How a Special Bench of ITAT was Constituted
12 08 2015
Wednesday
THE President of the ITAT can constitute a Special Bench of three or more members for the disposal of any particular case. Can the parties request for a Special Bench and that too through a letter to the President?
That is exactly what the Central Board of Direct Taxes (CBDT) did.
Member CBDT wrote a letter to the President of the Tribunal on 15.11.2012, which read as:
M/s. Jagathi Publications Pvt. Ltd., incorporated in the year 2006, is engaged in publishing a Telugu Newspaper by the name 'Sakshi'. The assessment in the case of assessee company for A.Y. 2008-09 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 Pro Quo" for extending the official favours. The total quantum of share premium involved from A.Y. 2008- 09 to A.Y. 2010-11 is a sum of Rs.1140 crores.
4. Similar to the above "Quid Pro Quo" arrangement, another company promoted by Shri Y.S. Jagan Mohan Reddy, M/s. Bharathi Cements Ltd. Has received share capital with share premium of Rs.430.71 crores. Total money received by various companies promoted by Shri Y.S. Jaganmohan Reddy, as a "Quid Pro Quo" arrangement is more than Rs.1700 crores.
5 Section 225(3) of the IT Act empowers the President of the ITAT to constitute a special bench consisting of 3 or more members for disposal of a particular case. The present case needs constitution of a special bench for the following reasons :
(i) The "Quid Pro Quo" arrangement is unique in nature.
(ii) The case is very complex involving legal issues having far reaching consequences for the revenue in this case and also in other cases.
(iii) In the entire group, huge tax effect is involved and identical transactions are involved in various cases and this case can set a precedent.
(iv) The modus operandi employed in bringing the illegal gratification into the books of account of the companies without payment of taxes is unique and taxation of the share premium as a revenue receipt is under a serious challenge requiring an in-depth analysis of facts and evidences partly gathered by the CBI, by the members of I.T.A.T.
(v) On the same set of facts, prosecution had been launched by the CBI and recently a couple of charge-sheets have been filed under IPC and the Prevention of Corruption Act against Shri Y.S. Jagan Mohan Reddy. The Enforcement Directorate has also launched an investigation into the money laundering against Shri Y.S. Jagan Mohan Reddy. The decision of ITAT will have a serious impact on the prosecution proceedings launched by the CBI.
(vi) The issues involved need an in-depth analysis by a Special Bench as it needs interpretation of Sec.56 and Sec.68 of I.T. Act on a complex set of facts.
(vii) This case shall set a trend in curbing the pernicious practice of conversion of black money into white and requires the attention of ITAT.
6. In view of the above facts and circumstances of the case and in the interest of revenue, it is requested that a Special Bench of ITAT be constituted urgently u/s 255(3) of the I.T. Act for hearing the appeal in the case of Jagathi Publications Pvt. Ltd. For A.Y. 2008-09 in ITANo.18/Hyd/2012, so that the next hearing takes places before such special bench.
After the Board made the above request on 15th November 2012 to the President for constitution of the special bench, the President made a handwritten endorsement on the letter on 19th November 2012 as "VP Hyd. Zone for comments". Thereafter, the letter of the Board with the endorsement of the President was placed before the concerned Vice President. The Vice President on 27th November 2012 addressed a letter to the members of the Regular Bench at Hyderabad on this issue.
The Regular Bench opined that most of the appeals that come before the tribunal involve complex facts and intricate questions of law and if the argument of Revenue is accepted, almost all matters will have to be referred to a special bench. Similarly, huge revenue implications are also not a ground for constitution of a special bench as many cases have such implications. As regard the impact of the decision of the tribunal on the pending prosecutions, the Bench observed that the Central Bureau of Investigation and the Directorate of Enforcement Department are investigating agencies, the tribunal is a quasi-judicial body, and its decisions are rendered upon consideration of facts and material before it. The Bench observed that, however, there is political sensitivity involved in the Appeal filed by the Petitioner and decision by the Tribunal on this issue would have widespread ramifications. The Bench then observed that hearing of the appeal at Hyderabad may generate widespread attention of local media and avoidable heated debate and considering the sensitivity of this case, may affect the hearing of the Bench. The Bench accordingly opined that the President may constitute an Appropriate Bench outside Andhra Pradesh to remove any doubt and apprehension in the mind of any party to the litigation as regard fairness and ultimate decision-making. The Bench accordingly forwarded its proposal with its comments to the Vice President on 19th December 2012 with a request to place the same before the President.
The Vice-President wrote to the President on 9th January 2013, “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).”
The Vice President did not mention about the recommendation of the Regular Bench that an Appropriate Bench be constituted for the hearing outside Andhra Pradesh.
The President on 5th March 2013 constituted a Special Bench of three Members.
Special Bench at the request of Revenue - High Court slams Tribunal President
THE assessee, the famous politician, challenged the Constitution of the Special Bench and the Bombay High Court on Monday (10.08.2015) quashed the order constituting the Special Bench. While doing so, the High Court made some memorable remarks, which should be lessons for the Revenue as well as the Tribunals.
The High Court observed,
Private Meeting of the Special Counsel with the Vice President: This is the most distressing part. 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.
Is Constituting a Special Bench a judicial order?: 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. 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.
Political Sensitivity in Tax matters?: What is further troubling 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 employs 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. Consider a converse scenario. There could be situation 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.
ITAT: The Income Tax Appellate Tribunal is one of the oldest and most reputed tribunals in the country. Looking at its composition, high standards of conduct are naturally expected. It is of utmost importance that the faith of the litigants in the Tribunal is maintained. Procedural justice is an important facet in the administration of justice. That justice must not only be done but also seen to have done, is not a cliché but is one of the most basic principles.
The role of the Board. The Board has sought to project itself as an innocent party in the matter. Even assuming serious charges of misappropriation, embezzlement, and defrauding the State have been levied against its promoters, it does not mean that the Petitioner is not entitled to be treated fairly in the judicial proceedings. Judicial and quasi-judicial proceedings must be conducted in a manner that is fair and impartial. Ultimately, what is of a paramount importance is the Rule of Law.
The Board addressed a letter to the President citing various reasons. 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 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.
This only gives credence to the serious grievance made by the Petitioner that the entire attempt of the Board to get the special bench constituted was a part of political vendetta targeted at the Petitioner. We, therefore, cannot accept the contention that the Board acted in a bonafide manner and it had no personal interest in it. The Board has shown more than active interest in targeting the Petitioner and has crossed the permissible limits by trying to influence the decision-making.
Why the petitioner is aggrieved? It is the grievance of the Petitioner that if the appeal filed by it to be heard by the regular bench, then it 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.
Special Bench request by assessee? 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.
No Special Bench without hearing the parties: Laying down that even such purely ad-hominem 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 uncorrectable 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.
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 several adjourned dates, we had called upon Registry of the Tribunal to furnish data as to instances of exercise of power by the President in such circumstances i.e. on an application of a party to the litigation, in a seized matter the entire appeal has been referred to special bench. No such data was furnished nor was any explanation given for non- furnishing. We were informed that in some matters entire appeal is referred but we were not informed whether other two ingredients were present. We proceed to presume therefore that the case at hand is the only of its kind. In any case, it does not seem to be a regular practice of the Tribunal and it certainly is a deviation.
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.
Jagati Publications Ltd Vs President, ITAT - 2015-TIOL-1818-HC-MUM-IT
Aadhaar not mandatory - Supreme Court
THE Supreme Court yesterday ruled that:
1. The Union of India shall give wide publicity in the electronic and print media including radio and television networks that it is not mandatory for a citizen to obtain an Aadhaar card;
2. The production of an Aadhaar card will not be condition for obtaining any benefits otherwise due to a citizen;
3. The Unique Identification Number or the Aadhaar card will not be used by the Government for any purpose other than the PDS Scheme and in particular for the purpose of distribution of foodgrains, etc. and cooking fuel, such as kerosene. The Aadhaar card may also be used for the purpose of the LPG Distribution Scheme;
4. The information about an individual obtained by the Unique Identification Authority of India while issuing an Aadhaar card shall not be used for any other purpose, save as above, except as may be directed by a Court for the purpose of criminal investigation.
Until Tomorrow with more DDT
Have a nice day.
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