Income Tax Appellate Tribunal (ITAT): Structure, Powers, and Procedure

The Income Tax Appellate Tribunal (ITAT) serves as the final fact-finding authority in income tax disputes, providing taxpayers with an independent platform for appeal. Established to ensure fair and impartial resolution of tax matters, ITAT plays a vital role in India’s judicial framework. This blog explores its structure, powers, and procedures to help you better understand its functioning.

What is the Income Tax Appellate Tribunal (ITAT)

The Income Tax Appellate Tribunal (ITAT) is an independent body that helps resolve income tax disputes in India. It is the second level of appeal in the tax dispute process.

Suppose a taxpayer or the Income Tax Department is unsatisfied with the order passed by the Commissioner of Income Tax (Appeals), the first appellate authority. In that case, they can appeal to the Income Tax Appellate Tribunal for further review and judgment.

ITAT functions under the Ministry of Law and Justice, not the Income Tax Department, ensuring its impartiality and fairness. It is a neutral platform for taxpayers and tax authorities to present cases. It helps promote transparency in tax administration, and its decisions have long-term implications for matters like TDS in India and corporate tax assessments.

Importance of ITAT in Income Tax Dispute Resolution

The Income Tax Appellate Tribunal plays a crucial role in resolving disputes between taxpayers and the Income Tax Department fairly and impartially. It ensures that taxpayers get justice without approaching the higher judiciary immediately. For companies, individual taxpayers, or even a share advisory company, the ITAT is a reliable legal platform to contest tax-related matters.

History and Establishment of ITAT

The Income Tax Appellate Tribunal was established on 25 January 1941, making it one of the oldest tribunals in India. It was created under Section 5A of the Income Tax Act, 1922, to offer an independent and impartial platform for tax dispute resolution. Its primary objective was to reduce the burden on civil courts and deliver timely justice in income tax cases.

Evolution of ITAT Over the Years

Over the decades, the tribunal has expanded both in scope and structure. After the Income Tax Act, 1961 came into force, ITAT was retained with increased powers. Technological advancements such as e-filing and virtual hearings have made the ITAT more accessible. The tribunal now handles many cases, including appeals on issues like TDS in India, tax on mutual funds, and corporate tax matters.

Structure and Composition of the Income Tax Appellate Tribunal

ITAT functions through various benches across India. It has 63 benches in Mumbai, Delhi, Kolkata, Chennai, Bengaluru, and Hyderabad. Each bench hears appeals relevant to its jurisdiction, ensuring regional convenience for taxpayers.

Members: Judicial Members and Accountant Members

Each bench consists of Judicial Members and Accountant Members. Judicial Members are experienced in legal matters, while Accountant Members are experts in finance and accountancy. Their combined expertise ensures fair decisions.

Appointment and Tenure of Members

The central government appoints Income Tax Appellate Tribunal members. Judicial Members are selected from among High Court judges or senior legal professionals. Accountant Members are chosen from practicing chartered accountants or senior officers of the Indian Revenue Service. Their tenure is usually 5 years, and they may be reappointed based on performance.

Powers and Functions of ITAT

The ITAT hears appeals under the Income Tax Act, 1961, particularly Section 253. It has jurisdiction over various tax matters, including assessment orders, penalties, and deductions or exemptions. ITAT frequently handles cases involving complex topics like exemptions vs. deductions, capital gains, and share valuations.

Powers Comparable to a Civil Court

Although not a full-fledged court, ITAT enjoys powers like a civil court. It can summon witnesses, examine evidence, and enforce attendance. It cannot try criminal cases, but it can direct the Income Tax Department to refund excess tax collected.

Functions Related to Income Tax Appeals

ITAT reviews each case’s factual and legal aspects and delivers a reasoned order. It cannot admit new evidence unless justified. The tribunal ensures fairness in appeals and can reduce, cancel, or enhance assessments as needed.

Procedure for Filing Appeals Before the ITAT

Eligibility for Filing an Appeal

Any taxpayer or the Income Tax Department can file an appeal to ITAT if they are dissatisfied with the Commissioner of Income Tax (Appeals) ‘s decision. This includes individual taxpayers, HUFs, companies, and even share advisory companies involved in tax disputes.

Time Limit for Filing an Appeal

An appeal must be filed within 60 days of receiving the order from the Commissioner (Appeals). ITAT may grant a condonation of delay and accept the appeal if there’s a valid reason for the delay.

Steps to File an Appeal with ITAT

1. Prepare Form 36 for filing the appeal.
   
2. Please attach necessary documents, such as the order of the Commissioner (Appeals), grounds of appeal, and statement of facts.
   
3. Submit the appeal electronically through the ITAT’s e-filing portal.
   
4. Pay the applicable fee depending on the assessed income.
   

Fee Structure for Appeal Filing

The fee depends on the assessed income:

• ₹500 if the assessed income is less than ₹1 lakh
  
• ₹1,500 if it is between ₹1 lakh to ₹2 lakh
  
• 1% of assessed income (max ₹10,000) if income exceeds ₹2 lakh
  

Key Points to Remember About ITAT Proceedings

Generally, ITAT does not allow fresh evidence to be introduced. It reviews the facts already submitted before lower authorities. However, if necessary for justice, fresh evidence may be admitted with proper reasoning.

Finality of Decisions Subject to High Court Review

The Income Tax Appellate Tribunal orders are final, but only on questions of fact. If there’s a question of law, an appeal can be filed before the High Court within 120 days. This makes ITAT a crucial stage in the appellate process.

Role of Authorized Representatives

Taxpayers can represent themselves or appoint authorized representatives like chartered accountants, lawyers, or tax practitioners. Having a knowledgeable representative helps present the case effectively and follow procedural norms.

Recent Developments Related to ITAT

Introduction of E-Filing and Virtual Hearings

In recent years, ITAT has embraced digital transformation. The e-filing portal allows easy submission of appeals and documents. During the COVID-19 pandemic, virtual hearings became common, making it easier for taxpayers across India to attend hearings without traveling.

Major Judgments Passed by ITAT Recently

Some important rulings of ITAT include:

• Clarifications on TDS in India under Section 194J and 194C
  ITAT rulings help differentiate between professional services (Section 194J) and contractual work (Section 194C), clarifying TDS applicability. This avoids confusion for businesses and professionals while ensuring correct tax deduction and compliance with Indian tax laws.
• Decisions on the taxability of mutual fund gains, especially regarding short-term vs long-term capital gains
  ITAT decisions clarify the holding period criteria for tax on mutual funds, helping investors understand whether gains are short-term or long-term. This influences tax rates and allows investors to plan redemptions more efficiently while staying tax-compliant.
• Orders resolving GST-linked income tax issues
  ITAT addresses overlaps between GST and income tax, such as how GST collections impact income recognition. These rulings clarify taxpayers facing dual compliance, especially for businesses dealing with invoicing, revenue booking, and indirect tax treatment.
• Clarifications on capital gains exemptions under Section 54, 54F, and related provisions
  ITAT provides detailed interpretations of capital gains exemptions like Section 54 (sale of residential property) and 54F (investment in a new house). These rulings guide taxpayers in taking advantage of legitimate exemptions and prevent disputes with tax authorities.

Conclusion

The Income Tax Appellate Tribunal serves as a bridge between taxpayers and the judiciary. It provides a low-cost and efficient forum for dispute resolution. With its fair procedures, expert members, and technology adoption, ITAT strengthens India’s tax system’s integrity. Whether dealing with tax on mutual funds, deduction disputes, or TDS liabilities, ITAT is pivotal in ensuring justice.

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