Hyundai Heavy Industries Ltd vs. UOI (Uttarakhand High Court)

Jurisdictional CIT should not be part of DRP to avoid likelihood of bias

Pursuant to s. 147 reopening and a draft assessment order u/s 144C, the assessee filed objections before the Dispute Resolution Panel (DRP). As the Director of Income Tax (International Taxation)-II (DIT-IT) who had granted approval to the reopening and had supervised the passing of the draft assessment order was a member of the DRP, the assessee requested him to recuse himself from the panel on the ground that there was a “conflict of interest”. As the DIT-IT declined to do so and participated in the proceedings and finalized the draft assessment order, the assessee filed a Writ Petition contending that the jurisdictional CIT should not be a part of the DRP. The constitutional validity of s. 144C and Rule 3 (2) of the Rules was also challenged. HELD disposing of the Petition:

(i) The doctrine of nemo judex in causa sua (no man shall be a judge of his own cause) is subject to the doctrine of necessity. Bias cannot be established merely because one of the members of the DRP is also a jurisdictional CIT if he was not interested in his personal capacity in the outcome of the assessment order and the directions issued to the AO were not based on extraneous considerations. As the CIT was only discharging statutory functions provided under the Act, bias stood excluded on principles of the doctrine of necessity. Consequently, s. 144C & Rule 3 (2) are not ultra vires;

(ii) However, as the DIT-II was exercising supervisory functions over the AO, the real likelihood of “official bias” cannot be ruled out. Even if the officer is impartial and there is no personal bias or malice, nonetheless, a right minded person would think that in the circumstances, there could be a likelihood of bias on his part. In that event, the officer should not sit and adjudicate upon the matter. He should recuse himself. This follows from the principle that justice must not only be done but seen to be done. In order to ensure that no person should think that there is a real likelihood of bias on the part of the officer concerned, the CBDT is directed to ensure that a jurisdictional Commissioner is not nominated as a member of the DRP under Rule 3 (2) of the Rules. By doing this, the principle that justice must not only be done but seen to be done would be ensured.