Procedure in Hearing Appeal [Section 250]

Section 250 of the Income Tax Act, 1961 governs the procedure followed by the Commissioner of Income Tax (Appeals) [CIT(A)] while hearing appeals. Here’s a detailed analysis:

1. Who is the Authority?

The authority hearing the appeal is the Commissioner of Income-tax (Appeals) [CIT(A)]. This is the first level of appellate authority under the Income Tax Act.

2. When is an Appeal Heard under this Section?

An appeal is heard under this section when it is filed before the CIT(A) against:

• An order passed by a Joint Commissioner / Assessing Officer (AO) under section 144 (Best Judgment Assessment) or section 147 (Income escaping assessment).
• An order of assessment under section 143(3) (scrutiny assessment) where the assessee objects to the income assessed, tax determined, loss computed, or status of the firm.
• An order imposing a penalty.
• Various other orders as specified under section 246A of the Act.

3. The Procedure for Hearing an Appeal [Section 250]

The procedure is designed to be less formal than a court but is still a quasi-judicial process. The following steps are involved:

Step 1: Notice of Hearing

• Before deciding on the appeal, the CIT(A) mustserve a notice to the appellant (the taxpayer) and, in specific cases where the appeal is filed by the Revenue (the Department), to the Assessing Officer.
• This notice informs them of the date and place fixed for the hearing of the appeal.
• The law gives the CIT(A) the power to suo motu(on their own motion) send for the relevant records from the Assessing Officer if they are not already filed with the appeal.

Step 2: The Hearing Process

• The appellant (or their authorized representative, like a CA or lawyer) and the concerned Assessing Officer (if the Department is involved) are given a reasonable opportunityto be heard.
• The hearing is not necessarily a full adversarial trial. It can be an interactive process where the CIT(A) examines the documents, hears arguments from both sides, and seeks clarifications.
• The appellant can:
  • Present new arguments and factual submissions that may not have been presented before the Assessing Officer.
  • Submit additional evidence (subject to rules and limitations, especially after the introduction of Section 250(4) and 250(5)).
• The CIT(A) has the power to allow or declinea request for adjournment to ensure the appeal is disposed of in a timely manner.

Step 3: Admission of Additional Evidence [A Critical Aspect]

• This is one of the most important and often contentious parts of the process.
• The appellant cannot freely produce evidence that was not presented before the Assessing Officer. Specific conditions must be met.
• As per Rule 46Aof the Income Tax Rules, 1962, the CIT(A) can admit additional evidence only if:
  1. The Assessing Officer had refused to admit evidence despite being given an opportunity.
  2. The appellant was prevented by sufficient cause from producing the evidence before the AO.
  3. The appellant discovers new evidence after the AO’s order, which was not within their knowledge or could not be produced despite due diligence.
  4. The CIT(A) requires any document or evidence to enable them to pass orders, or for any other substantial cause.
• Procedure for Admission:If the CIT(A) decides to admit additional evidence, they must provide a copy of it to the Assessing Officer. The AO is then given a reasonable opportunity to:
  • Examine the evidence.
  • Make representations on it.
  • Cross-examine any witness produced by the appellant.
  • Produce any contrary evidence in rebuttal.

Step 4: Enhancing the Assessment / Penalty

• The CIT(A) has the power to enhancethe assessment (i.e., increase the income or reduce the loss) or enhance a penalty.
• However, before doing so, they mustgive notice to the appellant, informing them of their intention to enhance the assessment/penalty.
• The appellant must be given a reasonable opportunityto show cause why such an enhancement should not be made. This is a critical safeguard for the taxpayer’s rights.

Step 5: The Appellate Order

• After considering all submissions, evidence, and arguments, the CIT(A) will pass a written order in writing.
• The order must state the points for determination, the decision thereon, and the reasons for the decision.
• The order can:
  • Confirmthe order of the Assessing Officer.
  • Cancelthe order (e.g., in case of lack of jurisdiction).
  • Varythe order (e.g., partly allow the appeal).
  • Set asidethe order and send the matter back to the AO for a fresh assessment with specific directions.
  • Enhancethe assessment or penalty (after following the due procedure mentioned above).

Step 6: Communication of the Order

• A copy of the appellate order is sent to the appellant (taxpayer) and to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner.

4. Timelines

• The CIT(A) is required to pass the appellate order as expeditiously as possible.
• The Finance Act, 2023, has introduced a specific time limit. The order must now be passed within one yearfrom the end of the financial year in which the appeal was filed.

Summary Flowchart of CIT(A) Procedure

[Start: Appeal Filed u/s 246A] -> CIT(A) issues Notice of Hearing -> Hearing is conducted ->

• [If Additional Evidenceis offered] -> CIT(A) applies Rule 46A -> If admitted, evidence is shared with AO for rebuttal ->
• [If CIT(A) considers Enhancement] -> Issues show-cause notice to appellant -> Hears appellant’s objections ->

[CIT(A) passes a reasoned Appellate Order (Confirm/Vary/Cancel/Set Aside/Enhance)] -> Order communicated to Appellant and Principal Chief Commissioner/Chief Commissioner.