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TMI Blog2015 (8) TMI 473X X X X Extracts X X X X X X X X Extracts X X X X ..... Act), is empowered to constitute an Appellate Tribunal to hear the appeals arising under the Act. The Appellate Tribunal consists of judicial and accountant members. The Central Government is also empowered to appoint a president and senior vice president. The Appellate Tribunal exercises and discharges powers through benches constituted by the president of the Appellate Tribunal as per Section 255 of the Act. Section 255 reads as under: "255.(1) The powers and functions of the Appellate Tribunal may be exercised and discharged by Benches constituted by the president of the Appellate Tribunal from among the members thereof. (2) Subject to the provisions contained in subsection (3), a Bench shall consist of one judicial member and one accountant member. (3) The president or any other member of the Appellate Tribunal authorized in this behalf by the Central Government may, sitting singly, dispose of any case which has been allotted to the Bench of which he is a member and which pertains to an assessee whose total income as computed by the Assessing Officer in the case does not exceed (five hundred thousand rupees), and the president may for the disposal of any particular case, c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by one or more members of the appellate tribunal. The decision of the special bench and the position of law decided are binding on the regular two member bench. Regulation 98A and the proforma appended thereto, specifies the procedure for referring cases for constitution of a special bench. The Regulation is as under: "Regulation 98(A): With a view to bring about uniformity in the procedure for reference of cases to the president, Income Tax Appellate Tribunal for constitution of the special benches consisting of three or more members instructions have been issued from time to time. For making such reference the concerned Bench should pass the order similar to order of Tribunal 'the reference shall be made by the Bench as far as possible' in the proforma as appended in XIX(B). APPENDIX XIX (B) INCOME TAX APPELLATE TRIBUNAL Proforma for making reference by a Bench to the president, Income Tax Appellate Tribunal for constitution of the. 'We the members ............ Bench (es) at ......... (station) are of the opinion that the appeal(s) No.(s) .............. in the matter of ................. which were posted for hearing before us on ............ is/are fit and pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on 9 March 2010. The Revenue picked up the case for scrutiny and a notice was issued to the Petitioner. The Petitioner appeared before the Assistant Commissioner of Income Tax, Circle-2 (1), Hyderabad. The assessment by order dated 31 December 2010 under Section 143(3) of the Act was completed and the total income of Rs. 2726537270 was determined. An amount of Rs. 2775688650 was added under Section 28(iv) of the Act for share premium received by the Petitioner from the subscribers to the paid up capital. An amount of Rs. 150000000 was added under Section 68 as unexplained cash credit towards capital contribution. 6. Petitioner challenged the order passed by the Assessing Officer on 31 December 2010, by way of an appeal to the Commissioner of Income Tax (Appeals3), Hyderabad. Petitioner took up various contentions. It contended that the share premium, which was received during the relevant financial year 2007-08, was of capital nature and could not be treated as an income in terms of Section 28(iv) of the Act. It contended that, only nonmonetary benefit or perquisites can be taxed under Section 28(iv) and the section did not apply to capital receipt. The levy of tax of Rs. 150000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment in the case of assessee company for A.Y. 200809 was completed on a total income of Rs. 272.65 crores against the returned loss of Rs. 19,91,51,380/. The additions made by the AO were confirmed by the CIT (A). The assessee filed an appeal against the same which as of now is pending before 'B' bench, ITAT, Hyderabad and the case is posted for hearing before the ITAT on 19.12.2012. 3. The main promoter of the assessee company is Shri Y.S. Jagan Mohan Reddy, Member of Parliament and son of Late Shri Y.S. Rajasekhar Reddy, former Chief Minister of Andhra Pradesh. The assessee had allotted shares at a premium of Rs. 350/per share (face value Rs. 10/) to several persons or entities who received benefits from the Government of Andhra Pradesh for allotment of land at concessional rates, grant of licences, allotment of Special Economic Zones, license for construction of hotel, reduction of Green belt, provision of water and other facilities, regularization of urban land, permission for transfer of land, permission for establishment of ports, etc. During the course of assessment, the AO established that the Investment in shares at high premium was made as a matter of "Quid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations Pvt. Ltd. For A.Y. 2008-09 in ITA No.18/Hyd/2012, so that the next hearing takes places before such special bench. Sd/( Anita Kapur) Member (A&J), CBDT." Thus, the basis of request to constitute a special bench was that the main promoter of the Petitioner Y.S. Jagan Mohan Reddy, had allotted shares of the Petitioner at a premium to various persons, who received benefits from Government of Andhra Pradesh in terms of allotment of lands, licenses, reduction of Green Belt, water and other facilities regularization of urban land, etc. According to the Board, these investments in shares were a matter of "quid pro quo" and the amounts involved were very large and the legal issue was complex and of far reaching consequences for the revenue. 9. The matter was taken up for hearing on 14 December 2012 by the members of the Appellate Tribunal (the Regular Bench). At the hearing, the Petitioner objected to the constitution of a special bench submitting that the special bench can be constituted only in the case of conflict of decisions and none of the factors mentioned by the Board were germane to constitute a special bench. It contended that the constitution of a special bench would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its request by letter dated 29 July 2013. There was no response to this letter. Since the matter was fixed for hearing before the special bench on 16 September 2013, the Petitioner filed the present petition on 26 August 2013 praying that that the order passed by the president of the Tribunal under Section 255(3) of the Act, constituting the special bench be quashed and set aside. This was the factual position in the knowledge of the Petitioner when it filed the petition. 12. When the Petition came up for hearing on 3 September 2013, the counsel for the Respondent No.1 furnished a copy of the intimation issued of Assistant Registrar of the Tribunal dated 19 December 2012 regarding constitution of the bench. It was taken on record and leave was granted to amend the petition. Hearing of the Petition was adjourned and in the meanwhile, by way of an adinterim relief, the proceedings before the special bench were stayed. Thereafter the matter was adjourned from time to time at the request of the parties. 13. During the hearing on 1 September 2014, the Petitioner made a grievance that the order passed by the president constituting a special bench was not furnished to the Petitioner and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for constituting special bench in exercise of the powers vested under Section 255(3) of the Income Tax Act, 1961. This may be treated as urgent." Sd/. (emphasis supplied). 15. On 27 November 2012, the Regular Bench sent a notice to the Petitioner annexing a copy of the letter of the Board dated 15 November 2012 stating that the hearing before the Tribunal was fixed on 14 December 2012. The Regular Bench heard the Petitioner and the Revenue in respect of the proposal to constitute a special bench by the president. The copy of the opinion of the Regular Bench is placed on record. During the hearing, the Departmental Representative contended that the constitution of a special bench is a purely administrative matter and there is no need to hear either side. He reiterated the grounds raised by the Board in its letter dated 15 November 2012. According to the Departmental Representative the president, in the appropriate case, can constitute a special bench and it is not necessary that there must exist conflicting judicial pronouncements. According to the Departmental Representative, since the issue involved in the Appeal was of national importance, having large scale of ramifications, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereafter placed before the Vice president. The Vice president forwarded the opinion of the Bench to the president on 9 January 2013. The Vice president communicated his opinion as under: "Respected Brother, Sub.: Proposal for constitution of special bench in the case of M/s.Jagathi Publications Pvt. Ltd. I have gone through the Tribunal order passed by the division Bench of ITAT Hyderabad as well as the appeal papers in the case of M/s. Jagathi Publications Pvt. Ltd. Since these papers were forwarded to me for my comments by your good-self, I have gone through the papers to appreciate if it is a fit case for reference to special bench. Considering the complexity of the issues involved, as detailed in the order passed by the Division Bench, I am of the prima facie view that it deserves to be referred to a special bench consisting of three Members to decide the entire appeal in exercise of the powers vested in you under section 255(3) of the Income Tax, 1961, subsection (3) to that extend reads under : 'The president may, for the disposal of any particular case, constitute a Special Bench consisting of three or more Members, one of whom shall necessarily be a and one Accounta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board could not have requested the president to constitute a special bench and the president could not have done so as the regular bench was seized of the matter. The request made by the Board was for collateral purpose and was not bonafide. No reason is shown as to why a special bench was required in the present case. The request was made by the Board only to ensure that the binding decisions of the tribunal and the law of precedents, according to which the Petitioner's appeal would have been allowed, will be circumvented. The claim of the Board that there was quid pro quo, which made a departure from settled law, is fallacious, as the matter of the order of the tribunal in the case of PVP Ventures Ltd. that was relied upon, does not lay down this proposition. If so, it is open to the Revenue to distinguish the decision before the Regular Bench. There are no compelling reasons as to why the Board could not have moved the Regular Bench and followed the procedure laid Regulation 98A framed by the tribunal. The order passed by the president is amenable to judicial review and it must pass the test of fairness and nonarbitrariness. There are several issues, which raise more questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Board was bonafide. It was made in view of judicial orders. In various orders, the Andhra Pradesh High Court and the Supreme Court have observed that there is a prima facie case against Y.L. Jagmohan Reddy, the Chief Promoter of indulging in quid pro quo to distribute state largesse in return for paying premium to acquire shareholding of the Petitioner Company. The Andhra Pradesh High Court in a Public Interest Litigation has issued directions to the Central Bureau of Investigation to investigate the case. In view of the various directions issued by the High Court and the Apex Court, the Board bonafide believed that the case being complex and of greater magnitude, requires to be heard by a special bench. There is nothing malafide about the request made by the Board. After the request was so made to the president, a methodology was followed whereby both the parties submitted their points of views and thereafter a special bench was constituted. The petition is devoid of merits and be rejected. 23. First the scope of judicial review against the order of the president constituting a special bench under Section 255(3) of the Act. The learned counsel for the parties have accepted the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision by filing three writ petitions before the High Court of Andhra Pradesh. The Division Bench allowed the petitions and answered the reference in favour of the revenue. The High Court set aside the order passed by the president constituting a special bench by holding, amongst other grounds, that such constitution can be done only by virtue of a judicial order. The High Court took a view that, in the facts and circumstances of the case the president was not justified in constituting a special bench and there was no reason to constitute a special bench. The High Court also disapproved the procedure adopted by the tribunal. The assessee's thereafter filed special leave petitions. The Income Tax Appellate Tribunal in the Apex Court challenged the finding of the High Court regarding the power of the president. The proceedings filed by the Income Tax Appellate Tribunal were delinked from other matters filed by the assessee and was decided by the decision of the Apex Court in the case of I.T.A.T. 26. The Apex Court in I.T.A.T. framed two points for consideration, first, as to whether the special bench had committed breach of principles of natural justice and whether the president ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The president can also, Suo moto, if it is brought to his notice that if any important point is pending for decision, constitute a special bench. The Apex Court did not approve the finding of the Andhra Pradesh High Court that reference can only be made by way of a judicial order. The Apex Court also held that, when the president exercises its suo moto powers on the ground that the matter is of all India importance, such order being an administrative order except in extraordinary grounds, such as, malafides, it is not open to scrutiny under Article 226 of the Constitution of India. Keeping this dictum of the Apex Court in mind, the rival contentions will have to be assessed. 28. The Petitioner has assailed the order of the president broadly on three counts. Firstly, that the Counsel for the Revenue meeting the Vice president privately vitiates the entire decisionmaking. Secondly, the president could not have exercised his suo moto powers to constitute a special bench when the regular Bench was seized of the matter and without giving hearing himself to the Petitioner. Thirdly, the president completely disregarded that Regular Bench did not recommend a special bench, and did not giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Tribunal will have serious on the proceedings before the CBI and Enforcement Directorate, we are to say that while the CBI and Enforcement Directorate are investigating and prosecuting agencies, the Tribunal is a quasi judicial body adjudicating on disputes arising out of assessments made under direct tax laws. The decisions of the Tribunal rendered upon considering the facts and materials on record, the statutory provisions and the law laid down by the Supreme Court and High Courts and also different benches of the Tribunal. The degree of appreciation of evidence varies between the proceedings before the Tribunal and the proceedings initiated by the CBI and Enforcement Directorate. 18. At the same time, however, there is enormous political sensitivity involved in the present appeal filed by a company, whose chief promoter is a Member of Parliament and son of former Chief Minister, facing serious charges of quid pro quo and so on, with the ongoing investigations by CBI and Enforcement Directorate. In the circumstances, any decision of the Tribunal on the issues involved in the appeal - one way or the other may have wide spread ramifications in similar matters across the cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urged by the Board for constitution of a special bench. Thereafter it stated that since there was 'political sensitivity' and the decision would have widespread ramifications. The Regular Bench opined that it will be advisable to have the matter heard outside Andhra Pradesh. The Bench opined that, to ensure the continuous faith of taxpayers and tax administration and people at large that the Tribunal has been enjoying over decades, the president may constitute appropriate Bench outside Andhra Pradesh. 31. When the Regular Bench rejected all grounds of the Board for a special bench and made only one suggestion that the matter should be transferred out of Andhra Pradesh, its use of the phrase Appropriate Bench can only mean a bench outside Andhra Pradesh. special bench is a specific term under the Act and having made a reference to it throughout the opinion, the Regular Bench specifically recommended an 'Appropriate bench' and deliberately chose not to employ the phrase "special bench". We are not considering whether the Regular Bench was right in arriving at this conclusion but we are considering this opinion in the context of the submission of Mr.Rana that the opi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 35. Mr.Rana, with usual his forthrightness befitting a senior advocate, submitted that such private meeting cannot possibly be tolerated by any Court. He however contended that this factor should not ultimately influence this Court in testing the validity of the order of the president. With respect to Mr.Rana, we are unable to agree. The Vice president had played a major role in the decision making process to constitute the special bench. After he received the file from the president for his opinion, he suggest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. Consider a converse scenario. There could be situtaion where an assessee may send its representative to hold a private meeting to refer the entire matter to special bench because the result before regular bench may affect his political career or that the issue in his case is politically sensitive. We therefore strongly deprecate the invocation of this criterion. The collection of tax and the adjudication must move unconcerned with political identity. 38. The Income Tax Appellate Tribunal is one of the oldest and most reputed tribunals in the country. The qualification for appointing a Judicial member broadly are at least 10 years in the judicial office or advocate for at least 10 years. The qualification for appointment as an Accountant Members is broadly are that he should be a Chartered Accountant for at least 10 years,Member of Indian Income Tax Service with the post of Additional Commissioner of Income Tax or equivalent or higher. The qualification to be appointed as a president is a sitting or retired Judge of the Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the practising Chartered Accountants. So far as the later are concerned, there can be no reason to think that they cannot be independent. The independence of the members recruited to the Tribunal from the officers of the Income Tax Department is secured by so arranging things that they cannot look forward to anything from the Income Tax Department or the Ministry of Finance they cannot go back to higher posts in that Department. Their promotion and tenure of office are not controlled by the Ministry of Finance. These are in the hands of the Ministry of Law". (emphasis supplied) The expectations of the litigants echoed by the learned Chief Justice must be maintained. We are not prepared to permit any dilution of these expectations. 40. Now to examine the role of the Board. The Board has sought to project itself as an innocent party in the matter. Mr.Dave learned counsel appearing for the Board, placed before us various decisions of the Andhra Pradesh High Court and the Apex Court, in the cases of P. Shankar Rao v/s The Govt. of Andhra Pradesh, Writ Petition Nos.794, 6604 and 6979 of 2011, dated 10 August 2011; M/s.Jagathi Publications Ltd. v/s Central Bureau of Investigation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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. These regulations show a procedure is prescribed by which relevant material is placed on record. After the special bench is so constituted it is informed to the members of the bar the points on which the matter is referred to the special bench. Nothing stopped the Board from invoking this method that is judicial, transparent, and non-arbitrary to get a special be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rious situations where the president may be called upon to exercise his administrative powers. There is also no warrant for us to examine such an absolute proposition since all that we are concerned with is the exercise of the power by the president in the facts of the case. We have examined the challenge under the procedural aspects and not under lack of power. In each case when the challenge is laid to the order of the president, the exercise will have to be tested in the backdrop of facts of that case. We restrict the enquiry to the exercise of the powers by the president in the peculiar facts of this case. 46. Next facet is whether the president should have given hearing to the Petitioner. There was debate as to the extent of applicability of principles of natural justice. According to Mr.Rana, requirement of hearing the parties is not contemplated while exercising the power under Section 252(3) by the president, and even otherwise, the president, adopting a fair course of action, has permitted the parties to present their case before the Regular Bench. According to Mr.Mistri, in the peculiar facts of the present case, the principles of natural justice ought to have been stric ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was entitled to favourable direction in its favour in view of law of precedent as there were binding decisions of the Tribunal. According to the Petitioner, by trying to place the matter before the special bench of three members, the Petitioner was systematically sought to be deprived of the position of law in its favour. Whether a special bench would continue with upholding the position of law in favour of the Petitioner or differ is not the question but the perception of the Petitioner of having suffered an order without hearing, would be the most relevant factor. The Apex Court in I.T.A.T. did refer to the order of the president as administrative but in the case of I.T.A.T. a representation was made by the entire bar and not by a party to the litigation and it was concurred with by the bench hearing the matter. 50. Section 255(3) as interpreted by the Apex Court contemplates two ways of establishing a bench. One by a judicial order by the regular bench and sou-moto by the president. Even though the power of the president in constituting a Bench suo moto is conferred by the Act, it will depend on facts of each case as to what is the shade of the power exercised as to whether it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opposite side has been able to secure a march over it in a judicial proceedings through an order passed without affording an opportunity of hearing. 53 Today the order is passed on the application of the Board, tomorrow it could be on the application of the assessee. An assessee may, in midst of hearing, make an application to the president to constitute a special bench and the president may, without hearing any party, constitute a special bench to hear the entire appeal of the assessee without formulating a question of law and without assigning any reason. Laying down that even such purely adhominem circumstances, the president is not obliged to give an opportunity to the concerned parties and pass unreasoned orders, will be conferring a non-transparent and un-correctable power on the president. In such circumstances, in our opinion, it is in the interest of administration of justice that the president should give an opportunity of hearing to both the parties before referring the matter to a special bench. 54. Laying down such proposition will neither open floodgates of litigation nor place unnecessary burden on the president. During the course of hearing, which went over sever ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve, the impugned decision-making is vitiated. 57. 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 cou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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