Section 246 and Section 246A of the Income Tax Act, 1961 play a crucial role in the tax appeal process. They lay down the framework for how taxpayers can challenge the orders of tax authorities and seek redress through appeals to the Commissioner of Income Tax (Appeals) (CIT(A)). These provisions are fundamental to taxpayers’ rights in India, ensuring that any mistakes or disputes in income tax assessments can be addressed in a fair and transparent manner.

In this blog, we will delve into the provisions under Section 246 and Section 246A, explain the process of filing an appeal to the CIT(A), provide examples, and highlight key case law references.

Overview of Section 246 and Section 246A

Before discussing the details of the provisions, it’s essential to understand the role of the CIT(A) and how the appeal process works. The CIT(A) is the first appellate authority in the tax system. When a taxpayer disagrees with an assessment, penalty, or other tax order, they can file an appeal with the CIT(A), who has the authority to review the case and pass an independent judgment.

Section 246 – Orders Appealable to the Commissioner (Appeals)

Section 246 of the Income Tax Act defines the types of orders that are appealable before the CIT(A). It lays down the specific situations where a taxpayer can file an appeal.

Provisions of Section 246

Under Section 246, the following orders can be appealed to the CIT(A):

1. Assessment Orders: These are the orders passed under Section 143(3) (regular assessment) or Section 144 (best judgment assessment).
2. Penalty Orders: If the Assessing Officer imposes a penalty under Chapter XXI of the Income Tax Act, the taxpayer can file an appeal under Section 246.
3. Rectification Orders: If there are errors in the initial assessment that the AO rectifies under Section 154, the taxpayer may appeal the rectification order.
4. Reassessment Orders: Orders passed under Section 147 (reassessment) can also be challenged in an appeal under Section 246.
5. Orders Relating to Refund: If a refund is disallowed or not properly computed, the taxpayer can appeal the order to the CIT(A).
6. Orders Under Section 201: If the AO passes an order under Section 201, regarding the treatment of non-compliance in respect to tax deduction at source (TDS), it can also be appealed.
7. Orders Relating to Rectification: Taxpayers can appeal orders passed by the tax authorities under Section 155 relating to the rectification of mistakes in the original order.

Example of Appeal under Section 246:

• Example 1: A taxpayer has been assessed under Section 143(3), and the AO has made adjustments to income that the taxpayer disagrees with. The taxpayer can file an appeal to the CIT(A) under Section 246.
• Example 2: A taxpayer is issued a penalty notice for the failure to file a return under Section 271F. The taxpayer can appeal the penalty order to the CIT(A).

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Section 246A – Appeals to the Commissioner (Appeals)

Section 246A further refines the process of filing an appeal to the CIT(A), providing specific guidelines on how and when the appeal should be filed, along with the grounds for appeal.

Provisions of Section 246A

Section 246A provides the detailed procedure for the filing of an appeal to the CIT(A). Key provisions include:

1. Eligibility for Filing an Appeal:
   • Any assessee who is aggrieved by an assessment, penalty, rectification, or reassessment order may file an appeal.
   • The appeal must be filed within 30 days from the date of the receipt of the order under appeal.
2. Form for Filing an Appeal:
   • The appeal is filed in Form No. 35, and the taxpayer must submit a memorandum of appeal along with the grounds of appeal.
3. Payment of Fees:
   • A fee is payable when filing the appeal, and the amount depends on the income declared by the taxpayer. For instance:
     • If income exceeds ₹2 lakh but is less than ₹10 lakh, the fee is ₹500.
     • For income exceeding ₹10 lakh, the fee increases to ₹1,000.
4. Time Limit for Filing an Appeal:
   • The appeal must be filed within 30 days from the date of receipt of the order. In some cases, an additional 30 days can be granted if the taxpayer can provide a valid reason for the delay.
5. Grounds of Appeal:
   • The CIT(A) will consider the grounds raised by the taxpayer, which may include issues such as incorrect income assessment, disallowed deductions, or improper application of tax laws.
6. Effect of the Appeal:
   • Filing an appeal suspends the effect of the order passed by the AO unless the CIT(A) orders otherwise.

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Comparison Table: Section 246 vs Section 246A

Aspect	Section 246	Section 246A
Orders Appealable	Assessment, penalty, rectification, reassessment, refund orders, and orders under Section 201	Detailed provisions on how to file an appeal for the above orders
Eligibility	Any assessee aggrieved by an order passed by the AO	Same as Section 246, but specifies the filing procedure
Form for Appeal	Not explicitly mentioned; appeal filed as per rules	Form No. 35 must be filed along with a memorandum of appeal
Time Limit	30 days from the date of the order or notice	30 days, with an additional 30 days allowed with valid reason
Fee for Filing Appeal	Not mentioned directly	Fee is based on income level (₹500 or ₹1,000)
Grounds for Appeal	Can challenge factual or legal aspects of the order	Grounds specified by the taxpayer, including incorrect income, disallowed expenses, etc.

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Case Law References for Section 246 and Section 246A

1. CIT v. Suresh Kumar (2019) 417 ITR 287 (Delhi):
   In this case, the Delhi High Court emphasized that the CIT(A) has the jurisdiction to hear and decide on appeals related to penalty orders passed under Section 271(1)(c), even when the taxpayer has failed to file an appeal within the prescribed time limit.
2. K.P. Varghese v. ITO (1981) 131 ITR 597 (SC):
   This case clarified the scope of Section 246 and the conditions under which appeals should be entertained. The Supreme Court ruled that taxpayers have the right to appeal against assessments, penalties, or rectifications when they feel the tax authorities have made errors.

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Conclusion

The provisions under Section 246 and Section 246A provide a clear structure for filing appeals with the CIT(A), ensuring that taxpayers can challenge and correct orders passed by tax authorities. Whether it’s an assessment order, penalty, or reassessment, taxpayers have the right to appeal if they believe that the decisions made by the AO are incorrect or unfair.

By understanding the provisions, filing process, and the relevant legal grounds for appeal, taxpayers can safeguard their interests and ensure that their cases are heard and decided fairly.

Additional Resources

Learn more about Tax Provisions on the official Income Tax India website.

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