(362.8 KiB, 668 DLs)

Practice as advocate is not required for appt as High Court judge

Shri. Satish Chandra, former ITAT Member, was appointed judge of the Allahabad High Court on 6.8.2008. The appointment was challenged on the ground that he had not practiced for even a day as an advocate and that he was not eligible for appointment under Article 217(2) and Article 217(1) of the Constitution. It was also alleged that the mandatory process of consultation under the Constitution had not been followed. It was also alleged that the appointment had been obtained by giving misleading facts about his practice as an advocate amounting to perpetrating fraud. HELD, dismissing the Petition:

(i) Under Article 217(2) (b) “right to practice” is the prerequisite constitutional requirement of the eligibility criteria and not “actual practice”. There is a basic difference between “eligibility” and “suitability”. The process of judging the fitness of a person to be appointed as a High Court Judge falls in the realm of “suitability” and is governed by Article 217(1). “Eligibility” is an objective factor and falls within the scope of judicial review. However, the question as to who should be elevated, which essentially involves the aspect of “suitability” and evaluation of the worth and merit of a person, stands excluded from the purview of judicial review.

(ii) On facts, as the appointee had enrolled as an Advocate of the High Court on 13.9.1975 and had worked as a Member of ITAT between 3.12.1997 and 6.8.2008 (11 years) and prior thereto had worked as Additional Law Officer (Director), Law Commission of India, he stood qualified for appointment as a Judge of the Allahabad High Court.

(iii) On the aspect of consultation, once there is consultation, the content of that consultation is beyond the scope of judicial review, though lack of effective consultation could fall within the scope of judicial review.

(iv) On facts, the bio-data of the appointee was placed before the Collegiums. Information regarding the lack of actual practice as an Advocate of the High Court and the working of the appointee as a Member of ITAT during his nascent years in office was before the Supreme Court Collegium. Further, that information was meticulously vetted and the recommendation of the High Court Collegium for appointment was sent back by the Supreme Court Collegium to the High Court Collegium for reconsideration. The matter was re-examined by the High Court Collegium. That Collegium reiterated its position and it recommended once again the name of the appointee for appointment as a High Court Judge. Accordingly, there was effective consultation. The content of the consultation process was not amenable to judicial review.

(v) The question whether the appointee was “suitable” to be appointed a High Court judge or whether he satisfied the fitness test was beyond justiciability in the present proceedings.

(vi) “Continuity of an Institution” is an important Constitutional principle in the Institutional decision-making process which needs to be insulated from opinionated views based on misinformation. “Trust” in the decision-making process is an important element in the process of appointment of Judges to the Supreme Court and the High Court which is the function of an integrated participatory consultative process. The allegations made by the Petitioner against institutional decision making process were baseless.

(163.3 KiB, 826 DLs)

No assessment merely on retracted confession

The assessee had declared diamond jewelry under the Voluntary Disclosure of Income Scheme, 1997 (‘VDIS’). The said declaration was accepted by the department and a certificate was issued to the assessee under VDIS. In A.Y. 1998-1999, the assessee claimed to have sold the said jewelry declared under VDIS to M/s.Dhananjay Diamonds and thereby earned long term capital gains. The Income Tax authorities conducted a survey at M/s. Dhananjay Diamonds and recorded the statement of its proprietor, Mr. Trivedi, u/s 133A on 31.3.2000. Trivedi confessed that he was not doing actual business of trading in diamonds and that the transactions reflected in his books of accounts were merely accommodation entries given to various VDIS declarants. The said statement was retracted vide letter dated 4-4-2000 (received by A.O. on 17-4-2000). In view of the confession, the AO assessed the sale proceeds of jewelry as undisclosed income. The Tribunal, by a majority, deleted the addition. On appeal to the High Court, HELD, upholding the Tribunal’s order:

(i) The certificate issued under VDIS to the effect that the assessee had diamond jewellery continued to be valid and subsisting and no proceedings had been initiated to cancel the same. Accordingly, it was not open to the revenue to contend that there was no jewellery which could be sold by the assessee.

(ii) In view of the retraction of the statement and the decision of the Supreme Court in Vinod Solanki V/s. UOI 2008 (16) Scale 31, the retracted confession can be relied upon only if there is independent and cogent evidence to corroborate the confession.

(iii) The Tribunal’s finding that the assessee has successfully shown the existence of diamond jewellery prior to the sale, the person to whom it is sold and also the consideration received could not be faulted.

(255.7 KiB, 930 DLs)

UOI vs. Dharmendra Textile 306 ITR 277 (SC) on 271 (1) (c) penalty distinguished

The assessee claimed that its entire receipts were exempt from tax u/s 10 (29). The AO took the view that only income “derived” from warehousing was exempt and not other income. The AO’s stand was confirmed by the ITAT. The AO levied penalty u/s 271 (1) (c) for concealment of income which was deleted by the Tribunal with the finding that though the claim was wrong, the assessee had not furnished any inaccurate particulars nor concealed its income. On appeal by the department, HELD dismissing the appeal:

(i) The contention that the claim for exemption was not bona fide was misconceived as the legal position at the date of the claim was in flux and had not attained finality. The acceptance of the revenue’s plea would lead to the inference that an assessee who canvasses a claim on the basis of its (assessee’s) interpretation of the law would be liable to penal action in case the revenue finds that the claim raised by the assessee is not acceptable. Such a determination would place curbs on the rights of an assessee to raise claims it believes to be genuine under the law. No such fetters can be placed on the rights of the assessee to raise genuine claims in its return.

(ii) The reliance on UOI v. Dharamendra Textile Processors 306 ITR 277 and the contention that the law on penalty had “drastically changed” and that penalty becomes “automatically leviable” whenever an addition is made in quantum proceedings which attains finality is “to state the least, absolutely absurd”. S. 271 (1) (c) can be imposed only if there is concealment of income or furnishing incorrect particulars and not for an unacceptable plea for exemption of tax-liability.

(iii) Dharamendra Textile was concerned with whether mens-rea was an essential ingredient for penalty under s. 11AC of the Excise Act. The issue of mens-rea does not arise in s. 271 (1) (c).

(iv)The appeal was frivolous and was filed without due application of mind and examining the controversy in its correct perspective. Though the Court had made it clear that costs would be imposed on the department if reasonable cause was not shown, the appeal was still pressed and this showed that the revenue shirked its responsibility of genuine decision making. The revenue must seriously take the responsibility of genuine decision making so as to avoid frivolous litigation and/or wasting Court time and expense and harassment to an innocent litigant.