Case Law Details
Otters Club Vs Director of Income Tax (Exemptions) (Bombay High Court)
Bombay High Court has come down heavily on the Income Tax Appellate Tribunal (ITAT) for passing an order beyond the stipulated 90-day period, as mandated by the ITAT Rules and a previous ruling of the same High Court. The court was hearing a petition filed by Otters Club challenging the ITAT’s dismissal of its application for rectification of an earlier order related to the assessment year 2009-10.
Otters Club had approached the High Court with two primary grievances. Firstly, it argued that the ITAT’s order dated February 3, 2016, was passed in violation of Rule 34(5)(c) of the Income Tax Appellate Tribunal Rules, 1963, which requires the pronouncement of an order within 90 days of the conclusion of the hearing (September 22, 2015, in this case). The club also cited the Bombay High Court’s binding precedent in the Shivsagar Veg. Restaurant case, which had emphasized the need for timely delivery of judgments by appellate authorities, including the ITAT. The delay, according to the petitioner, had led to the ITAT overlooking binding decisions of co-ordinate benches that were brought to its attention.
Secondly, Otters Club contended that a subsequent decision by the Bombay High Court in the case of Maharashtra Housing and Area Development Authority (MHADA) on April 18, 2016, had decided an identical issue in favor of the assessee. Relying on the Supreme Court’s ruling in the Saurashtra Kutch Stock Exchange Ltd. case, which affirmed the rectification of earlier orders based on subsequent jurisdictional High Court decisions, the club argued that the ITAT should have allowed its rectification application.
The ITAT, in its impugned order rejecting the rectification plea, did not dispute the delay in passing the initial order. However, it vaguely mentioned obtaining “administrative clearance” to pass the order beyond the 90-day limit. The Bombay High Court expressed its bewilderment at this explanation, questioning the meaning, basis, timing, and source of such “administrative clearance,” especially in light of the clear provisions of Rule 34(5)(c) read with Rule 34(8) of the ITAT Rules. The High Court also noted that the counsel for the respondents, including the ITAT Registry, could not provide any clarification on this aspect. The court reiterated its earlier directive in the Shivsagar Veg. Restaurant case, which had urged the President of the Tribunal to establish guidelines to prevent delays in delivering orders.
Based on the ITAT’s failure to adhere to the Tribunal Rules and the binding precedent of the Bombay High Court regarding the time limit for pronouncing orders, the High Court found the ITAT’s order rejecting the rectification application unsustainable. Consequently, the Bombay High Court set aside the ITAT’s order dated September 30, 2016, and restored Otters Club’s rectification application to the Tribunal for fresh consideration in accordance with the law. The High Court also directed the Tribunal to consider the impact of the subsequent MHADA judgment in light of the Supreme Court’s decision in the Saurashtra Kutch Stock Exchange Ltd. case. All contentions in the matter were kept open for the Tribunal to adjudicate afresh.
FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT
1. This petition under Article 226 of the Constitution of India challenges the order dated 30th September, 2016 passed by the Income Tax Appellate Tribunal (Tribunal) under Section 254(2) of the Income Tax Act, 1961 (the Act). The impugned order dismissed the petitioner’s application for rectification of its order dated 3rd February, 2016 passed under Section 254(1) of the Act relating to A.Y. 2009-10.
2. The petitioner’s grievance before us as also raised before the Tribunal are twofold:
(a) The order dated 3rd February, 2016 was passed beyond a period of 90 days after the hearing of the appeal was concluded on 22nd September, 2015. This was in breach of Rule 34(5)(c) of the Income Tax Appellate Tribunal Rules, 1963 (Tribunal Rules) as also of the binding decision of this Court in Shivsagar Veg. Restaurant v/s. ACIT 317 ITR 433. Further this delay has also resulted in prejudice to the parties as binding decisions of the co-ordinate benches though referred to were ignored in the order dated 3rd February, 2016.
(b) Consequent to the order dated 3rd February, 2016 passed under Section 254(1) of the Act, the jurisdictional High Court on an identical issue in the case of DIT(E), Mumbai v/s. Maharashtra Housing and Area Development Authority (Income Tax Appeal No.2174/2013) rendered on 18th April, 2016 has decided the issue arising herein in favour of the petitioner-assessee. It is submitted subsequent decisions of jurisdictional High Court would warrant of rectification of earlier orders as held by the Apex Court in ACIT v/s. Saurashtra Kutch Stock Exchange Ltd. 305 ITR 227. Therefore it is submitted that the Tribunal ought to have exercised its jurisdiction and allowed the rectification application.
3. The impugned order of the Tribunal while rejecting the rectification application does not dispute the fact that the order dated 3rd February, 2016 passed under Section 254(1) of the Act was passed beyond the period of 90 days from the date of conclusion of its hearing on 22nd September, 2015. However, it records that administrative clearance had been taken to pass such an order beyond the period of 90 days. We are at a loss to understand what is meant by ‘administrative clearance’ and the basis for the same. Besides when, how and from whom the administrative clearance was received, are all questions still at large. Mr. Suresh Kumar, the learned counsel who appears for all the respondents, including the Registry of the Tribunal is unable to shed any light on the same. Moreover, we are unable to comprehend the meaning of ‘Administrative clearance’ in the face of Rule 34 (5)(c) read with Rule 34(8) of the Tribunal Rules. It is clear that the above provisions mandate the Tribunal to pronounce its order at the very latest on or before the 90th day, after the conclusion of the hearing. In fact, this Court in Shivsagar Veg. Restaurant (supra) after referring to various decisions of the Apex Court directed the President of the Tribunal to frame guidelines to prevent delay in delivery of orders/judgments. It also directed all the revisional and appellate authorities (including Tribunal) under the Act to decide the matters heard by them within a period of three months from the date of the conclusion of the hearing. This is further compounded by the fact that the submission of the petitioner in respect of the entire issue being covered by orders of co-ordinate benches was according to the petitioner, lost sight of while passing the order dated 3rd February, 2016.
4. In the above view, the impugned order rejecting rectification application has not considered the aforesaid Rules and the binding decisions of this Court. Therefore on the aforesaid ground alone, the impugned order is not sustainable.
5. So far the second issue viz. rectification of the order passed under Section 254(1) of the Act on the basis of a subsequent decision of the jurisdictional High Court in Maharashtra Housing and Area Development Authority (supra) is concerned, the impugned order does not deal with it in the impugned order. In any case, as on the first issue itself we are setting aside the impugned order and restoring the issue to the Tribunal to consider the rectification application as such, this issue would be considered by the Tribunal while disposing of the rectification application in the context of Saurashtra Kutch Stock Exchange Ltd. (supra) which has approved the view of the Gujarat High Court in Suhrid Geigy v/s. Commissioner of Surtax 237 ITR 834.
6. In the above view, we set aside the impugned order dated 30th September, 2016 passed under Section 254(2) of the Act and restore the petitioner’s Misc. Application dated 30th April, 2016 to the Tribunal for fresh consideration and disposed of in accordance with law. All contentions kept open.
7. Accordingly, the petition is disposal of in above terms. No order as to costs.
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