Procedure for preparation of Central Scrutiny Report (CSR)

Procedure for preparation of Central Scrutiny Report (CSR)

Central Scrutiny Report (CSR), as it is called here, is essentially a report on the examination of the appeal orders be it that of the JCIT(A)/CIT(A) or the ITAT or the High Court. Quality of CSR particularly those relating to the orders of JCIT(A)/CIT(A) and that of ITAT are crucial so far as the litigation in High Courts and the Supreme Court are concerned. Assessing Officer has to carefully go through the appellate order being scrutinized to find out that the facts have been correctly noticed and properly appreciated therein. Thereafter the application of law should be seen. If the finding of fact recorded therein is contrary to the materials on record or conclusion drawn is at variance, then such perversity has to be specifically highlighted.

Scrutiny of the JCIT(A) or CIT(A)’s order is important

§   The scrutiny of the JCIT(A) or CIT(A)’s order is important in so much as it is the first stage that marks the beginning of the litigation.

§   At this stage new facts are also introduced and by and large the contours of future litigation take shape.

§   The scrutiny of his order has to be carefully carried out. Only when there is adequate reason(s) to contest the decision, the appeal should be authorized.

§   Has JCIT(A) or CIT(A) admitted additional evidence without giving opportunity to A.O.

§   Averments (affirmation) of fact of the assessee which have been accepted by JCIT(A) or CIT(A), to be checked for factual inaccuracies.

§   Factual inaccuracies in recording of facts by JCIT(A) or CIT(A).

§   Have the correct provisions of law been applied by JCIT(A) or CIT(A)?

§   Are case laws relied by JCIT(A) or CIT(A) relevant? Distinguishable on facts?

§   All issues to be challenged in appeal including general observations which would adversely affect Revenue’s case.

§   Also general prayer to amend, alter, etc. grounds later

Responsibility for Filing of Appeals to ITAT

§  Subject to the Instructions issued by the CBDT for the time being in force on monetary limits for filing appeals under section 268A, the jurisdictional Pr. CIT/CIT shall be the authority to decide whether to contest an order of the JCIT(A)/CIT(A), in the light of the facts and circumstances of a particular case and the statutory provisions.

§  While taking decision in the matter, he shall, inter alia, take into consideration reports of the authorities below.

§  Every appeal should be filed within 60 days of the receipt of JCIT(A)/CIT(A) order.

§  Once the Pr. CIT/CIT communicates his decision to contest a particular order of CIT(A), it shall be the responsibility of the Range Head to ensure timely and proper filing of appeal in the ITAT and consequential follow up actions.

§  The actual filing of appeal is to be ensured by the Assessing Officer (AO).

Responsibility for Filing of Appeals to High Court [SOP on filing of Appeals to High Court]

[CBDT Instruction No. 7/2011, Dated 24.05.2011]

§   Jurisdictional CCIT to decide whether to file appeal in High Court

§   Jurisdictional Pr. CIT/CIT to ensure timely and proper filing of appeal

§   Appeal should be filed within 120 days of the receipt of ITAT order

§   Appeal to be filed only on Substantial Question of Law

Content of Central Scrutiny Report (CSR)

The CSR should broadly conform to following parameters.

§   The issue involved should be concisely stated as is recorded in the assessment order.

§   If any additional evidences have been relied upon to decide the issue adversely, without affording the AO an opportunity to examine the same, it should be so stated. If the AO was provided an opportunity then there can be no grievance on this count.

§   If a finding of fact has been recorded, which is contrary to the evidences on record, then such perversity should be clearly demonstrated in the scrutiny report.

§   The ratio of judicial precedents relied upon by the appellate authority is appropriate i.e. factual matrix of cases relied upon and that of the case at hand are identical.

§   If a particular issue is recurring from earlier years, then the latest status must be ascertained. If finality has been reached on that issue in the meanwhile, then further appeal should not be recommended.

§   Most importantly, non-acceptance of the appellate decision on any point must be backed up by valid reasons.

AO should suggest the proposed grounds of appeal

If there are several observations in respect of an issue which are adverse but not acceptable, these should be separately challenged under sub paragraph of the main ground.

Usually the grounds of appeal are drafted by the ITO(Judicial) in the o/o CIT in a mechanical manner If AO suggests the proposed grounds of appeal, the CIT would have better input to draft/approve the grounds of appeal.

Grounds of Appeal

§  Should be brief and specific

§  Should not be argumentative

§  Should avoid repetition

§  Should not contain intemperate language

§  Should not refer to case laws unless binding decisions

§  In fact, apart from the quality of assessments framed by an officer, the comments on CSRs and on audit objections indicate his/her technical competence in real sense.

 Officers concerned to clearly spell out the following issues in CSR

JCIT(A) or CIT(A)’s Orders

While giving comments / recommendations or taking decision to contest JCIT(A) or CIT(A)’s order, the officers concerned shall, inter alia, ensure that the following issues have been taken into consideration:

(a)   Facts of the case and basis of addition / disallowance are clearly brought out.

(b)   Reasons for granting relief by the JCIT(A) or CIT(A)on the relevant issues are clearly spelt out.

(c)   The reasons as to why the JCIT(A) or CIT(A)was not justified in recording the findings of fact or law on each issue are clearly brought out. Evasive stand or ambiguous language is to be avoided.

(d)   If any factual finding by JCIT(A) or CIT(A)is inconsistent with or contrary to the material on record, the relevant material should be clearly identified to show perversity.

(e)   Cogent reasons for the decision to file appeal on relevant issues are properly and clearly recorded by the Pr. CIT/CIT, as this will constitute the basis for further litigation in appropriate cases.

(f)   The grounds of appeal arising out of the order of JCIT(A) or CIT(A)are carefully drafted to clearly spell out the grievance of the department and the relief sought.

(g)   In case of mixed question of facts and law, the grounds of appeal should clearly bring out specific legal and factual issues to be contested.

(h)   The grounds are precise and not argumentative.

(i)    JCIT(A) or CIT(A) order not acceptable on merits but appeal not filed due to tax effect below the prescribed monetary limit.

ITAT’s Orders

§  Has the ITAT adjudicated on all grounds raised in the appeal? Has it travelled beyond the grounds raised in appeal?

§  Is the finding of fact given by ITAT correct or contrary to facts on record?

§  Has the ITAT considered all relevant and material facts and evidences?

§  Is the conclusion drawn by ITAT such that a reasonable person would reach?

§  Has the ITAT made some observations which would adversely affect the case of Revenue if left unchallenged?

§  Have the correct provisions of law been applied by ITAT?

§  Are case laws relied by ITAT relevant?

§  Distinguishable on facts? Any Special Bench / jurisdictional High Court/ Supreme Court decision ignored?

§  Is application for rectification required?

§  Can the ITAT order be challenged on the grounds of perversity ?

§  If yes, a specific question on perversity to be raised before High Court.

§  Questions of law to be correctly drafted

§  All issues to be challenged including general observations which would adversely affect Revenue’s case.

High Court

§  All the above points to be seen.

§  Has the High Court adjudicated on all questions of law raised in the appeal?

§  Has it travelled beyond the questions raised in appeal?

§  Are case laws relied by High Court relevant? Distinguishable on facts? Any Full Bench High Court/ Supreme Court decision ignored?

§  Is a review required? If yes, it has to be filed within 30 days of the date of order.

§  SLP not to be recommended lightly.

§  First frame the substantial question of law which arises from High Court’s order. This helps achieve clarity.

Role of the Range Head

§  There is a perception amongst the Addl./Joint CIT that they have a role of post office.

§  The CSR received from the AO is merely forwarded by way of endorsement to the CIT with contributing even one sentence in a large number of cases.

§  This is not at all a responsible attitude on the part of the middle management officers.

§  The Range head is expected to critically examine the CSR with reference to its factual and legal content.

§  A real and meaningful assistance to the Pr. CIT/CIT has to come from this level by way of citation of judicial precedents relevant to the issue under consideration.

Appeal Effect and Scrutiny Report

§  On receipt of the order of the JCIT(A) or CIT(A), the AO shall give appeal effect promptly and properly. The Range Head shall monitor correctness and timely appeal effect in respect of orders of JCIT(A) or CIT(A).

§  Any pendency in regard to the appeal effect beyond one month shall be reported by the Range Head to the Pr. CIT/CIT in the DO reporting monthly activities of the Range, along with reasons for the delay.

No Central Scrutiny Reports are required to be sent

§  All appeals dismissed by ITAT or High Court due to tax effect being below monetary limit prescribed, even though the order of the ITAT or High Court is not acceptable.

§  All appeals decided in favour of the revenue and against the assessee.

Check List - Quality Scrutiny Reports, Streamlining Litigation

CIT(A) Stage

§  Furnishing of Form No. ITNS 51, duly filled by Assessing Officer (A.O.) to CIT(A)

§  Personal representation by the A.O. before CIT(A) in important cases

§  Timely submission of Remand Report by A.O. duly approved by the Range head to CIT(A)

ITAT stage

§  Preparation of paper book by A.O.

§  Furnishing of brief by A.O. to the Sr. D.R.

§  Filing of cross objections, wherever required

Appeal not to be filed by the department in certain cases

§  The Central Board of Direct Taxes (CBDT) vide a Circular No. 17/2019, dated 08.08.2019 has prescribed the monetary limits for filing of appeal by the income-tax department before the Income-tax Appellate Tribunals and High Courts and Special Leave Petition (SLP) before the Supreme Court.

§  Further, it states that all the existing departmental appeals having tax effect below the prescribed monetary limits should be pursued for dismissal as withdrawn/not pressed.

Appeals may be filed on merits as an exception

[1]  Cases where organised tax-evasion scam is noticed through bogus Long-Term Capital Gain (LTCG)/Short Term Capital Loss (STCL) on penny stocks [CBDT Circular No. 23/2019, dated 06.09.2019 and Office Memorandum No. 279, dated 16.09.2019]

[2]  Monetary limits specified in para 3 above shall not apply to writ matters. – [CBDT Circular No. 5/2019, Dated 05.02.2019]

[3]  Amendment to para 10 of the Circular No. 3 of 2018, dated 11.07.2018 - Regarding [CBDT letter F No 279/Misc. 142/2007-ITJ (Pt), dated 20.08.2018]

Para 10 of the Circular No. 3 of 2018 dated 11.07.2018 is hereby amended as under:

“10. Adverse judgments relating to the following issues should be contested on merits notwithstanding that the tax effect entailed is less than the monetary limits specified in para 3 above or there is no tax effect:

§  Where the Constitutional validity of the provisions of an Act or Rule is under challenge, or

§  Where Board’s order, Notification, Instruction or Circular has been held to be illegal or ultra vires, or

§  Where Revenue Audit objection in the case has been accepted by the Department, or

§  Where addition relates to undisclosed foreign income/undisclosed foreign assets (including financial assets)/ undisclosed foreign bank account.

§  Where addition is based on information received from external sources in the nature of law enforcement agencies such as CBI/ ED/ DRI/ SFIO/ Directorate General of GST Intelligence (DGGI).

§  Cases where prosecution has been filed by the Department and is pending in the Court.” 

Time-barred appeals

(i)      If appeals are time barred by limitation, an application for condonation of delay along with the affidavit explaining the delay should be attached.

(ii)     In cases of extraordinary delay, a detailed affidavit explaining each day of delay should be attached.

Appeal title

(i)      The Appeal title should show specific Pr. CIT or CIT in case the Appeal before the High Court. For example CIT-III Chennai or CIT-XII Delhi or DIT (Exemption), Ahmedabad or CIT(C)-II, Mumbai etc. The Appeal title should show ITO or Assistant Commissioner of Income Tax or Deputy Commissioner of Income Tax as the case may be in case the Appeal before the ITAT.

(ii)     The ITA number, that is, the appeal number given by the Appellate Tribunal should be correctly mentioned in appeal title in the memo of appeal.

(iii)   The relevant section under which appeal is filed should be mentioned in the title.

Appeal Register & CSR module of the ITBA

ITBA-Appeal Register & CSR Instruction No. 1 [F. No. System/ITBA/Instruction/Appeal Register & CSR/185/2016-17/] Dated: 03.02.2017

Subject: Launch of Appeal Register & CSR module of Income Tax Business Application (ITBA) – Reg.

The Appeal Register & CSR module of the ITBA can be accessed by entering the following URL in the browser: https://itba.incometax.gov.in

Path for the module is: ITBA Portal à Login à Modules à Appeal Register & CSR

The CSR module has been designed primarily based on the CBDT’s Instructions No. 4/2011,7/2011 & 8/2011.

Following functionalities shall be available through ITBA – Appeal Register & CSR Module:

A. Appeal Receipt Register

On receipt of an appellate order1 the PCIT/CIT or HQ & Staff of PCIT/CIT shall enter the basic details of such order in the Appeal Receipt Register, maintained in the office of the PCIT/CIT. The period of limitation for filing of further appeal will be based on date of receipt of the Appellate order in the office of the PCIT/CIT.

Following functions can be performed in the Appeal Receipt Register:

§  PCIT/CIT /HQ of PCIT/Staff of PCIT/CIT can select the receipt date, Appellate authority and enter other particulars of the Appeal order and Save. Such entry would then be visible to the concerned range Head and the AO, so as to enable the AO to initiate the CSR workflow.

§  If required, the AO/ Staff can also edit details of an Appellate order entered by the office of PCIT and save such details (except date of receipt of Appellate order).

§  On completion of various appeal filing processes, details of new appeals filed will keep getting updated so that User can monitor the same, for the purpose of scrutiny selection, keeping penalty in abeyance, recovery of demand etc.

B. CSR on CIT(A) Order:

Following are the steps to prepare CSR on CIT(A) Order:

§  AO will enter Appeal order details and then proceed to analyse the order of CIT(A) as per the proforma. After completing analysis, AO will submit the request to Range.

§  Range Head will discuss the issues involved and wherever applicable, enter the draft grounds of appeal with his recommendation for filing appeal. Range will there after submit the request to PCIT.

§  PCIT will record the decision whether appeal is to be filed or not and transfer the work item to AO with the directions on filing of appeal. PCIT will also be able to issue Authorisation letter to the AO for filing of appeal.

§  In case appeal is to be filed, AO will generate Form 36 and enter the details of filing of appeal with ITAT. Once details are saved AO will close the workflow. On closure status of the request will be updated in Appeal Receipt Register as well.

§  Facility to submit, delegate and send back the workitem is available to the users.

§  Facility to download and print the content of CSR is also available to the user. A printout can be generated at any stage by clicking on Print button. A pdf file will get download and the User can then print the downloaded file

C. CSR on ITAT Order:

Following are the steps to prepare CSR on ITAT Order:

§  AO will record various aspects of the ITAT’s order and provide necessary analysis of the appellate order. After doing the analysis AO will submit the request to Range.

§  Range Head will record the issues involved and will enter the draft grounds of appeal with recommendation for filing appeal, wherever applicable. Range will there after submit the request to PCIT/CIT.

§  PCIT/CIT will record his recommendation whether appeal has to be filed or not and draft Substantial Question of Law. He will then submit the request to CIT(Judicial).

§  CIT(Judicial) will view the recommendation on filing appeal and then submit the request to CCIT with his observations.

§  CCIT will make the decision whether appeal has to be filed or not. Once decision is taken by CCIT, the workflow will be sent to PCIT.

§  PCIT/CIT will then issue necessary directions to AO by clicking on Direction on filing, and the workitem will then flow to AO for filing of appeal.

§  Facility to download and print the content of CSR is also available to the user. A printout can be generated at any stage by clicking on Print button. A pdf file will get download and the User can then print the downloaded file

§  After filing the appeal, AO will update the details in Filing of Appeal Tab and thereafter will close the workflow. Once workflow is closed status will be updated in Appeal Receipt Register.

§  Facility to submit, delegate and send back the workitem is available to the users.

D.   CSR on High Court Order:

Following are the steps to prepare CSR on High Court Order, where appeal is proposed to be filed by preparing Proforma B:

§  PCIT will enter the following details:

Ø  Details of high court judgment along with limitation date for filing SLP in Supreme Court.

Ø  Facts of the case in brief.

Ø  Substantial question of law to be proposed in the SLP.

Ø  Details of respondent as well as his own communication details.

Ø  Thereafter, he will submit the request to CCIT.

§  CCIT will record his comments/recommendation and assign the workflow to PCIT.

§  PCIT will record the comments of CCIT in Performa B and thereafter physically sent the Proforma B report to the Directorate of L&R alongwith necessary annexures.

§  In case appeal is not to be filed, PCIT will close the workflow.

§  Facility to download and print the content of CSR is also available to the user. A printout can be generated at any stage by clicking on Print button. A pdf file will get download and the User can then print the downloaded file

§  Once appeal is filed, AO will enter and save the details of filing of appeal and close the workflow.

§  Once workflow is closed status will be updated in Appeal Receipt Register.

§  Facility to submit, delegate and send back the workitem is available to the users.

Relevant CBDT Circulars & Instructions

§   CBDT Circular No. 23 of 2019, Dated 06.09.2019

       Subject: Exception to monetary limits for filing appeals specified in any Circular issued under Section 268A of the Income-tax Act, 1961 - Regarding

§   CBDT Circular No. 17/2019, Dated : 08.08.2019

       Subject: Further Enhancement of Monetary limits for filing of appeals by the Department before Income Tax Appellate Tribunal, High Courts and SLPs/appeals before Supreme Court – Amendment to Circular 3 of 2018 – Measures for reducing litigation

§   CBDT Circular No. 5/2019, Dated 05.02.2019

       Subject : Monetary limits for filing/withdrawal of Wealth Tax appeals by the Department before ITAT, HCs and SLPs/appeals before SC through extending the scope of Circular 3 of 2018 – Measures for reducing litigation

§   CBDT issues directions on filing of Appeal on merit on 7 Issues - F. No. 279/Misc/M-93/2018-ITJ, dated : 11.12.2018

       Subject: Clarification w.r.t. para 10 of Circular 3 of 2018 - Regarding

Proforma for ‘Scrutiny Report’ on ITAT’s order

Limitation to file appeal under section 253(2) expires on……………………(Parts 1 to 4 are to be filled in by the Assessing Officer and 5 to 6 by Range Head.)

1.  TO BE FILLED IN ALL THE CASES OF ORDERS OF CIT(A)

            Particulars from the order under scrutiny

2. TO BE FILLED IN ONLY IN THE CASES OF ORDERS OF CIT(A) ADVERSE TO REVENUE

      Information relevant to decision making for filing further appeal by the CIT, wherever applicable

3.        DETAILS OF ISSUES ON WHICH RELIEF ALLOWED BY CIT(A)

                        Relevant page / Para No. of

*Item (iv) is extremely important, if applicable, (the involvement of issue in earlier year(s) may already be indicated in assessment order or CIT(A)’s order)

4.    GENERAL

ANNEXURE ‘A’

Brief Facts :-

Income Tax Officer, ….

……………………

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