2015 (8) TMI 473 - HC - Income Tax

Constitution of a special bench of the Income Tax Appellate Tribunal outside Andhra Prades - President of the Income Tax Appellate Tribunal exercising his powers under Section 255(3) of the Income Tax Act, has constituted a special bench of three members to hear the appeal filed by the Petitioner - order passed by bench challenged - grievance of the Petitioner that he was kept in dark about the decision making process - Held that - The president forwarded the letter of the Board to the Vice president for his comments. This was purely an internal movement of the file. It was not that the matter was judicially assigned to the Vice president and notified on his board. There was no indication for any litigant to know that the file was now before the Vice president. In spite of this position, the Special counsel who was to be engaged by the Revenue met the Vice president and explained him the need for a special bench. How the Special counsel knew that the file of the matter was before the Vice president, is a mystery. This was a private meeting and the Petitioner was not informed. The matter was seized before the regular bench and the revenue was a contesting party. The Petitioner was completely unaware that any such private meeting had taken place between the counsel and the Vice president. Permitting a party to the litigation to meet privately in absence of other side in respect of an ongoing litigation and then base an opinion on such meeting ,was most improper on the part of the Vice president. The Vice president did not even find it improper and he has proceeded to place the said private meeting on record as if nothing was wrong about the same. Not only holding such private meetings is opposed to judicial conduct, but not knowing that it is an improper judicial conduct, makes the matters worse. It is true that the final order of the president is not a judicial order. Nevertheless, even when a judicial body acts in administrative capacity, in midst of the litigation, which order will have effect on the ultimate outcome, the judicial body, must act with fairness, and not allow itself to be influenced. This is a fundamental principle. We will be failing in our duty if we do not uphold this most important principle. No attempts to influence a judicial body by non-judicial methods can be permitted and tolerated. If a litigant, be it the State, indulges in such acts, it shall not derive any benefit therefrom. Such tainted process must be obliterated and undertaken again. This course of action is necessary to retain the faith of litigants in the quality of justice rendered by the Tribunal. It is also necessary to send a strong signal to all the litigants, including the State, to make no attempts to influence a judicial body by non-judicial methods. What is further troubling is that is the introduction of political sensitivity . In fact, the request letter of the Board does not specifically invoke this concept. It is the Vice president who has introduced this concept. This concept is then carried forward by the Regular Bench and during the arguments before us. We fail to understand how political sensitivity is relevant in a tax litigation. Tax is levied and collected under the sovereign power of the State. The Revenue is entrusted with collecting the tax and employ all legitimate methods to bring the tax evaders to book. The Tribunal is established to adjudicate disputes arising from the application of the Act. In the scheme of the Act, political affiliation of an assessee is irrelevant. The Vice president thought the case was politically sensitive. This was after the private meeting with the representative of the Board. So are we to presume that politics was discussed in the meeting ? The Vice president has sown a seed of an irrelevant and potentially dangerous concept in the income tax litigation. The underlined theme of the letter was that the Chief Promoter of the Petitioner was a politician who abused his position, indulged in quid pro quo and what the Department unearthed was a huge financial fraud. Except employing the word complex , nothing was shown how it was complex. If the fraud was complex, the Board would seek and request for a more investigating machinery. What may appear complex for investigation, may not, at the end of investigation remain complex for a judicial body to decide and vice-versa. The Regular Bench also did not find that the appeal contained any complex questions of law to be decided by a special bench. The letter of the Board was specially directed against the Petitioner alone. The petitioner has levied a charge, which has gone unanswered, that similar allegations were made in the case of Ramojirao Group, but their matters were not referred to a special bench and only the Petitioner is singled out. Why the Board did not choose to invoke the judicial power of the Bench is not been informed to us in spite of our repeated queries. There is a clear methodology laid down under the Regulation 98(A) to make a reference by judicial order to the president. To sum up, the president was under obligation to give hearing to the parties. The Regular Bench had not unequivocally recommended constitution of the special bench and it had merely recommended that the matter be heard outside Andhra Pradesh. Since the Regular Bench had not recommended constitution of the special bench, no reason at all is found in the order of the president in constitution of the special bench. The president entertained a request in a matter which was seized by the Regular Bench, from a party to the litigation, passed an order without hearing the other side, without any reasons, and posted the entire matter before the special bench. This course of action was in breach of principles of natural justice and lacking in fairness. The Vice president, who played a dominant role in decision making, entertained the representative of one party to the litigation privately without notice to the other side, and introduced a completely irrelevant concept of political sensitivity in the process, which by itself vitiates the decision making. Even otherwise, all the factors cumulatively, it has to be declared that the entire course of action adopted to constitute a special bench was opposed to the rule of law, fairness, transparency and cannot be sustained. We do so declare accordingly. W.P. allowed. The impugned order passed by the Respondent No.1 president constituting a special bench to hear the appeal of the Petitioner, is quashed and set aside

Summary

Issues Involved:
1. Constitution of a Special Bench by the President of the Income Tax Appellate Tribunal.
2. Alleged violation of principles of natural justice.
3. Alleged improper influence and bias in the decision-making process.
4. Scope of judicial review of the President's administrative orders.

Issue-wise Detailed Analysis:

1. Constitution of a Special Bench by the President of the Income Tax Appellate Tribunal:
The President of the Income Tax Appellate Tribunal (ITAT) constituted a special bench of three members to hear the appeal filed by the Petitioner, exercising powers under Section 255(3) of the Income Tax Act. The Petitioner challenged this order, arguing that the special bench was constituted without proper justification and that it was influenced by external factors. The court examined the legal provisions under Section 255 of the Income Tax Act, which allows the President to constitute special benches for specific cases. However, the court found that the President's order lacked clear reasons and did not follow the proper procedure, especially since the regular bench had not unequivocally recommended the constitution of a special bench.

2. Alleged violation of principles of natural justice:
The Petitioner argued that the President's decision to constitute a special bench was made without giving them a proper hearing, thus violating the principles of natural justice. The court agreed with this contention, noting that the President should have given the Petitioner an opportunity to be heard, especially since the decision affected their rights significantly. The court emphasized that even administrative decisions by judicial bodies must adhere to principles of fairness and transparency.

3. Alleged improper influence and bias in the decision-making process:
The court found that the Vice President of the ITAT had a private meeting with the Special Counsel for the Revenue, which was improper and created a perception of bias. This meeting was not disclosed to the Petitioner, and the Vice President's subsequent recommendation for a special bench was influenced by this private interaction. The court strongly condemned this conduct, stating that it undermined the integrity of the decision-making process and violated the fundamental principles of judicial fairness.

4. Scope of judicial review of the President's administrative orders:
The court examined the scope of judicial review for the President's administrative orders under Section 255(3) of the Income Tax Act. While acknowledging that the President has administrative powers to constitute special benches, the court held that such powers must be exercised reasonably, fairly, and without bias. The court emphasized that administrative orders affecting the rights of parties in ongoing litigation must adhere to principles of natural justice and transparency. The court concluded that the President's order in this case was arbitrary, lacked proper reasoning, and was influenced by improper factors, making it subject to judicial review and invalidation.

Conclusion:
The court quashed and set aside the President's order constituting a special bench, citing violations of natural justice, improper influence, and lack of transparency. The court allowed the parties to take further actions permissible by law regarding the constitution of a special bench, emphasizing the need for fairness and adherence to the rule of law in judicial proceedings.