2017 (10) TMI 691 - HC - Income Tax

Limitation prescribed under Section 254(2) - application under Section 254(2) stating that he was not able to attend the date of hearing in respect of his appeal preferred before the Tribunal as the authorized representative of the assessee was not well - scope of amendment in respect of limitation - Held that - Keeping in view the judgment delivered by their lordships in the M.P. Steel Corporation 2015 (4) TMI 849 - SUPREME COURT in the present case also the new law of limitation providing a shorter period cannot certainly extinguish a vested right of action. The amendment has been made effective virtually in case of assessee with retrospective effect though the amendment does not show that it is applicable with retrospective effect, however, the existing right has been extinguished with retrospective effect in case of the assessee. In the considered opinion of this Court, the legislature should have granted some time to the assessees who could have filed an appeal within a period of four years and the same has not been done till the amendment came into force extinguishing the right to file an appeal. In the considered opinion of this Court, application preferred by the assessee should not have been dismissed by the Tribunal on account of the amendment which has reduced the period of limitation of four years to six months. Resultantly, the impugned order passed by the respondent on 23/12/2016 is hereby quashed and the writ petition stands allowed. The Income Tax Appellate Tribunal is directed to decide the application preferred under Section 254(2) on merits within a period of three months from the date of receipt of certified copy of this order.

Summary

Issues Involved:
1. Whether the amendment to Section 254(2) of the Income Tax Act, 1961, which reduced the limitation period from four years to six months, applies retrospectively.
2. Whether the Tribunal's dismissal of the assessee's application under Section 254(2) due to the expiry of the new six-month limitation period was justified.

Detailed Analysis:

1. Retrospective Application of Amendment to Section 254(2):
The petitioner, a District Central Co-operative Bank, challenged the Tribunal's order dismissing its application under Section 254(2) of the Income Tax Act, 1961. Initially, the limitation period for rectifying any mistake apparent from the record was four years. However, an amendment effective from 01/06/2016 reduced this period to six months. The petitioner argued that at the time of the ex-parte order on 25/08/2015, the four-year limitation was in effect, and thus, their application filed on 23/08/2016 should be considered within the permissible period.

The Court referred to the Supreme Court's decision in M.P. Steel Corporation v. Commissioner of Central Excise, which held that procedural laws, including limitation periods, generally apply retrospectively. However, this principle has exceptions, particularly when a new, shorter limitation period would extinguish a vested right of action. The Court highlighted that procedural changes should not retroactively nullify existing rights unless explicitly stated.

2. Justification of Tribunal's Dismissal:
The Tribunal dismissed the petitioner's application as it was filed beyond the new six-month limitation period. The Court noted that the amendment did not explicitly state its retrospective application. Thus, applying the shorter limitation period retrospectively effectively extinguished the petitioner's vested right to file an application within the original four-year period.

The Court emphasized that the legislature should have provided a transitional period for assessees affected by the amendment. The abrupt reduction of the limitation period without such a provision was deemed unfair and contrary to established legal principles. The Court concluded that the Tribunal should not have dismissed the application based on the amended limitation period.

Conclusion:
The Court quashed the Tribunal's order dated 23/12/2016, ruling that the application under Section 254(2) should be considered on its merits. The Tribunal was directed to decide the application within three months, and the parties were instructed to appear before the Tribunal on 30th October 2017. The decision underscored the importance of fair transitional provisions when amending procedural laws to avoid unjustly extinguishing vested rights.