The Hindu Business Line : Restricting the powers of the ITAT

Clause 46 of the Finance Bill, 2008 substitutes a new third proviso to sub-section (2A) in Section 254 of the Income-Tax Act, 1961 to provide that the Income Tax Appellate Tribunal (ITAT) cannot grant stay of demand relating to appeal before it beyond 365 days “even if the delay in disposing of the appeal is not attributable to the assessee”.

An unfair move

A reading of the clause itself manifests its inequity, unfairness and unreasonableness showing that a taxpayer could be made to suffer even when he is not a contributory to the delay in the disposal of appeal by the Tribunal. This tantamounts to lack of fairness in judicial functioning.

The Tribunal is the second tier appellate authority in the Act against the orders of the assessing officers (AOs). The first appeal against such orders lies with the CIT(A), whose order is appealable before the Tribunal.

In making tax assessments, AOs make additions and treat many receipts as income, which the assessee does not consider to be so. Thus, huge demands get raised much beyond the capacity of the assessee to pay. The demands so raised are stayed by the departmental authorities till the appeal is disposed of by the CIT(A) in appropriate cases.

When the AO’s orders get confirmed by the CIT(A), the assessees have to file appeal before the Tribunal with one application for stay of demand till the disposal of appeal by it.

The proposed amendment is aimed at limiting the power of the Tribunal to grant stay up to 365 days only. The Supreme Court, in its decision in the M. K. Mohd. Kunhi case, ruled that the statutory powers under Section 254 of the I-T Act conferred on the Tribunal by implication, carry with them a duty in proper cases to make such orders for staying recovery proceedings pending in appeal before the Tribunal as are called for.

Such implied power is an adjunct of and flows from the substantive power to entertain or hear the appeal conferred on the Tribunal. That being the legal position, this power cannot be controlled by placing restraints on the exercise of such power.

Despite the Supreme Court’s ruling, the I-T department has been making efforts to curtail the Tribunal’s power in the matter of grant of stay. The Finance Act, 2001, through provisos to sub-section (2A), provided that the Tribunal can grant stay only for six months.

The Hyderabad Bench of the Tribunal held that the Tribunal, under the provisos, can grant stay in six-month instalments if the appeal could not be disposed of. To counteract this decision, the Finance Act, 2007 added three provisos to provide that at the most the period of stay could be 365 days only. This amendment was challenged before the Bombay High Court.

Bombay HC ruling

The court held that the power to grant stay or interim relief, being inherent or incidental, is not defeated by the provisos to sub-section (2A).

The third proviso has to be read as a limitation on the power of the Tribunal to continue interim relief in cases where the hearing of the appeal has been delayed for acts attributable to the assessee. It cannot mean that a construction be given that the power to grant interim relief is denuded even if the acts attributable are not of the assessee but of the Revenue or the Tribunal itself.

The power of the Tribunal, therefore, to continue interim relief is not overridden by the language of the third proviso to Section 254(2A).

The Tribunal has the power to extend the period of stay on good cause being shown and on the Tribunal being satisfied that the matter could not be heard and disposed of for reasons not attributable to the assessee.

The present amendment is intended to counteract the Bombay High Court’s decision saying that the Tribunal cannot grant stay beyond 365 days even if the appeal cannot be disposed of for reasons for which the assessee cannot be held responsible.

Prima facie, such an amendment would be unreasonable.

There could be many reasons beyond the control of the assessee — such as non-availability of members to constitute the Bench, non-production of records from the side of the I-T Department, illness of the members of the Tribunal or the departmental representative, etc. — on account of which, it may not have been possible to dispose of the appeal within 365 days.

Why the assessee suffers in such situations is not understandable.

Unreasonable approach

The Government’s approach in the matter of grant of stay by the Tribunal is prima facie unreasonable. Placing of such restraints on the Tribunal indicates distrust of the Government on a statutory body like the Tribunal. Such restraints in the cases of courts are not to be found.

Further, in the Mohd. Kunhi decision (supra), the apex court has said that right of appeal is a substantive right.

If the Appellate Tribunal is made entirely helpless in the matter of stay of recovery, the entire purpose of the appeal would be defeated if the orders of the departmental authorities are set aside.

Only when a strong prima facie case is made out that the Tribunal will consider whether to stay the recovery of proceedings and on what condition, and stay will be granted in most deserving cases.The entire purpose will be frustrated by allowing the recovery proceedings to continue during the pendency of appeal.

The proposed amendment, if made, is likely to be struck down by the courts saying that it would not be possible, on the one hand, to hold that there is a vested right of an appeal and, on the other, to hold that there is no power to continue the grant of interim relief for no fault of the assessee by divesting the incidental power of the Tribunal to continue the interim relief. Such a reading would result in such an exercise being rendered unreasonable and violative of Article 14 of the Constitution.

(The author is a former Chairman of CBDT.)