ITAT.

2.3 It is also stated that the Hon’ble Judges of the Supreme Court will have to be troubled every 4 years for formation of the Search cum Selection committee to recommend names of persons for appointment as a member of the ITAT. The process of the Search cum Selection committee is also tedious one as they screen multiple applications by taking out their valuable time which could otherwise be utitlized for dispensing Justice. The term of 4 years will lead to onver burdening the Hon’ble Supreme court and the Secretaries of concerned Departments who are a part of the Search cum Selection Committee as they will constantly remain occupied with the process of recommending names for filling up recurring vacancies.

3. Power of restoring the matter should be curtailed and only be resorted in exceptional circumstances: A recent phenomenon is that the Members are regularly remanding the matters after setting aside the order of the authorities below. This is predominantly the issue with the Members appointed for a tenure of 4 years as they are not interested in deciding the matters and find remanding the matter as an easy way out unless some body pursue them. Restoring or setting aside and remanding the appeal places the assessee as well as the department at a time disadvantage, as the issues are again heard from where the proceedings initially started. This leads to unnecessary delay in litigation and causes revenue loss to the Department as well as it causes increased litigation cost and harassment to the assesses. What further saddens to see is that the President of the ITAT coming from outside turned a blind eye to this issue and is not guiding the members in the manner it is required? It is unsaid duty of the President ITAT to ensure that Members do not resort to such conduct which is detrimental to the institution. The President ITAT has the power to transfer Members, which can be used to maximize efficiency of the ITAT, however it is seen that the Members who have one of the lowest disposal rates on merit are enjoying important stations or at the stations of their choice.