By TIOL News Service

MUMBAI, NOV 27, 2014: THE issues before the Bench are - Whether Special Bench u/s 255(3) can be constituted during pendency of an appeal before the Division Bench and Whether the power of the ITAT President to constitute a Special Bench on a debatable issue can be exercised at any point of time and in any manner. NO is the HC's answer.

Facts of the case

The assessee company is engaged in the business of publishing and printing. It had filed its return for the A.Y 2008-2009 declaring a loss of Rs.19.91 crores. However, the AO passed an assessment u/s 143(3) determining the assessee's income at Rs. 272.65 crores. On appeal, the CIT(A) confirmed the order of AO. On further appeal, a Division Bench of the Tribunal granted stay of the demand on the assessee making a payment of Rs.12 crores. The appeal however was being adjourned from time to time. During the pendency of the appeal, the CBDT addressed to the President of the Tribunal seeking constitution of special bench of three or more members u/s 255(3). The President of the Tribunal forwarded the said communication to the Vice President of the Tribunal at Hyderabad. Thereafter, the Vice President of the Tribunal addressed a letter to the members of the Division Bench. Consequent to such communication, the Division Bench seized of the assessee's appeal, heard the parties on the issue of constituting a Special Bench of the Tribunal to hear the assessee's appeal. Subsequently, the Tribunal held that there was no need to constitute a Special Bench in view of complication of facts and law, or on the ground that it has large revenue impact or that it would have an effect on proceeding before CBI. However, in view of political sensitivity, as a politician was involved, it concluded that the appeal might be heard before an appropriate bench outside the then State of AP, and so recommended to the President of the Tribunal. Consequent to it, the Tribunal finally recommended that the President of the Tribunal may constitute an appropriate bench outside the state of Andhra Pradesh. The President on these basis made the endorsement above and constituted a Special Bench to hear the assessee's appeal at Hyderabad by members who were not stationed in Hyderabad.

Having heard the parties, the High Court held that,

++ the entire proceeding has been conducted for the purposes of the constitution of the Special Bench of the Tribunal appears to have been unfair to the assessee. In the assessee's appeal which was seizedof by the Division Bench of the Tribunal at Hyderabad, the CBDT chooses not to file an application to the Division Bench to refer the appeal to the President for constitution of a Larger Bench of the Tribunal but adopts a backdoor method of approaching the President of the Tribunal to constitute the Special Bench and that too in the interest of the Revenue. It is urged on behalf of the Revenue that the President has the power in terms of Section 255(3) to constitute a Special Bench and the exercise of that power by the President cannot be questioned. Undoubtedly, the President does have the power to constitute a Special Bench but at what point and how is this power to be exercised is a debatable question. Prima facie this power cannot be exercised, when a Division Bench is seizedof the appeal and the Revenue has been seeking time before it. If this power can be exercised at any time, then what would stop the President from exercising such power even in respect of appeals finally heard and where orders are awaited. In any case, even if the CBDT, who is a party to the proceedings were to approach the Vice President in respect of a pending proceeding, the same should have been done only after notice to the other side. Similarly, in case the President wanted to act upon the letter of the CBDT, the least he could have done was to call for a response from the other side in view of the appeal being seizedof by the Division Bench;

++ it was contended by the counsel for the President of the Tribunal that a litigant cannot choose its forum and the assessee should appear before the Special Bench and put forth its case. None can dispute the submission that a litigant cannot choose its forum and yet it is forgotten that the CBDT is a party to the litigation before the Division Bench of the Tribunal and it chooses to have an appeal shifted to a Special Bench of the Tribunal not in the interest of justice but in the interest of revenue. Thereafter, the President is prima facie obliged to give some reasons indicating why he is constituting the Special Bench of Tribunal. The respondents submit that the Division Bench of the Tribunal had heard the assessee but what they failed to notice is that decision is taken by the President of the Tribunal who has heard only one side i.e. the CBDT. It is axiomatic in law that one who hears must decide. Moreover, the recommendations made by the Vice President are not in consonance with the recommendations made by the Division Bench to the extent that the Vice President in his communication to the President indicates that the matter involves complex questions and therefore a Special Bench needs to be constituted, while the Division Bench has specifically negatived the constitution of Special Bench on account of complexity of issues. However, all these are matters which would require consideration at the stage of final hearing. Therefore, the petition is ordered to be placed on board for directions before the Bench to which this petition is assigned.

(See 2014-TIOL-2063-HC-MUM-IT)