Tuesday 29 October 2013

Whether if assessee or its representative is not present at time of hearing, Tribunal has authority to dismiss the case for default - NO: Bombay HC

THE issues before the Bench are - Whether in case assessee or its representatives were not present at the time of hearing, Tribunal has the authority to dismiss the same for default. And the answer is NO.
Facts of the case
Assessee is a public sector undertaking engaged in the import of crude oil, refining and marketing the same. It had filed its ROI for AY 2000-01 declaring taxable income of Rs.597 crores after claiming deduction u/s 80IA and 80IB in respect of its LPG bottling plant. During assessment, AO had disallowed the claim for deduction u/s 80I and 80IB and determined the taxable income at Rs.730 Crores. On appeal, CIT(A) upheld the order of the AO and dismissed the petitioner's appeal. On further appeal, Tribunal had dismissed the same without considering the merits of the petitioner's case, only on the ground of want of prosecution, as none was present on behalf of assessee. Assessee stated that on receipt of Tribunal’s order, its executives initiated process of drafting a Miscellaneous Application seeking to recall the said order and for that purpose even had a meeting with their Counsel. The Senior Officers of the petitioner were under the impression that the process of filing of Miscellaneous Application was complete and according to them they were waiting for a notice for hearing of the Miscellaneous Application from the Tribunal. Subsequently, when the petitioner was preparing for hearing of its appeal for a subsequent AY, it noticed that though a draft Miscellaneous Application was in the file, an acknowledged copy of the same from the Tribunal was not available in its record. On enquiry with the Tribunal the petitioner learnt that no Miscellaneous Application for recalling of the order dated 6 December 2007 was on the file of the Tribunal. Thus, a Miscellaneous Application was filed before the Tribunal seeking to recall the order passed relating to AY 2000-01. Tribunal heard the petitioner on its Miscellaneous Application and dismissed the same on the ground that the application for recall had been filed beyond a period of 4 years from the date of the order of Tribunal. Alternatively, the Tribunal in the impugned order held that even if one proceeded on the basis that Section 254(2) is not applicable to an application for recall yet the same would be barred by limitation as the period provided under Limitation Act for setting aside an ex parte order would be 30 days from the date of passing the order. Therefore, in view of inordinate delay of more than 4 years in filing on 6 August 2012 its Miscellaneous Application from order dated 6 December 2007 was dismissed.
Before HC, the assessee’s counsel had contended that original order passed by Tribunal on 6 December 2007 on the petitioner's appeal was an order in breach of Rule 24 of the Tribunal Rules. This Rule mandates that when the appellant before the Tribunal was not present and/or represented at the hearing then the Tribunal can only dispose of the appeal on merits after hearing the respondent and not for default. In the present case, order dated 6 December 2007 was an order dismissing the appeal only on account of want of prosecution i.e. without considering the merits of the appeal. The Miscellaneous Application for recall of the order dated 6 December 2007 made by the petitioner was an application to be considered within the province of Section 254(1). However, the Tribunal misdirected itself by treating the application for recall as an application for rectification u/s 254(2) and not u/s 254(1). Application for recall was made by the petitioner under the proviso to Rule 24 of the Tribunal Rules which does not provide for any period of limitation. Thus, such an application was appropriately required to be considered by the Tribunal under the proviso to Rule 24 of the Tribunal Rules without incorporating any period of limitation therein. The delay in moving the Miscellaneous Application was on account of genuine mistake /misunderstanding and no sooner the appellant realized the same in July 2012 an application was filed within a month for recall of the same. The interests of justice would require that the order of Tribunal be recalled and the matter be heard on merits. This was for the reason that the petitioner's representatives were not present at the time when the matter was called out by the Tribunal but reached soon thereafter to be informed that the matter had been dismissed. However, the petitioner's representative were unable to mention the appeal before the Tribunal on that very day to apply for recall of the order dismissing its appeal only on account of such a practice of mentioning not being permitted by the Tribunal. Consequently, the petitioner was unable to have the order of dismissal for non prosecution recalled on 4 December 2007 itself and correct the injustice.
On the other hand, the Revenue’s counsel had submitted that the order passed by the Tribunal calls for no interference as it had been passed on an application made for recall of an order dated 6 December 2007 u/s 254(2). In these circumstances, as the application filed by the petitioner was beyond the period of 4 years, the Tribunal had no jurisdiction to entertain the application. Thus the application dated 6 August 2012 has rightly been dismissed. Even if it is assumed that the application filed by the petitioner appropriately falls for consideration u/s 254(1), the same had rightly been held to be barred by limitation. This was on account of the fact that the period of 30 days as provided under the Limitation Act would apply for setting aside an exparte order i. e. 30 days from the date of the order. In any event, it was submitted that even if, it was held that no period of limitation had been provided for application made u/s 254(1) and the period of limitation under the Limitation Act was inapplicable, yet the impugned order was justified in dismissing the application on the ground of laches. For the purpose of considering the period of laches the period of 4 years provided u/s 254(2) had appropriately been taken as the outer most limit for filing the application for recall which could then be considered on merits of the application including the delay, if any, if not more than 4 years. The order of recall was received by the appellant on 18 December 2007. At no point of time prior to August 2012 did the petitioner make any movement to have the order dated 6 December 2007 recalled. The period to consider the limitation/ laches commences from 18 December 2007 and not from July 2012 as urged on behalf of the petitioner.
Held that,
++ it is contended by the petitioner that the order passed on 6 December 2007 on its appeal was an order passed in breach of Rule 24 of the Tribunal's Rules. We find that when the appellant is not present before the Tribunal when the appeal is called out for hearing the Tribunal could either adjourn the hearing of the appeal in its inherent jurisdiction or in terms of Rule 24 of the Tribunal Rules dispose of the appeal on merits after hearing the respondent. In this case the Tribunal has dismissed the petitioner's appeal for non prosecution. The Tribunal has not considered the merits nor heard the respondents on merits before dismissing the appeal. Thus the Tribunal has not exercised its inherent jurisdiction of adjourning the appeal or in terms of Rule 24 of the Tribunal Rules of deciding the appeal on merits after hearing the respondents. We find that in terms of Rule 24 of the Tribunal Rules the option of dismissing an appeal for default is not available to the Tribunal. In fact, Income Tax Appellate Tribunal Rules 1946 as amended in 1948 (Tribunal Rules 1946) provided for dismissal of appeal by the Tribunal for default on the part of the appellant before it;
++ the Rule allowing the Tribunal to dismiss an appeal for non prosecution/default was a subject matter of challenge before the SC in CIT vs. S. Chenniappa Mudaliar (1969) 74 ITR and the Apex Court held that such a provision in the rule was ultra vires the provisions of the parent Act viz. Section 33(4) of the Income Tax Act, 1922 which mandated the Tribunal to decide the appeal on merits. Therefore, we find that Rule 24 of the Tribunal Rules as applicable in this case advisedly does not provide for dismissal of appeal for default. At this stage it was faintly suggested by the revenue that such a power of dismissal for default can be exercised by the Tribunal in exercise of its inherent powers as judicial/quasi judicial authority. This course is not open to the Tribunal as the Apex Court in S. Chenniappa Mudaliar has held that the Tribunal is mandated by Section 33(4) of the Income Tax Act 1922 (1922 Act) to decide the appeal before it on merits. It would therefore, be noted that Section 33(4) of the 1922 Act and Section 254(1) of the Act are almost identically worded. Thus it is not open the Tribunal to exercise its inherent powers to dismiss the appeal for default as the mandate of Section 254(1) of the Act is to dispose of the appeal on merits even in the absence of the appellant;
++ this Court in the matter of Chemipol vs. Union of India (2009-TIOL-676-HC-MUM-CESTAT) while dealing with the powers of Customs Excise and Service Tax Appellate Tribunal to dismiss an appeal for default has observed that though every Court or Tribunal has an inherent power to dismiss the proceeding for non prosecution yet this inherent power is lost where the statute requires the Court or the Tribunal to hear the appeal on merits. In this case Rule 24 of the Tribunal Rules mandates the Tribunal to decide the appeal on merits even in absence of the appellant after hearing the respondents. In view of the above, we hold that the Tribunal did commit an error in passing the order dated 6 December 2007 in dismissing the appeal on the ground of want of prosecution. Therefore, in such a case the appellant is entitled to move the Tribunal to set right the breach of Rule 24 of the Tribunal Rules and have an order passed in breach thereof to be set aside;
++ we find that the order dated 6 December 2007 does suffer from an error apparent on the face of the record namely dismissing the appeal on account of non prosecution in breach of Rule 24 of the Tribunal Rules. The Tribunal has no power to dismiss the application on the ground of non keeping in view Rule - 24 of the Tribunal Rules. Therefore, dismissing an appeal for non prosecution in the face of Rule 24 of the Tribunal Rules is an error apparent on the face of the record leading to an irregular order which can be rectified u/s 254(2). In fact during the course of hearing the petitioner placed reliance on the Bombay HC decision in Khushalchand B. Daga vs. T.K. Surendran and others (1972) 85 ITR 48 to support its view that the Tribunal cannot dismiss an appeal for default. In the case of Khushalchand B. Daga this Court held that in view of Rule 24 of the Tribunal Rules 1946 as then existing the Tribunal cannot dismiss an appeal for non prosecution in view of the decision of the SC in the matter of S. Chenniappa Mudaliar. However, it further also held that such an order dismissing an appeal for default of appearance by the Tribunal was an order which suffered from an error apparent on the face of the record. We are of the view that in the above circumstances if there is an error apparent on the face of the record, Section 254(2) of the Act alone is applicable. Where Parliament has provided a specific provision in the Act to deal with a particular situation, it is not open to ignore the same and apply some other provision. Section 254(2) empowers the Tribunal to correct/rectify its order only within four years from the date of the order which is sought to be rectified. In this case it is an admitted position that the miscellaneous application is filed on 6 August 2012 i.e. beyond four years of the order dated 6 December 2007 which is sought to be rectified;
++ it was next contended that in any event Section 254(2) would have no application on the ground that Miscellaneous Application made in August 2012 is under the proviso to Rule 24 of the Tribunal Rules which does not have any period of limitation. Moreover in such cases, it is contended that the application is not to rectify an error in the order but is an application to set aside an order. We find that the miscellaneous application made by the petitioner on 6 August 2012 could not have been made under the proviso to Rule 24 of the Tribunal Rules. This is for the reason that the proviso would be applicable only when the Tribunal has exercised its power on the basis of the main part of Rule 24 of the Tribunal Rules i.e. deciding the appeal on merits after hearing the respondents. Thus the application of the proviso can only take place where the main part of Rule 24 of the Tribunal Rules has been applied for dismissing the appeal i.e. appeal has been disposed of on merits after hearing the respondents, in the absence of the appellant. In this case admittedly the main part of Rule 24 of the Tribunal Rules has not been applied and therefore, no occasion to invoke the proviso thereto can arise. The proviso to Rule 24 of the Tribunal Rules has no application where there is an error apparent on record. The invocation of the proviso takes place when the Tribunal has correctly disposed of the appeal before it in terms of the main part of Rule 24 of Tribunal Rules. Consequently, in the present facts the issue of application of either Rule 254(1) or (2) to an application made under the proviso to Rule 24 of the Tribunal Rules does not arise;
++ we find that there is an error apparent on record and the miscellaneous application is to correct the error apparent from the record. The consequence of such rectification application being allowed may lead to a fresh hearing in the matter after having recalled the original order. However, the recall, if any, is only as a consequence of rectifying the original order. It is pertinent to note that Section 254(2) does not prohibit the recall of an order. In fact the power/jurisdiction of the Tribunal to recall an order on rectification application made under Section 254(2) is no longer resintegra. The issue stands covered by the decision of the Apex Court in ACIT vs. Saurtashtra Kutch Stock Exchange Limited (2008-TIOL-170-SC-IT) which held that though the Tribunal has no power to review its own order, yet it has jurisdiction to rectify any mistake apparent on the face of the record and as a consequence therefore, Tribunal can even recall its order. In the above case before the SC,  Tribunal dismissed the appeal of Stock Exchange holding that it was not entitled to exemption under Section 11 read with Section - 12 of the Act. On 13 November 2000 the Stock Exchange filed a rectification application under Section 254(2) of the Act before the Tribunal. The Tribunal by its order dated 5 September 2001 allowed the application and held that there was mistake apparent on the record which required rectification. Accordingly, the Tribunal recalled its order dated 27 October 2000 for the purpose of entertaining the appeal afresh. The revenue filed a writ petition in the Gujarat High Court challenging the order dated 5 September 2001. The above challenge by the revenue was turned down by the Gujarat High Court. The revenue carried the matter in appeal to the Apex Court which also dismissed the appeal of the revenue. The Apex Court observed that the Tribunal in its original order while dismissing the Stock Exchange (assessee's) appeal overlooked binding decisions of the jurisdictional High Court. This mistake was corrected by the Tribunal under Section 254(2) of the Act. The Supreme Court held that the rectification of an order stands on the fundamental principle that justice is above all and upheld the exercise of power under Section 254(2) of the Act by the Tribunal in recalling its earlier order dated 27 October 2000. Thus recall of an order is not barred on rectification application being made by one of the parties. In these circumstances, the application would be an application for rectification of the order dated 6 December 2007 and would stand governed by Section 254(2);
++ in the facts of the present case there can be no denial that the order dated 6 December 2007 suffers from an error apparent from the record. The error is in having ignored the mandate of Rule 24 of the Tribunal Rules which required the Tribunal to dispose of the matter on merits after hearing the respondents. In these circumstances, an application for rectification would lie under Section 254(2) of the Act. The recall of an order would well be a consequence of rectifying an order under Section 254(2) of the Act. In these circumstances, we find no reason to interfere with the order of the Tribunal holding that Miscellaneous Application filed by the appellant is barred by limitation under Section 254(2) of the Act as it was filed beyond a period of four years from the order sought to be rectified. Before concluding, we would like to make it clear that an order passed in breach of Rule 24 of the Tribunal Rules, is an irregular order and not a void order. However, even if it is assumed that the order in breach of Rule 24 of the Tribunal Rules is an void order, yet the same would continue to be binding till it is set aside by a competent Tribunal. In fact, the Apex Court in the Sultan Sadik v/s. Sanjay Raj Subba reported in 2004 (2) SCC 277 had observed that an order, even if not made in good faith, is still an act capable of legal consequences. It bears no brand of invalidity upon its forehead. Unless the necessary proceedings are taken at law to establish the cause of invalidity and to get it quashed or otherwise upset, it will remain as effective for its ostensible purpose as the most impeccable of orders. This must be equally true even where the brand of invalidity is plainly visible, for there also the order can effectively be resisted in law only by obtaining a decision of Court. Further the Supreme Court in Sneh Gupta v/s. Dev Sarup (2009) 6 SCC 194 has observed the compromise decree, as indicated herein before, even if void was required to be set aside. A consent decree as is well known, is as good as a contested decree. Such a decree must be set aside if it has been passed in violation of law. For the said purpose, the provisions contained in Limitation Act 1963 would be applicable. It is not the law that where the decree is void, no period of limitation shall be attracted at all. Therefore, in this case also the period of four years from the date of order sought to be rectified/recalled will apply as provided in Section 254(2) of the Act. This is so even if it is assumed that the order dated 6 December 2006 is a void order. In view of the reasons given herein above, we find the Tribunal was correct in dismissing the Miscellaneous Application by its order dated 10 April 2013 as being beyond the period of four years as provided under Section 254(2) of the Act. Accordingly, the petition is dismissed with no order as to costs.

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