Exercise of Discretion by Appellate Authority for Remanding the Proceedings under the Fiscal Law

EXERCISE OF DISCRETION BY APPELLATE AUTHORITY FOR REMANDING THE PROCEEDINGS UNDER THE FISCAL LAW <!--[if gte mso 10]> EXERCISE OF DISCRETION BY APPELLATE AUTHORITY FOR REMANDING THE PROCEEDINGS UNDER THE FISCAL LAW By Muhammad Younas Khalid, Advocate, Lahore Power to remand any order or any part of it, by any appellate authority, is discretionary in nature, however, this discretion can be exercised only when any proceedings is pending before any appellate authority. Discretion refers to a right or power of deciding or acting as one thinks fit. It is some one's authority or freedom to decide according to one's judgment. A man's own judgment as to what is best in a given circumstance or a case. But when speaking legally `Discretion' means something done within the discretion of the authority according to the rules of reason and justice, not according to private opinion but according to law. A Judge or Court has discretion in making orders or imposing conditions on litigants. The word `discretion' in itself implies vigilant circumspection and care. It is, therefore, true to say that where the Legislature concedes wide discretion; it also imposes a heavy responsibility. `Discretion'' when applied to a Court of justice means sound discretion guided by law. A question may arise at the stage that how to find out whether a discretion to do a thing is vested or not in a Court or authority. Discretion is apparent when the legislature phrases the statute putting words therein like `at its discretion' or `as it deems fit'. However, some time such words are not inserted then inference of vesting discretion or not vesting discretion has to be drawn from the language used in particular statute. In the absence of clear cut vested discretion in a provision of law, the language used will indicate whether the authority has been or has not been vested with any discretion to be exercised. Here comes the principle of interpretation of fiscal statutes to read the implied discretionary power. APPELLATE AUTHORITIES: The relevant appellate authorities/Courts are provided in the Income Tax Ordinance, 2001, Sales Tax Act, 1990 and Federal Excise Act, 2005. Under the Income Tax Ordinance, 2001, first appellate authority is Commissioner (Appeals) and the relevant sections are sections 127 to 129. Under clause (13A) of section 2, the Commissioner appeal has been defined to mean a person appointed as a Commissioner of Income Tax (Appeals) under section 208. Originally this authority was vested with the discretion to make on order to set aside the assessment vide section 129(1)(a). However, through Finance Act, 2005 section 129(1)(a) was substituted and this discretion was withdrawn. So now at the movement Commissioner (Appeals) is no more empowered to exercise discretion to make a remand order. 2nd Appellate Authority in the Income Tax proceedings is Appellate Tribunal and the relevant sections are sections 130 to 132 of Income Tax Ordinance, 2001. Power ,conferred on the Tribunal in hearing an appeal are fairly wide and under section 132(3)(b), the ITAT as an appellate authority, can set aside the assessment order and direct the Commissioner to make a new assessment order in accordance with the directions or recommendations of the Tribunal. But since the Appellate Tribunal is a quasi-judicial Tribunal, the nature of powers conferred and the consequences ensuing from the exercise of those powers by judicial considerations. Under the Sales Tax Act, 1990, first appellate authority is Collector of Sales Tax (Appeals) and the relevant section is section 45B of Sales Tax Act, 1990. The Collector of Sales Tax (Appeals) may, after giving both parties to the appeal an opportunity of being heard, pass an order to set aside the order appealed against. So in Sales Tax Law, the Collector (Appeals) still has discretion to make a remand order. The 2nd appellate authority under the Sales Tax law is Appellate Tribunal which is empowered to pass such orders in relation to the matters before it as it thinks fit including setting aside order. The relevant section is section 46 of Sales Tax Act, 1990. Under the Federal Excise Act, 2005, first appellate authority, is Collector (Appeals) and the relevant section is section 33(2) of Federal Excise Act, 2005. The Collector (Appeals) may, after giving both parties to the appeal an opportunity of being heard, pass an order to set aside the order appealed against. So in Federal Excise Law, the Collector (Appeals) still has discretion to make a remand order. The 2nd appellate authority under the Federal Excise law is Appellate Tribunal which is empowered to pass such orders. The relevant section is section 34 of Federal Excise Act, 2005. Hon'ble High Court is also empowered to issue a set aside order under section 133(5) of the Income Tax Ordinance, 2001, under section 47(5) of Sales Tax Act, 1990 and under section 34(5) of Federal Excise Act, 2005. Remand is commonly known in fiscal matters as `SET ASIDE' which refers the act of the appellate authority to send a matter back to the lower forum which had already given its finding on the relevant issue. When original assessment is set aside it has no validity or force in law. All proceedings on which the order is based became non-existent and when assessment is, set aside with certain directions, the Assessing Officer cannot in law goes beyond those directions. The status of the assessment on set aside is reduced to nothing. In simple words for all purposes an assessment, on setting aside, stands cancelled and reassessment proceedings become due. Exercise of Discretion to set aside any order should not be adopted as a matter of course because it definitely allows any party to fill in lacuna or to improve its case. It is natural to assume that when a statute confers a discretionary power such discretion has to be exercised reasonably and fairly indicating the reasons for set aside. Failure on the part of the appellate authority to record reasons for an order to set aside is indicative of arbitrariness of thought and mind. The first choice of the Appellate Authority should be to decide the case itself instead of remanding the case. Power to set aside any assessment order should be exercised only when compelling circumstances exist. Therefore, power of remand of a case should not be exercised lightly but sufficient care should be taken while ordering to set aside a case. Simultaneously this exercise should not to be arbitrary, vague, and fanciful but should be legal and regular. It has to follow the formation of an opinion. The opinion of course has to be objective whereas the discretion after exercise should appear to be subjective. A Judge must exercise his discretion judicially, and if he proceeds on a wrong principle, this order may be set aside by the next Court of Appeal. It is, for this reason, that the Courts have never permitted their judicial powers to be invoked or used for retention of illegal and ill-gotten gains. Exercise of discretion is not uncontrolled, unfettered, or absolute. A person vested with discretion is not permitted to exercise same unfairly, unreasonably, arbitrarily, capriciously and in an impetutous way. It must be exercised with in the limits to which an honest man competent to the discharge of his office ought to exercise. When the legislature concedes a wide discretion to a Judge or a Court, it also imposes a very heavy reasonability that is to say that discretionary power vested in a Court has to be exercised judicially and not arbitrarily. In construing a statute we must always assume that the discretionary power conferred upon various authorities under the statute will be used properly and not otherwise. It may be added that direction conferred on an authority by statute is intended to be exercised by that authority only and none other. When discretion is given to an authority, the exercise of that discretion necessarily involves the application of mind and acting reasonably and with justice, which is turn necessarily involves the observance of natural justice which means that the other party must be heard before any adverse order is passed. When such a discretionary power is invested in an authority, the authority would be bound to exercise that power, and the word `may' conferring discretionary power has to be read as `must' except in those cases where there are reasonable grounds for not exercising such powers. If the appellate authority preferred to exercise its power to make an order of set aside in respect of any order and wants a fresh probe, it must have delineated the scope and parameters of the desired proceedings. In cases of remand, it is necessary that not only the grounds of remand but also the subsequent proceedings should be crystallized. It appears common practice amongst the appellate authority that they remand' the cases by using vague direction such as proceedings should be conducted de novo' and normally, original assessments are repeated after remand. On the contrary term de novo refers `try a matter a new as if it had not been heard before and as if no decision has previously been rendered on the issue'. In most of the cases a remand order with a direction for `de novo' proceedings is only an eye-wash and manifests shyness of the appellate authority to decide for or against an assessee and to give a clear and outspoken finding. Whereas the orders framed on 'remand are a mere formality without any serious attempt on the part of the Assessing Officer to look into the spirit and reasons necessitating remand. The law is absolutely clear that no remand should normally be ordered when the appellate authority could itself dispose of matter on the basis of material available before it. However, when a remand is absolutely necessary in view of a peculiar situation in a case, the scope and parameters must be expressly delineated so that the appellant as well as Assessing Officer are well aware of the nature and the extent of further inquiry desired by the appellate authorities. Causal remand of order in the long run never benefited either the assessee or the Revenue. A remand order would have meant that the appellant would have been subjected to another round of proceedings which some time becomes cumbersome of the appellant. Therefore, remand order should not be passed by the appellate authority in a routine manner to allow a party to improve his case or to till in the lacuna existed in the previous order. Sending the matter back to the Assessing Officer generally amounts to adding and multiplying miseries of the taxpayer. But this all depends on the facts prevalent in each case. Usually the higher appellate Courts also do not look upon favorably the practice of remanding the case to the Assessing Officer where in a case the issue can be adjudicated at the appellate stage. Therefore, appellate authority instead of remanding the case ought to have decided the case itself on merits and in accordance with law. Although an authority which is empowered to make a remand order may pass an order to set aside but case should be remand where authority finds that certain facts require further elucidation or that some essential facts required for forming opinion are not on the record of the case, it could certainly remand the case to lower authority for determining such facts and for passing afresh order. Normally the higher courts do not interfere in the exercise of the discretion merely on the ground that another conclusion may also be possible. It was held in a reported judgment that "it is a settled law that discretionary orders passed by subordinate Courts are not to be interfered with by superior Courts unless these are found arbitrary and fanciful. I may refer again that failure on the part of the appellate authority to record reasons for an order to set aside is indicative or arbitrariness of mind. The Hon'ble Supreme Court graciously laid down principles governing exercise of the discretion by holding that discretionary decision has to be made according to rational reasons which means finding of primary factors, based on good evidence and wherever wide-worded powers conferring the discretion exists, there remain always the need to structure the discretion which means regularizing of the so created discretion by organizing it, requiring the exercising authority to give reasons so that the decision may achieve the high quality of justice. The seven principles laid down by the Hon'ble Supreme Court in various judgments, for structuring discretion are, open plans, open policy "statements, open rules, open findings, open reasons, open precedents and fair informal procedure. The actions which do not meet these threshold requirements are arbitrary and may be considered misuse of powers. Thus the parties in an appeal should not be sent back to the lower forums without proper justification thereby causing delay in the decision of the issues in controversy. FATE/FINALITY OF REMAND ORDER Against a set aside order if aggrieved party did not prefer further appeal before proper appellate forum, the set aside order attains finality. After the case having, been remanded to Assessing Officer, the scope with in which the Assessing Officer has to pass reassessment order confines to the directions given by the appellate authority. Any addition on account of new head is legally not tenable. However, against the set aside order one can file further appeal and issue can be decided in further appeal even if a case is remanded back by any appellate authority for re-adjudication. On filing further appeal matter of first assessment becomes pending before Appellate Tribunal and on intimation of the fact that further appeal is filed, the Assessing Officer is duty bond to wait for the decision of the Tribunal and to refrain from completing reassessment proceedings. Legally speaking when set aside order is challenged by way of further appeal the lower authority cease to hold the jurisdiction over the matter. Order to set aside an assessment order is justified only when certain facts required for judgment are not available on record and it would not be justified when‑ (a) the appellate authority could itself dispose of the matter on the basis of material available before it and there is no point on which any fresh elucidation or determination is required. (b) a legal infirmity involved in a case, which went to the roots of the assessment, was incurable. (c) setting aide if amounts to provide a time to the Assessing Officer to fill in the legal lacuna to the determinant of the interest of the assessee or to fish out evidence in order to prove his case which at present missing. (d) if Appellate authority comes to the conclusion that addition made by the Assessing Officer is illegal for want of compliance of any mandatory provision of law yet it decides to set aside the case. (e) if Assessing Officer failed to confront the assessee with the defect found by him in the books of account or when reasoning for rejection of account are .found to be invalid by the appellate authority. (f) legal infirmity in the basic statutory notice is established. (g) In case of wrongful exercise of powers of the Assessing Officer keeping in view that it is the Assessing Officer who has to blame himself for the wrongful exercise of power and who deserved punishment for committing the said wrongful exercise. At the end I must repeat that when a statute confers a discretionary power to remand either express or implied such discretion should be exercised reasonably and fairly indicating the reasons for remand. The judicial consensus seems to be that the appellate authorities cannot be allowed to exercise discretion at their whims, sweet-will or in an arbitrary manner rather they are , bound to act fairly, evenly and justly. CASE LAWS FOR DETAILED STUDY OF DISCRETION 2005 PSC 1206 2005 PTD 152 POWER OF REMAND IS DISCRETIONARY IN NATURE 1988 PTD 1014 EXERCISE OF DISCRETION PLD 2001 SC 1 1997 SCMR 1804 PLD 1990 SC 1092 2005 PTD 152 WHEN REMAND IS CONSIDERED NOT JUSTIFIED 2006 PTD 2654 2006 PTD 2482 (2006) 93 Tax 75 (H.C. Lah.) 2002 PTD 407 2007 PTD (Trib.) 776 2006 PTR 282 (Trib.) 2003 PTD (Trib.) 625 2003 PTD (Trib.) 242 1994 PTD (Trib.) 858 REMAND SHOULD NOT BE MADE TO FISH OUT EVIDENCES OR TO FILL IN LEGAL LACUNA AIR 1948 PC 36/37-38 1997 SCMR 1849 1996 SCMR 230 1991 PTD 436 (H.C. Kar.) 2003 PTD (Trio.) 1956 REMAND ORDER SHOULD NOT BE PASSED IN ROUTINE MATTER 1997 SCMR 1849 1996 SCMR 230 REMAND CAN BE MADE WHEN CERTAIN FACTS REQUIRED ARE NOT ON RECORD 1997 SCMR 1849 1991 PTD 436 (H.C. Kar.) SCOPE IN REASSESSMENT PROCEEDINGS IS RESTRICTED TO SET ASIDE ISSUES ONLY (2006) 94 Tax 265 (Trib.) 2003 PTD (Trib.) 2727. (1997) 75 Tax 98 (Trib.) DISCRETIONARY ORDERS ARE NOT TO BE INTERFERED WITH BY SUPIRIER COURTS [(2007) 95 Tax 65 (H.C. Lah.)] PLD 1970 SC 139 ASSESSING OFFICER IS DUTY BOND TO HAVE WAITED FOR DECISION OF TRIBUNAL IN CASE FURTHER APPEAL IS FILED (2002) 86 Tax 241 (H.C. Lah.)