Introduction
In a significant ruling reaffirming the statutory obligations of appellate bodies, the Division Bench of Kerala High Court (‘HC’) addressed the critical issue of dismissing appeals by the Income Tax Appellate Tribunal (‘ITAT’) on the ground of non-prosecution. In this case, Cool Mind Technologies (P) Ltd. v. ACIT & Ors.[i] presented a peculiar situation where an appeal was dismissed without a merits-based consideration, and a subsequent restoration application was dismissed for delay. While this ruling ensures that appellate tribunals must decide appeals on their substantive grounds rather than procedural defaults, it also limits their discretion. The decision aligns with broader principles of fair adjudication within the income tax appellate framework but presents a contentious issue regarding the manner in which appellate bodies conduct cases.
Brief Facts
The Appellant, engaged in software development and IT-enabled services, claimed a deduction under s. 10B of the Income-tax Act, 1961 (‘IT Act’) as a 100% export-oriented unit (‘EOU’) for the assessment years (‘AY’) 2007-08 and 2008-09.
These claims were denied, leading the Appellant to seek an alternative deduction under s. 10A of the IT Act. The First Appellate Authority allowed this alternate ground for AY 2008-09 but rejected it for AY 2007-08. The Appellant preferred an appeal before the ITAT against this rejection, which was dismissed for non-prosecution.
The Appellant claimed not to have received the notice of hearing or the dismissal order from the ITAT. Upon receiving a copy of the dismissal order, the Appellant filed for restoration of the appeal, which was also dismissed as belated. The Appellant approached the writ court to challenge the ITAT’s dismissal orders.
The Single Judge dismissed the writ petition on the ground that the restoration application was filed late, despite acknowledging the ITAT’s statutory obligation to consider appeals on merits under s. 254 of the IT Act, read with r. 24 of the Income-tax (Appellate Tribunal) Rules, 1963 (‘AT Rules’). Aggrieved by the same, the Appellant filed an appeal before the Division Bench of the HC.
Held
The Division Bench of the HC set aside the impugned judgment of the Single Judge and the ITAT’s dismissal orders. It directed the ITAT to restore the appeal on its file and adjudicate it on merits within 6 months.
The Division Bench of the HC noted that this case was identical to Uzhuva Service Co-operative Bank Ltd. v. ITO & Ors.[ii], wherein the Division Bench of the same HC held that the ITAT cannot dismiss an appeal solely for non-prosecution. The HC emphasised that under s. 254 of the IT Act, the ITAT is required to consider all appeals on their merits. Accordingly, dismissing an appeal for non-prosecution without a merits-based consideration was legally unsustainable.
Our Analysis
One perspective on this decision is that it restricts and ties the hands of the income tax appellate bodies in how they conduct their proceedings. Another viewpoint is that it highlights the judiciary’s commitment to ensuring that procedural defaults do not override substantive justice. S. 250 of the IT Act, pari materia to s. 254, and if interpreted based on this decision, mandates the Commissioner of Income-tax (Appeals) to decide an appeal on merits and not dismiss it solely for non-prosecution. Unsurprisingly, there are judgments to this effect regarding s. 250 of the IT Act as well.
Appellate authorities often rely on procedural mechanisms to manage their heavy caseloads efficiently. The inability to dismiss appeals for non-prosecution significantly curtails their discretionary power to manage cases where the parties are not actively pursuing their appeals. It reduces the flexibility of appellate bodies to address procedural non-compliance. It may result in a rigid application of the law, leaving no space for tribunals to adapt to the unique circumstances of each case. Such judgments could also enable parties to use this as a tactical delay tool in proceedings, deliberately not appearing, knowing that their appeals cannot be dismissed for non-prosecution. Hence, while the HC’s decision highlights the importance of substantive justice, it also presents practical challenges for appellate bodies in managing their dockets effectively.
End Notes
[i] [2024] 163 taxmann.com 694 (Kerala), dated: 04.06.2024.
[ii] 2020 (5) KHC 615, dated: 28.11.2022.
Authored by Srishty Jaura, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinion.
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