President ITAT cannot constitute special bench without recommendation of regular bench

Brief of the case:

The ITAT president has constituted a special bench of the three members to hear the case of assessee by exercising his powers u/s 255 (3). A notice fixing date of hearing before special bench was served upon the assessee. No opportunity of hearing was provided to the assessee by president ITAT before constitution of this special bench.
Assessee being aggrieved from the order passed by president ITAT preferred this writ petition before Hon’ble High Court who after considered the law and facts of the matter and held that president acted against the principles of natural justice without hearing parties to litigation. Hon’ble HC also held that president ITAT used powers beyond limits in constituting special bench without any recommendation of regular bench.

Facts of the case:

• The petitioner is an enlisted public limited company incorporated in year 2006 who publishes a Telugu newspaper called “Sakshi” from Hyderabad, Andhara Pradesh.
• One of the promoters of the petitioner is son of former chief minister of Andhra Pradesh and was also a Member of Parliament.
• Petitioner filed its return of income for the AY 2008-09 declaring total income of Rs. 90,91,51,382/- which was picked up for scrutiny.
• AO completed assessment at Rs. 2,72,65,37,270/- by making two addtions. First on account of share premium received from subscribers to paid up capital u/s 28 (iv) amounting to Rs. 2,77,56,88,650/- and secondly on account of unexplained cash credit towards capital contribution u/s 68 amounting to Rs. 15,00,00,000/-.
• Appeal filed before CIT (A) was dismissed and Hon’ble ITAT granted a conditional stay of demand on further appeal.
• In the regular hearing of appeal assessee contended that share premium received during the previous year was of capital nature and could not be treated as income u/s 28 (iv).
• The case was adjourned on request of revenue on several occasions.
• Subsequently assessee received a notice fixing the appeal fixed for hearing under caption “other matters” for hearing as “special bench reference”. A copy of letter of the CBDT was annexed to the notice.
• In this letter a request was made to the president to ITAT to constitute a special bench in the assessee’s case. On the said letter president made a hand written endorsement as “VP-Hyderabad for comments”. Thereafter letter was produced before concerned VP who addressed a letter to regular bench to send a report of the reasons for constitution of special bench in assessee’s case.
• The regular bench forwarded its opinion to the VP with a request to forward its opinion to the president. The regular bench opined that most of the appeals that come before ITAT involve complex facts and intricate questions of law and if the argument is accepted, almost all matters will have to be referred to a special bench.
• The VP did not mention about any recommendation of the regular bench that an appropriate bench be constituted outside Andhra Pradesh
• After the hearing before the regular bench assessee did not receive any communication regarding constitution of regular bench nor the opinion formed by the regular bench.
• Assessee received a further notice of fixing date of hearing before special bench and assessee was called upon to file one more set of paper-book.
• Assessee filed a letter in the office of president, ITAT and asked for the reference for constitution of special bench from CBDT. Such a request to supply copy of reference was denied by the office of president.

Contention of the revenue:

• The main promoter of the petitioner is Y.S. Jagan Mohan Reddy who had allotted shares of the assessee to various person who received benefits from the Govt. of Andhra Pradesh in terms of various projects. According to board, these investment in shares were a matter of quid pro quo and the amounts involved were very large and legal issue was complex and of far reaching consequences for the revenue.
• The constitution of special bench is purely administrative matter and there is no need to hear either side.
• President, ITAT can constitute special benches in appropriate constitutions and it is not necessary to that there must exist conflicting judicial pronouncement.
• Since the issue was of national importance, having large scale of ramifications, the matter was required to be resolved through a special bench.
• S. Jagan Mohan Reddy who is main promoter of the assessee has misused his political position and various prosecutions were launched against him under various acts.
• It is not necessary that when the regular bench is seized of the appeal, one must approach the Regular Bench to refer and the president is not denuded of his powers to constitute a special bench. The president can exercise the suo-moto powers in a given case to constitute a special bench.
• The Regular Bench gave full opportunity of hearing to the Petitioner. Therefore, principles of natural justice were complied.
• All the files and the opinion of the Regular Bench were before the president when he passed the order and in absence of any malafides the order of the president ought not to be interfered with.
• Even though the Regular Bench, in the earlier part of the opinion negatived some of the contentions of the Revenue, it used the phrase, “however” to hold that there will be widespread ramifications, which means that it expressed a view contrary to its earlier observations. The principle that, one who hears must decide, cannot apply to exercise of administrative powers.

Contention of the assessee:

• There is no conflict of decisions and the attempt on the part of the revenue to seek constitution for special bench is malafide and part of political vendetta.
• The law was settled in favour of assessee and formation of special bench of three members was an attempt to secure a favourable decision by unfair means.
• The manner in which the power is exercised by the president to constitute a special bench in the present case is not purely administrative and it seriously infringes on the rights of the petitioner.
• Irrespective of any other aspect of the matter, the impugned order needs to be set aside as   the   decision   making process was vitiated by clear attempt on the part of the board to influence the decision making.
• The board cannot make a request to president to constitute a special bench and president could not have done so as the regular bench was seized of the matter.
• No reason was shown as why a special bench is required in the present case. The request made by bench was for collateral purpose and was not bonafide.
• The request was made by the board to ensure that the binding decisions of the tribunal and the law of precedents, according to which petitioner’s appeal would have been allowed, will be circumvented.
• There are no compelling reasons as to why the Board could not have moved the RegularBench 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 non-arbitrariness.
• The Regular Bench had not recommended constitution of a special bench and all that the Bench had opined was an Appropriate Bench outside Andhra Pradesh be constituted. The president was in receipt of this opinion, but there are no reasons disclosed as to why he did not accept the opinion of the Regular Bench. There is breach of principles of natural justice, as the president himself ought to have given hearing to the Petitioner, which he has not.

Held by the court:

• 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 is purely an administrative exercise or has trappings of it being quasi- judicial.
• For determining whether a power is an administrative power or a quasi-judicial power one has to look to the nature of the power conferred, the person or persons on whom it is conferred, the frame work of the law conferring that power, the consequences ensuing from the exercise of that power and the manner in which that power is expected to be exercised.
• 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.
• 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.
• The writ petition is therefore allowed.