Introduction 

• The first level of appeal for taxpayers in India against the Income Tax Department (ITD) is before the Commissioner of Income Tax (Appeals). 
• The next level of appeal for taxpayers wishing to challenge the CIT(A)’s decisions is before the Income Tax Appellate Tribunal (ITAT). 
• The ITAT is under the Ministry of Law and Justice, which is independent of the Ministry of Finance. 

History of Income Tax Appellate Tribunal 

• The Income Tax Appellate Tribunal (ITAT) was established in January 1941 and is a quasi judicial institution.  
• It is known as the “Mother Tribunal” and it’s success led to the institution of many other tribunals in India. 
• The orders passed by the ITAT are final, an appeal lies to the High Court only if a substantial question of law arises for determination. 
• The ITAT’s motto is “Nishpaksh Sulabh Satvar Nyay”, which means “impartial, easy and speedy justice. 
• The first President of ITAT was Mr. Mohammed Munir Dar.

Benches of Income Tax Appellate Tribunal 

• Starting in 1941 with six Members constituting three Benches - one each at Delhi, Kolkata (Calcutta) and Mumbai (Bombay). 
• The numbers of Benches have progressively increased and presently ITAT has 63 Benches at 27 different stations covering almost all the cities having a seat of the High Court. 

Composition of ITAT 

• Most of the appeals at the ITAT are heard by division benches comprising two adjudicating members: an accountant member and a judicial member. 
• An accountant member is drawn from pools of chartered accountants or serving senior ITD officials and a judicial member is selected from the bar (i.e. a practising lawyer) or the judiciary (Income Tax Appellate Tribunal) 
• Given that appeals before the ITAT may involve questions of fact or law, accountant members provide expertise vis-à-vis factual accounting issues and judicial members contribute legal or judicial expertise. 
• Decisions of division benches require the concurrence of members. 
• When the two bench members have different opinions, the matter is referred to a third ITAT member and the majority view is pronounced as the final decision. 
• The orders passed by the ITAT are final, an appeal lies to the High Court only if a substantial question of law arises for determination. 
• The President of ITAT is Mr. Justice Chandrakant Vasant Bhadang. 

Appointment of Members of ITAT 

• Earlier ITAT members were selected by a committee that included a sitting Supreme Court judge nominated by the Chief Justice of the Supreme Court, the President of ITAT and a secretary of the Ministry of Law and Justice.  
  • The Committee made the selection on the basis of interviews and the review of the candidates’ backgrounds and achievements.  
  • There was a concern regarding the quality of persons appointed. 
  • This was amplified by the fact that the ITAT members once appointed, being quasi judicial cannot be held accountable for their decisions and are difficult to remove. 
  • Hence, the quality of orders were affected. 
• The Government of India changed the composition of the ITAT member selection committee in 2017, and further restructured the committee in 2020. 
  • In the changes made through rules based on the Finance Act 2017 (India), the government  
    • added a nominee of the Ministry of Law and Justice to the committee along with up to two other nominees of the government. 
    • Another change made in 2017 was the removal of the sitting Supreme Court judge from the committee that selects accountant and judicial adjudicating ITAT members from the applicant pool. 
  • The removal of the involvement of the judiciary in selecting ITAT members, whose orders are subject to review by the judiciary, attracted criticism from the bar. 
  • In Rojer Mathew v. South Indian Bank Limited & Others (2020) the Supreme Court struck down the rules to appoint the members of tribunal noting that the role of the judiciary was virtually absent and in direct contravention of the doctrine of separation of powers. 
• In light of the above Supreme Court decision, the government reversed these two changes in rules framed in 2020. However, the Government added a secretary of the Ministry of Finance to the original selection committee that existed prior to 2017. 
  • There was a criticism that given that ITD, which falls under the Ministry of Finance is a constant litigant in appeals before ITAT, this addition introduces a conflict of interest. 
  • To address the above the Government limited the role of a secretary of the Ministry of Finance to a non-voting member secretary in an ordinance promulgated on 4th April 2021.

Challenges of ITAT 

• Over the years, the ITAT’s challenges primarily dealt with preserving its independence from the Ministry of Law and Justice (its administrative parent), as well as from the Ministry of Finance and the ITD. 
• The Government of India changed the role of an ITAT member from a permanent position to a fixed tenure posting and altered the ITAT member application eligibility requirements, resulting in potential challenges to the independence of the ITAT.