No automatic vacation of stay granted by ITAT beyond 365 days when delay in disposing appeal not attributable to assessee. Supreme Court upheld struck down of third proviso of Section 254(2A) as constitutionally invalid
ABCAUS Case Law Citation
ABCAUS 3480 (2021) (04) SC
Important case law relied referred:
Income Tax Officer v. M.K. Mohammed Kunhi (1969) 2 SCR 65
Essar Steel India Ltd. Committee of Creditors v. Satish Kumar Gupta(2020) 8 SCC 531
Commissioner of Customs & Central Excise v. Kumar Cotton Mills (2005) 13 SCC 296
DCIT v. Vodafone Essar Gujarat Ltd. (2015)376 ITR 23
Kunnathat Thatehunni Moopil Nair v. Stateof Kerala (1961) 3 SCR 77
Narang Overseas Pvt. Ltd. vs. ITAT (2007) 295 ITR 22
Union of India v. A. Sanyasi Rao (1996) 3 SCC 465
Commissioner of Income Tax v. M/s Maruti Suzuki (India) Ltd. (2014) 362 ITR 215
Mardia Chemicals Ltd. v. Union of India (2004) 4 SCC 311
PML Industries Ltd. v. CCE (2013) SCC OnLine P&H 4440
Supreme Court upheld struck down of third proviso of Section 254(2A) as constitutionally invalid
In this case, the question raised was as to the constitutional validity of the third proviso to Section 254(2A) of the Income Tax Act, 1961 (the Act).
The Delhi High Delhi has struck down that part of the third proviso to Section 254(2A) of the Income Tax Act which did not permit the extension of a stay order beyond 365 days even if the assessee was not responsible for delay in hearing the appeal. The said judgment and several other judgments from various High Courts had been challenged by the revenue before the Hon’ble Supreme Court
Provisions of section 254 of the Act deals with various time limits within which ITAT can pass various orders. Finance Act, 2001, Finance Act, 2007 and Finance Act, 2008 from time to time made amendments to the said section
As per the section the Tribunal is required to decide an appeal within a period of four years. However, it has also been provided that ITAT may stay the income tax proceedings related to an appeal for a period up to 180 days. However, on merit, the Tribunal may extend the stay for a further period not exceeding 365 days in total.
The Finance Act, 2008 (w.e.f.01/10/2008) amended the third proviso providing that if the appeal is not disposed of by the ITAT within extended period of 365 days, the stay shall vacate even if the delay is not attributable to the assessee.
The Hon’ble Supreme Court observed that the amended third provision was considered by a Division Bench of the Delhi High Court. However, the constitutional validity of the said proviso had not been challenged. The High Court held that an aggrieved assessee can file a writ petition in the High Court for stay and Section 254(2A) does not prohibit/bar the High Court from issuing appropriate directions, including granting stay of recovery.
However, the Gujarat High Court disagreed with this view and held that Appellate Tribunal is required to dispose of the appeal within total period of 365 days, as ultimately revenue has not to suffer and all efforts should be made by the ITAT to dispose of such appeals in which stay has been granted as far as possible within total period of 365 by giving priority to such appeals over other appeals in which no stay is granted.
The Hon’ble Supreme Court noted that the Delhi High Court in a subsequent judgment related to similar provision contained in Section 35C(2A) of the Central Excise Act, 1944 struck down the expression introduced by the Finance Act, 2008 as being violative of Article 14 of the Constitution of India.
The Hon’ble Supreme Court opined that there can be no doubt that the third proviso to Section 254(2A) of the Income Tax Act, introduced by the Finance Act, 2008, would be both arbitrary and discriminatory and, therefore, liable to be struck down as offending Article 14 of the Constitution of India.
The Hon’ble Supreme Court opined that by the said proviso, unequals are treated equally in that no differentiation is made by the third proviso between the assesses who are responsible for delaying the proceedings and assessees who are not so responsible.
The Hon’ble Supreme Court stated that the object sought to be achieved by the third proviso to Section 254(2A) is without doubt the speedy disposal of appeals before the Appellate Tribunal in cases in which a stay has been granted in favour of the assessee. But such object cannot itself be discriminatory or arbitrary.
The Hon’ble Supreme Court stated that vacation of stay whether or not the assessee is responsible for the delay caused in hearing the appeal, such object being itself discriminatory, is liable to be struck down as violating Article 14 of the Constitution of India. Further, vacation of stay in favour of the revenue would ensue even if the revenue is itself responsible for the delay in hearing the appeal. In this sense, the said proviso is also manifestly arbitrary being a provision which is capricious, irrational and disproportionate so far as the assessee is concerned.
The Hon’ble Supreme Court further stated that the expression “permissible” policy of taxation would refer to a policy that is constitutionally permissible. If the policy is itself arbitrary and discriminatory, such policy will have to be struck down.
No automatic vacation of stay granted by ITAT after expiry of 365 days if delay is not attributable to assessee
The Hon’ble Supreme Court upheld the law laid down by the Delhi High Court and the judgments of the various High Courts which follow the aforesaid declaration of law also held to be correct.
The third proviso to Section 254(2A) of the Income Tax Act will now be read without the word “even” and the words “is not” after the words “delay in disposing of the appeal”. Any order of stay shall stand vacated after the expiry of the period or periods mentioned in the Section only if the delay in disposing of the appeal is attributable to the assessee.
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