2014 (11) TMI 891 - HC - Income Tax

Validity of constitution of Special bench - Power of president of ITAT Procedure of Appellate Tribunal - Held that - The entire proceeding has been conducted for the purposes of the constitution of the Special Bench of the Tribunal appears to have been unfair to the petitioner - In the petitioner s appeal which was siezed of by the Division Bench of the Tribunal at Hyderabad, the CBDT chooses not to file an application to the Division Bench to refer the appeal to the President for constitution of a Larger Bench of the Tribunal but adopts a back door method of approaching the President of the Tribunal to constitute the Special Bench and that too in the interest of the Revenue - the President does have the power to constitute a Special Bench but at what point and how is this power to be exercised is a debatable question - Prima facie this power cannot be exercised, when a Division Bench is siezed of the appeal and the Revenue has been seeking time before it. The practice of the President entertaining and acting upon letters of CBDT and the Vice President entertaining the Counsel ( likely to appear for Revenue) exparte in respect of an appeal already siezed of by a Division Bench of the Tribunal to be wanting in propriety - the recommendations made by the Vice President are not in consonance with the recommendations made by the Division Bench to the extent that the Vice President in his communication to the President indicates that the matter involves complex questions and therefore a Special Bench needs to be constituted, while the Division Bench has specifically negatived the constitution of Special Bench on account of complexity of issues - all these are matters which would require consideration at the stage of final hearing - as the petitioner has made out a strong prima facie case, interim relief in terms of prayer clause E must follow - Decided in favour of assessee.

Summary

Issues:
Challenge to order under Section 255(3) of the Income Tax Act, 1961 regarding constitution of a special bench by the President of Income Tax Appellate Tribunal.

Detailed Analysis:

1. Constitution of Special Bench:
The petition under Article 226 of the Constitution challenges the order dated 05th March 2013 passed under Section 255(3) of the Income Tax Act, 1961. The President of the Tribunal constituted a special bench consisting of three members to hear and decide the entire appeal. The petitioner had filed its Return of Income for the assessment year 2008-2009, declaring a loss of Rs. 19.91 crores. The Assessing Officer determined the petitioner's income at Rs. 272.65 crores, leading to an appeal to the CIT(A) and then to the Tribunal. The Central Board of Direct Taxes (CBDT) sought the constitution of a special bench in the interest of revenue, resulting in a series of communications and hearings before the Division Bench of the Tribunal.

2. Tribunal's Decision and Recommendations:
The Tribunal, in its order dated 19th December 2012, held that there was no need to constitute a Special Bench due to the complexity of facts and law, large revenue impact, or effect on proceedings before CBI. However, considering political sensitivity, it recommended hearing the appeal before an appropriate bench outside the State of Andhra Pradesh. Subsequently, the Vice President of the Tribunal recommended referring the appeal to a Special Bench based on the complexity of issues involved. The President then constituted a Special Bench at Hyderabad, contrary to the Division Bench's suggestion.

3. Fairness and Procedural Concerns:
The fairness of the proceeding was questioned as the CBDT approached the President directly for the constitution of a Special Bench instead of following proper procedures. The timing and manner of exercising the power under Section 255(3) were debated, emphasizing the need for fairness in quasi-judicial bodies like the Tribunal. Concerns were raised regarding the lack of notice to the other party, propriety in decision-making, and the requirement for reasons in administrative orders affecting parties' rights.

4. Judicial Review and Interim Relief:
The Court considered the necessity of judicial review in administrative decisions impacting legal proceedings. The respondents argued that the Division Bench had heard the petitioner, but the decision was made by the President based on one side's submission. The Court highlighted the importance of reasoned administrative orders and the obligation to consider all aspects before constituting a Special Bench. As the petitioner made a strong prima facie case, interim relief was granted.

5. Conclusion and Directions:
The final hearing was expedited at the parties' request, with the respondents waiving service. The petition was scheduled for directions before the assigned Bench, where a date for the final hearing would be considered. The detailed analysis of the proceedings highlighted procedural irregularities, fairness concerns, and the importance of reasoned administrative decisions in quasi-judicial bodies like the Tribunal.