Appeals From Itat Orders: Supreme Court Resolves Jurisdictional Conundrum
Introduction
Both the Delhi High Court and the Punjab & Haryana High Court rejected appeals that were made before them and declined to have territorial jurisdiction over the case owing to a difference of opinion. This led to an appeal being submitted before the Supreme Court. In its ruling issued on August 18, 2022 in the case of Pr. Commissioner of Income Tax-I, Chandigarh v. M/s. ABC Papers Limited,[i]the Supreme Court provided an answer to the puzzle surrounding the appellate jurisdiction of the High Courts under Section 260A of the Income Tax Act, 1961. In the present matter, the jurisdiction of the Hon’ble High Courts following an administrative judgement transferring a “case” under Section 127 of the Act from one Assessing Authority to another Assessing Officer based in a different State was also settled by the Hon’ble Apex Court.
The High Court’s jurisdiction cannot be subject to the executive authority of transferring an issue, the court held, because it exists on its own foundation. The High Court of Delhi’s decisions in CIT v. Sahara India Financial Corporation Ltd. and CIT v. Aar Bee Industries Ltd. were also reversed by the Apex Court on the grounds that they did not establish the proper legal standards. We will examine and critique the Supreme Court’s ruling in this essay.
Factual Background
In 2008, the appellant M/s. ABC Papers Ltd. (hereafter “Assessee”), a producer of printing paper, sent its income tax returns to the AO in New Delhi. The Deputy Commissioner of Income Tax (hereafter “DCIT”), New Delhi, responded by issuing a notice of assessment and an order according to Section 143(2) of the Act.[ii]The Assessee challenged that judgement to the Commissioner of Income Tax (henceforth “CIT”) (Appeals)-IV, New Delhi, who approved the appeal after hearing the Assessee’s discontent with the outcome. By a decision dated May 11, 2017, the ITAT in New Delhi dismissed the Revenue’s appeal and upheld the decision of the CIT (Appeals)-IV in New Delhi.[iii]
The assessee’s cases were consolidated by the CIT (Central), Ludhiana, and transferred to Ghaziabad by a transfer order issued in compliance with Section 127 of the Act. The assessee filed an appeal in response to another assessment judgement made by the DCIT in Ghaziabad, and the CIT (Appeals) IV in Kanpur finally upheld the case. The Revenue appealed this appellate ruling to the ITAT in New Delhi, but it was likewise dismissed by a judgement issued there on September 1st, 2017.[iv]
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According to Section 127 of the Act, the DCIT in Chandigarh received a new transfer of the Assessee’s cases as of July 13, 2017. Revenue decided to file appeals with the High Court of Punjab & Haryana, namely ITA Nos. 517 of 2017 (against the ITAT’s judgement from May 11, 2017) and 130 of 2018 (against the ITAT’s ruling from September 1, 2017). The High Court dismissed both appeals in a decision dated February 7, 2019, finding that, despite the Section 127 order transferring the Assessee’s cases, the High Court of Punjab & Haryana lacked subject-matter jurisdiction because the AO who issued the initial assessment order was located elsewhere.[v]
Additionally, the Revenue filed an appeal with ITA No. 515 of 2019 at the High Court of Delhi. After concluding that when an order of transfer under Section 127 of the Act is made, the jurisdiction is transferred to the High Court whose jurisdiction covers the location of the transferee officer, the High Court of Delhi rejected the appeal. The question of which High Court would have the power to hear an appeal against a decision reached by an ITAT Bench with jurisdiction over many states was put before the Supreme Court.[vi]
Analysis of Previous High Court Findings
In the instance of Sahara, the assessment order was issued by the AO in Lucknow. CIT (Appeals), Lucknow, decided on an appeal against that order, and ITAT, Lucknow, decided on another appeal. In reaction to the ITAT ruling, an appeal was filed before the Allahabad High Court’s Lucknow Bench. While this appeal was ongoing, the assessee’s records were subsequently moved from Lucknow to New Delhi. As a result, an appeal was made before the Delhi High Court, which disregarded previous rulings and declared that the assessee’s case would be transferred “lock, stock, and barrel,” including the High Court, upon an order of transfer under Section 127 of the Act.[vii]
A later Bench of the High Court of Delhi in Aar Bee followed the ruling in the Sahara case. The Punjab and Haryana High Court’s conclusion in Commissioner of Income Tax v. Motorola India Ltd.[viii]was challenged by the court, which disagreed with the interpretation it gave to the word “cases” in the section 127(4) of the Act’s Explanation.[ix]‘Cases’ was used to argue that the term should also include lawsuits brought before a High Court. In the matter of Motorola India Ltd., the Punjab and Haryana High Court rejected this argument and found it to be totally unfounded.
Decision of the Supreme Court
Moving a case from one legal venue to another without the involvement of a court of law is, in essence, against the independence of the judiciary. The authorities may transfer a case in accordance with Section 127 at the assessee’s request or for other factors. Only the jurisdiction of the Income Tax Authorities is affected by the power of transfer provided by Section 127; the jurisdiction of High Courts is unaffected. The court must avoid any interpretation that would rely on the executive branch for the High Court’s appellate authority. Clearly, justice will not be served by such an interpretation.
In light of these factors, the court nullified the rulings in Sahara and Aar Bee and said that the only High Court to which appeals against any ITAT judgement may be filed is the one whose jurisdiction encompasses the AO who issued the assessment order. The High Court within the jurisdiction of which the AO issued the order will continue to exercise its appellate authority even if an assessee’s case or cases are transferred in line with Section 127 of the Act. Even if the transfer is made according to Section 127 for the same assessment year(s), this rule still holds true.
Conclusion
It goes without saying that the Superior Courts have the right to interpret the law uniformly and systematically in order to prevent uncertainty. The Supreme Court’s explanation is very required, and proactive measures have been made to get rid of these inconsistencies and interpret the law in a consistent way. A judicial remedy ought to be effective, independent, and definite, and in this case the Supreme Court reached the right decision. Unambiguous vesting of jurisdiction to decide the issue in a designated forum would constitute certainty of the forum.
The court also took arguments into consideration and correctly noted that the Authorities or the ITAT that had issued orders prior to the transfer of the case would not be bound by the decisions of the High Court in whose jurisdiction the transferee AO is located. The court avoided an unusual circumstance in which, even if the High Court had overturned the Authorities’incorrect ruling, it would not have been binding on the Authorities since they would be outside the High Court’s purview. The Apex Court also correctly defined the otherwise confusing and open-textual meaning of Section 260A.However, the court deferred to the Delhi High Court and the Lucknow Bench of the Allahabad High Court in deciding the two appeals.
Author: Kaustubh Kumar, 4th Year law student at the National University of Study and Research in Law, Ranchi, in case of any queries please contact/write back to us at support@ipandlegalfilings.com or IP & Legal Filing
[i]2022 SCC OnLine SC 1036.
[ii] The Income Tax Act, 1961 § 143(2).
[iii]Supra note 02 ¶¶ 04-05.
[iv]Id. ¶ 06.
[v]Id. ¶¶ 07-09
[vi]Id. ¶¶ 10-11.
[vii] The Income Tax Act, 1961 § 127.
[viii]2011 SCC OnLine ITAT 9250.
[ix] The Income Tax Act, 1961 § 127(4).
