Niit Ltd. vs Union Of India & Ors.
2009 Latest Caselaw 5135 Del

*             IN THE HIGH COURT OF DELHI AT NEW DELHI

+                              WP (C) No. 4722/2008
                                WP (C) No. 172/2009
                                WP (C) No. 173/2009
                                WP (C) No. 174/2009
                                WP (C) No. 175/2009
                                WP (C) No. 176/2009
                                WP (C) No. 177/2009

%                                          Reserved on: September 10, 2009
                                           Pronounced on: December 11, 2009


NIIT Ltd.                                               . . . Petitioner

                   through :                Mr. Soli J. Sorabjee, Sr. Advocate
                                            with Mr. Ajay Vohra, Ms. Kavita
                                            Jha, Mr. Amit Kumar Singh,
                                            Ms. Akansha Aggarwal and
                                            Mr. Sriram Krishna, Advocates



              VERSUS

Union of India & Ors.                                   . . . Respondents

                   through :                Mr. Parag P. Tripathi,
                                            Addl. Solicitor General with
                                            Ms. Rashmi Chopra and
                                            Mr. Kunal Bahri, Advocates

CORAM :-
    THE HON‟BLE MR. JUSTICE A.K. SIKRI
    THE HON‟BLE MR. JUSTICE VALMIKI J. MEHTA

       1.     Whether Reporters of Local newspapers may be allowed
              to see the Judgment?
       2.     To be referred to the Reporter or not?
       3.     Whether the Judgment should be reported in the Digest?


A.K. SIKRI, J.

1. All these writ petitions are preferred by the same petitioner, namely,

NIIT Ltd. In WP (C) No. 4722/2008, challenge is laid to the order

dated 19.6.2008 passed by the Commissioner of Income Tax

(Central-II) (hereinafter referred to as the Commissioner), who is the

respondent No.4 herein, under Section 263 of the Income Tax Act,

1961 (for short, the „Act‟). Vide this order, he has formed the

opinion that the assessment order dated 1.6.2006 passed by the

Assessing Officer (AO) under Section 143(3)/153A of the Act in

respect of assessment year 1999-2000 is erroneous and prejudicial to

the interest of the Revenue because of the reason that certain issues,

highlighted in the said order, were not considered at the time of

framing of the issues. Consequently, the assessment order has been

set aside with direction to the AO to frame the assessment afresh

after affording the assessee an opportunity of being heard and after

making proper enquiries and verifications. According to the

petitioner, this order is illegal and mala fide.

2. As far as the other writ petitions are concerned, only show-cause

notice under Section 263 of the Act in respect of different assessment

years, i.e. from assessment years 2000-01 to 2005-06 have been

issued, which are challenged, but admittedly no orders under Section

263 of the Act have been passed so far. In these circumstances, it is

but proper to first deal with WP (C) No. 4722/2008 on merits as the

consequences from the outcome of this writ petition will determine

the fate of other writ petitions as well.

3. Before we have a grip of the legal contentions on the basis of which

the impugned order is challenged, it would be apposite to scan

through the factual matrix in brief.

4. The petitioner is a company incorporated under the Indian

Companies Act, 1956 and claims to be a global training corporation

providing learning and knowledge solutions and imparting computer

education and training to clients in over 30 countries. As per the

averments made in the petition, it is a leading service provider in

Information Technology training in India and the only Indian

Information Technology Training Services Company outside Europe

and India in the 20 global IT training institutes. It offers complete

range of learning solutions, including learning strategy formulation,

custom content development, technology and outsourced services

amongst the top 10 Fortune 500 companies. The petitioner

company is ranked No. 16 among Global IT Training Companies and

amongst such companies outside UK and US.

5. In November 2004, search and seizure operations under Section 132

of the Act were carried out against the petitioner and its group

companies by the Directorate of Investigation, Income Tax, New

Delhi. Subsequent thereto, the Directorate of Investigation

completed its investigation and transferred all the records to the

ACIT, Central Circle-2, wherein all the cases of the petitioner and its

group companies had been centralized. Thereafter, the petitioner

filed its revised returns, pursuant to which notices issued under

Section 153A of the Act for the assessment years 1999-2000 to 2004-

05 and assessments were completed under Section 153A in June

2006. For the assessment year 1999-2000, the Assessing Officer (AO)

passed the assessment order on 1.6.2006. Subsequently, the

petitioner filed an appeal against the additions made therein and the

CIT (Appeals) was pleased to allow the same vide order dated

27.9.2006. The respondents have filed appeal to the Tribunal

against the relief allowed by CIT(A), which is pending disposal before

the Tribunal.

6. While this appeal before the Tribunal against the assessment order

dated 1.6.2006 is pending, a notice dated 23.7.2007 under Section

263 of the Act was issued by the Commissioner of Income Tax

(Central-III) (respondent No.3 herein), then exercising jurisdiction

over the petitioner. The petitioner filed its detailed response thereto

vide communication dated 9.10.2007. Subsequently, jurisdiction was

transferred to Commissioner of Income Tax (Central-II)/respondent

No.4. Upon assuming the jurisdiction, the respondent No.4 issued

another notice dated 15.10.2007. In response to this notice issued by

the respondent No.4, the petitioner filed detailed preliminary

objections to the assumption of jurisdiction under Section 263 of the

Act vide its letter dated 10.1.2008. In this letter, the petitioner

requested the respondent No.4 to dispose of the preliminary legal

objections first, by passing a reasoned speaking order. This request

was made keeping in view the ratio of the judgment of the Supreme

Court in the case of GKN Driveshaft v. CIT, 259 ITR 19, thought in

the context of Section 148 of the Act. According to the petitioner,

nothing was heard thereafter and almost five months thereafter, the

respondent No.4 passed impugned orders dated 19.6.2008. Vide

this order, not only the legal objection raised by the petitioner was

turned down, the Commissioner proceeded to dispose of the matter

on merits as well by passing the order under Section 263 of the Act

giving directions to the AO, as mentioned above.

7. Though the Act provides for statutory remedy of appeal against such

an order passed under Section 263 of the Act, instead of availing the

same, the petitioner chose to file the present writ petition, as

according to the petitioner, the impugned order is wholly without

jurisdiction being violative of the principles of natural justice. The

grievance of the petitioner, in this behalf, is that vide its letter dated

10.1.2008, the petitioner had taken preliminary objection to the

assumption of jurisdiction under Section 263 of the Act and had

requested the Commissioner to dispose of the same in the first

instance. Thus, the petitioner submits that even if the Commissioner

wanted to proceed ahead on merits, the Commissioner should have

indicated so and given an opportunity to the petitioner to make its

submissions on merits as well. This was not done and the petitioner

was taken by surprise when it received impugned order touching on

the merits of the case as well and justifying passing of orders under

Section 263 of the Act also. Based on this, the first and foremost

contention of the petitioner is that the impugned order passed is in

violation of the principles of natural justice and, thus, warrants to be

set aside on this ground.

8. In addition, Mr. Soli J. Sorabjee, learned senior counsel appearing for

the petitioner, advanced following two arguments :-

(a) The re-opening of the case culminating into passing of orders

under Section 263 of the Act was at the direction/dictates of the

superior authorities on account of undue pressure and influence

exerted by Shri A.L. Mehta. The impugned order, therefore, is mala

fide and is bad in law.

(b) The original assessment under Section 153A was completed and

assessment order dated 1.6.2006 was passed by the AO under

monitoring of the Commissioner of Income Tax. Furthermore, at

that time, the regular reports were also sent to the Central Board of

Direct Taxes (CBDT) through proper channel from time to time on

the progress of the assessments. The plea, thus, is that when the

assessment proceedings are monitored by the Commissioner, who is

having jurisdiction over the AO, such an assessment order passed by

the AO cannot be subjected to revisional jurisdiction under Section

263 of the Act.

9. We may point out at this stage itself that insofar as the first

contention of the petitioner is concerned, Mr. Parag P. Tripathi,

learned Addl. Solicitor General was fair in conceding that the

respondent No.4/Commissioner will have no objection in affording

an opportunity to the petitioner to make its submissions on merits as

well and passing the order afresh. On the basis of this concession of

the learned Additional Solicitor General, after obtaining instructions

from the respondents, the matter could have been disposed of at that

stage itself inasmuch as with this concession the impugned order, on

merits, has to be set aside. However, the petitioner persisted with

the other two contentions and argued them in detail.

10. We now proceed to take note of these contentions.

11. RE: MALA FIDES

Mr. Sorabjee submitted that under Section 263 of the Act, the

satisfaction has to be of the Commissioner himself acting

independently in bona fide exercise of his judgment. According to

him, the sequence of events and the surrounding circumstances

establish that the issue of show-cause notices dated 23.7.2007 and

15.10.2007 and the impugned order dated 19.6.2008 were not

passed in bona fide exercise of independent and unfettered judgment

but were impelled and directed by the superior authorities in the

Income Tax hierarchy. The tone and contents of several preemptory

communications addressed by Mr. A.L. Mehta to the superior

authorities pressurized such authorities to direct the Commissioner to

initiate proceedings against the petitioners.

12. Mr. Sorabjee made a fervent plea that Mr. A.L. Mehta was not a run-

of-the-mill whistleblower. Mr. A.L. Mehta was employed with the

petitioner from 1995 till December 2001 as Deputy General Manager

and thereafter tendered his resignation, which was duly accepted by

the petitioner. Mr. Mehta had raised certain illegal demands at the

time of his resignation, which were not accepted by the petitioner

and having been disgruntled on account of non-satisfaction of his

totally illegal demands, made up his mind to somehow harm and

damage the petitioner company. With that intent, Mr. Mehta started

fabricating and filing totally false and frivolous complaints against the

petitioner company before various Government organizations. He

was a resourceful and well connected informant who would earn his

reward if adverse orders are passed against the petitioner by way of

higher assessment of income or imposition of penalty. He

endeavoured to demonstrate, from the various communications

written by him to the CBDT and other authorities and in turn

communication by the CBDT to the respondent No.4 that Shri Mehta

wielded great clout with the department. This attempt was founded

on the following submissions :-

(i) The informant Mr. A.L. Mehta has access to orders passed by

the AO and other Income Tax authorities which are not

adverse to the petitioner as the said informant desires. He

castigates and casts serious unfounded aspersions on the AOs

and the Income Tax authorities who have not passed orders to

his liking against the petitioner. For example, Mr. A.L. Mehta‟s

letter dated 3.7.2007 addressed to CBDT has alleged that the

Chief Commissioner of Income Tax, who took the view that no

remedial action was called for in the case of the petitioner, was

biased.

(ii) Again, he has levelled serious, baseless and indiscriminate

allegations against the Income Tax authorities whose only sin

was that they did not pass adverse orders against the petitioner

which would have benefited the informant, namely, Mr. A.L.

Mehta, in getting his reward.

(iii) The CBDT not only took cognizance of the informant, but had

even instructed the authorities to look into his complaints,

which was totally impermissible.

(iv) The tenor of various letters would show that the CBDT had

almost dictated the line of action to the respondent No.4

making him virtually impossible to exercise independent

judgment and unfettered discretion in discharge of his statutory

function under Section 263 of the Act.

13. Mr. Sorabjee made a vehement plea that cumulative effect of the

informant‟s communication and conduct and the letters of CBDT had

to be seen in order to determine whether, having regard to human

probabilities and ordinary course of human conduct, the

Commissioner could exercise independent judgment and discretion in

such an atmosphere. According to him, it was a case of mala fides

and in any event there was a real likelihood/ danger that exercise of

independent judgment was not possible in the facts of the present

case.

14. The aforesaid submissions were supported and supplemented with

the following case law:-

(i) M.P. Special Police Establishment v. State of M.P. & Ors.,

(2004) 8 SCC 788, wherein a Constitution Bench of the Apex

Court held as under :-

"18. As has been mentioned above, the Division Bench had noted this case. The Division Bench however held

that even though this principle may apply to the case of a Chief Minister it cannot apply to a case where Ministers are sought to be prosecuted. We are unable to appreciate the subtle distinction sought to be made by the Division Bench. The question in such cases would not be whether they would be bias. The question would be whether there is reasonable ground for believing that there is likelihood of apparent bias. Actual bias only would lead to automatic disqualification where the decision-maker is shown to have an interest in the outcome of the case. The principle of real likelihood of bias has now taken a tilt to 'rear danger of bias' and 'suspicion of bias'. [See Kumaon Mandal Vikas Ninag Ltd. v. Girja Shankar Pant and Ors. (2000) 1 SCC 182 paras 27, 33 and 35 and Judicial Review of Administrative Action, by de Smith, Woolf and Jowell (5th Edn. at p.527) where two different spectrums of the doctrine have been considered]."

(ii) J & K Synthetics Ltd. v. CBDT, 83 ITR 335 (SC), for the

proposition that under Section 119 of the Act, the Board was

not competent to give direction regarding the exercise of any

judicial power by its subordinates.

(iii) Sirpur Paper Mill Ltd. v. CWT, 77 ITR 6 (SC), wherein it was

held that the Central Board may control exercise of the power

of the officers of the department in administrative matters, but

not in discharge of quasi-judicial functions.

(iv) CIT v. Greenworld Corporation, 224 CTR 113, wherein the

Apex Court had held that even a higher authority cannot

interfere with the independence of the adjudicating authority,

which is the basic feature of any statutory scheme involving

adjudicatory process.

(v) Purtabpur Company Ltd. v. Cane Commnr. of Bihar, AIR 1970

SC 1896, wherein the order passed by the Cane Commissioner

was set aside as that order was passed on the directions of the

Chief Minister.

(vi) State of U.P. v. Maharaja Dharmander Prasad Singh, AIR 1989

SC 997, wherein the Supreme Court again reiterated the

principle that the authority cannot permit its decision to be

influenced by the dictation of others as this would amount to

abdication and surrender of its discretion and such an act

would be ultra vires.

15. Following judgments highlighting the same principle were also cited:-

       (i)     Jeewanlal (1929) Ltd. v. ACIT,
               108 ITR 407

       (ii)    Jawahar Lal v. Competent Authority, Range-II, New Delhi,
               137 ITR 605

       (iii)   Sheo Narain Jaiswal v. ITO
               176 ITR 352

       (iv)    Yashwant Talkies v. CIT
               157 ITR 103

       (v)     CIT v. T.R. Rajakumari
               96 ITR 78

       (vi)    Rajputana Mining Agencies v. ITO,
               118 ITR 585

       (vii) IL & FS Investment Managers Limited
             298 ITR 32

16. Countering these arguments, Mr. Parag P. Tripathi, learned

Additional Solicitor General, tried to cut the very root of the

submissions by contending that the person against whom mala fides

are alleged, namely, Mr. A.L. Mehta, was not even impleaded as a

party to these proceedings. Thus, no mala fides could be imputed

insofar as Mr. Mehta is concerned in his absence, as held by the

Supreme Court in (1997) 9 SCC 151 and M/s. Medley Minerals India

Ltd. v. State of Orissa & Ors., JT 2004 (8) SC 29. He further

submitted that the petitioner‟s contention that the assessment has

been completed under monitoring of senior officials is also wrong as

is clear from paras 3 and 4 of the impugned order depicting

independent mind of the respondent No.4. Similarly, the plea of the

petitioner that the proceedings have been initiated on account of any

pressure, as alleged, is also wrong and misconceived. His submission

was that the records clearly indicated otherwise.

17. He also argued that the communications of CBDT would only

indicate that the CBDT had called for the reports about the action

taken by the Commissioner and in none of these letters any attempt

to influence the decision of the Commissioner was made either by

the CBDT or even by Mr. A.L. Mehta. Therefore, there was nothing

to show that the impugned order was passed at the dictates of the

CBDT. These letters were, at the most, in the realm of

„administrative review‟ reflecting „robust departmental thinking‟.

Furthermore, while exercising the power under Section 263 of the

Act, insofar as the Revenue is concerned, the consideration is as to

whether any income had escaped assessment. This aspect has been

dealt with by the Commissioner by applying his own independent

mind and there was no influence by any person, much less CBDT, on

the exercising of such a power by the Commissioner, as was clear

from the reading of the impugned order itself.

18. He submitted that the powers of revision are provided under Section

263 of the Act wherein the Commissioner, on examination of record

of any proceedings under the Act. On such examination, if he

considers that any order passed therein by the AO is erroneous

insofar as it is prejudicial to the interests of the Revenue, he may,

after giving opportunity of being heard and after making or causing

to be made such inquiry as he deems necessary, can direct a fresh

assessment. Also in the other writ petitions for different assessment

years, no orders under Section 263 of the Act have been passed and

the proceedings have been stated by this Court in WP (C) No.

172/2009 vide order dated 15.1.2009. The petitioner cannot,

therefore, allege violation of the principles of natural justice in the

said cases and has shirked from participation in the said proceedings

on the ground of apprehension of similar orders which may be

passed as in the present petition. The petitioner cannot have a

grievance of violation of the principles of natural justice in the said

proceedings but is deliberately not allowing the proceedings to

continue. He added that a probable of Rs.100 crore is involved in

the present batch of petitions and the petitioner is trying to delay the

adjudication/recovery of the same by adopting dilatory tactics on

one pretext or the other. The intention of the petitioner is manifest

in its conduct.

19. His further submission was that none of the letters written by the

CBDT or Mr. Mehta indicated that there was any dictate therein for

the Commissioner to pass orders in a particular manner. He also

submitted that the remedy of statutory appeal was open and order

could be challenged on all grounds, including on the ground

advanced in this writ petition and, therefore, this Court should not

exercise its extraordinary jurisdiction by interfering in the matter.

20. The legal position which cannot be disputed is that when a particular

authority is vested with the power to discharge statutory function,

like the Commissioner who is empowered to pass orders under

Section 263 of the Act, it is that authority which is to apply its

independent mind and arrive at its own conclusion without being

influenced by any other authority, much less the higher authority.

Unfettered discretion lies in the Commissioner of Income Tax to pass

orders under Section 263 of the Act. He is supposed to examine the

records produced before him to arrive at a conclusion whether the

assessment order passed by the AO suffers from infirmities and needs

to be revised under Section 263 of the Act. The parameters which

are laid down in Section 263 of the Act need to be fulfilled in

exercising such a discretion. It is the Commissioner who has to satisfy

himself, on the basis of available records, that in a given case the

conditions stipulated under Section 263 of the Act are satisfied. In

arriving at this conclusion, he is not to be controlled even by a higher

authority. Likewise, the higher authority is not to interfere with the

independence of his unfettered discretion which is statutorily

conferred upon the Commissioner. If it is found that the order is

passed at the dictates of the higher authority, such an order can be

set aside.

In the present case, various correspondence and documents which

are referred to by the learned senior counsel appearing for the

petitioner indicate that Mr. A.L. Mehta had been writing time and

again that income had escaped assessment and, therefore, the matter

should be looked into. Such communications were addressed to the

CBDT as well. The CBDT, in turn, forwarded those communications

to the respondent No.4 and wanted the respondent No.4 to decide

as to whether the allegations of Mr. Mehta are correct and whether

income had escaped assessment or not in the relevant assessment

years in which the AO had already passed the assessment orders. No

doubt, some anxiety is shown by the CBDT in this behalf. However

the argument of the respondents is that the CBDT had wanted the

matter to be examined and never intended that the orders are to be

passed in one particular manner only. It was pointed out that no

such directions were given by the CBDT to the respondent No.4

directing him to pass an order under Section 263 of the Act,

necessarily reopening the assessments. He was called upon to

examine the matter. The Commissioner passed detailed order under

Section 263 of the Act, which depicts his independent mind, and

various observations made in this order are not at the dictates of any

authority. It was for this reason that submission of learned senior

counsel for the petitioner was not that any such specific direction was

given. Attempt was to demonstrate that the CBDT had "almost

dictated the line of action" to the respondent No.4 making him

virtually impossible to exercise independent judgment and unfettered

discretion in discharge of his statutory function under Section 263 of

the Act. It is not necessary for us to give any authoritative

pronouncement on this aspect in the facts of this case. Reason is

simple and obvious.

21. The learned ASG, as noted above, as conceded that an opportunity

shall be granted to the petitioner for making its submissions on the

merits of the case by the Commissioner and thereafter fresh order

would be passed. For this reason alone, once we proceed to set

aside the impugned order, the effect would be that the concerned

Commissioner will have to go into this issue afresh for considering

the submissions of the petitioner, which would necessarily involve

application of his independent mind. This, coupled with the fact that

the Commissioner who passed the order is no more the concerned

officer, i.e. the respondent No.4, the matter will have to go to

another office discharging the duties in the capacity of respondent

No.4. In these circumstances, the very basis of the submission that

the impugned order was passed on the dictated lines of CBDT

vanishes. At the same time, we make it clear that the present

Commissioner/respondent No.4, while exercising his powers under

Section 263 of the Act, shall look into the matter with independent

mind without being influenced by the observations made in the

impugned order. While doing so, he shall have regard to the

submissions that would be made by the petitioner pleading that it is

not a case for exercising powers under Section 263 of the Act. We

also permit the petitioner to raise the plea that Mr. Mehta is not a

whistleblower, but is a disgruntled person being an ex-employee of

the petitioner, who has been fabricating and filing false and frivolous

complaints against the petitioner.

22. RE:- Assessment completed under monitoring/supervision - Not amenable to revision under Section 263 of the Act

The case of the petitioner is that the assessment under Section

153A of the Act was completed under the monitoring of the ACIT/

CIT/CCIT/CBDT and, therefore, such an order could not be regarded

as erroneous, much less prejudicial to the interest of the Revenue. To

support this contention, the petitioner relied upon certain documents

and more specifically letters dated 13.2.2006, 27.4.2006/5.5.2006

from CBDT to the CCCIT, 16.5.2006 from CIT to the Addl. CIT,

26.5.2006 whereby CCIT forwarded status report of the AO to

CBDT. It was, thus, contended that once an assessment order is

passed under the monitoring of the Commissioner, the successor

Commissioner could not set aside the assessment on the ground that

the assessment order was passed without application of mind.

Judgment of the Punjab & Haryana High Court in Hari Iron Trading

Co. v. CIT, 263 ITR 437, that of Calcutta High Court in CIT v.

Hastings Properties, 253 ITR 124 (Cal.) and the Madras High Court in

Festo Elgi (P) Ltd. v. CIT, 246 ITR 705 (Mad.) were pressed into

service in support of this submission.

Since the matter has to be considered afresh by the

Commissioner, even this contention can be raised by the petitioner

before the said Commissioner and the Commissioner, while passing

the order, shall specifically deal with this contention.

23. The upshot of the aforesaid discussion is that WP (C) No. 4722/2008

is allowed and the impugned order dated 19.6.2008 passed by the

Commissioner of Income Tax (Central-II)/respondent No.4 is hereby

set aside. However, liberty is granted to the respondent No.4 to

appropriately deal with the matter and pass fresh order after giving

opportunity of being heard to the petitioner on various points

canvassed before us or which it intends to raise at the time of fresh

hearing. We also make it clear that we have not authoritatively

pronounced on the contentions raised by the petitioner, either way,

and the Commissioner shall deal with such contentions objectively

without being influenced by any observations in this judgment.

24. WP (C) Nos. 172/2009, 173/2009, 174/2009, 175/2009 WP (C) No. 176/2009 & 177/2009

Insofar as these writ petitions are concerned, no order under

Section 263 of the Act has been passed so far and only show-cause

notice is given. Needless to mention, in these cases as well, which

relate to different assessment years, the Commissioner shall be

governed by the same parameters delineated above and these

petitions stand disposed of in these terms. It is specifically clarified

that as the petitions were pending in this Court, issue of limitation

would not be raised by the petitioners.

25. All pending applications in these cases stand disposed of.

(A.K. SIKRI) JUDGE

(VALMIKI J. MEHTA) JUDGE December 11, 2009 nsk