1 S.A. Nos.

196 to 198/Mum2009
M/s. Tata Communications Ltd.

IN THE INCOME TAX APPELLATE TRIBUNAL,

MUMBAI BENCH ‘F’, MUMBAI (SPECIAL BENCH )

Before Shri R.V. Easwar (President),

Shri P.M. Jagtap (AM) and Shri R.S. Padvekar (JM)

S.A. Nos.196 to 198/Mum/2009

(Arising I.T.A.Nos. 1106 to 1108/Mum/2008)
Assessment Years : 200-01 to 2002-03

M/s. Tata Communications Ltd., The Asst. Commissioner of

(Earlier known as Videsh Sanchar Income-tax, Range 1(3),
Nigam Ltd.,) VSB, M.G. Road, Vs. Mumbai
Fort, Mumbai 400 001.
PAN: AAACV 2808 C
(Applicant) (Respondent)

Applicant by : Shri Dinesh Vyas, Senior Advocate & Shri Raju Vakharia
Respondent by : Shri A.P. Singh (CIT-DR)

ORDER

PER P.M. JAGTAP, AM :

This Special Bench has been constituted by the Hon’ble President,

Income-tax Appellate Tribunal, inter alia, to consider and decide the
following question:
“Whether in the facts and circumstances of the case where
the delay in the disposal of the relevant appeals is not
attributable to the assessee, the Tribunal can extend the stay
already granted beyond the period of 365 days even after
01.10.2008 or it has no power to grant/extend such stay as a
result of amendment made by the Finance Act 2008 by
substituting third proviso to Section 254(2A) w.e.f.
01.10.2008?”

2. The assessee in this case is a company which moved its applications

before the Tribunal being S.A. Nos. 196 to 198/Mum/2009 seeking extension

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of stay of outstanding demand already granted beyond the period of 365

days. The outstanding demand sought to be stayed was on account of
penalties imposed by the Assessing Officer u/s 271(1)(c) and confirmed by
the Learned Commissioner of Income-tax (Appeals) for the assessment years
2000-01, 2001-02 and 2002-03 aggregating to Rs.369.40 crores. During the
course of hearing of the said stay applications initially before the Division
Bench, reliance was placed on behalf of the assessee on the decision of the
Co-ordinate Bench of this Tribunal in the case of Ronak Industries Limited
(S.A. No. 137/M/09 dated 22.05.2009) wherein the stay was granted beyond
the period of 365 days by an order dated 22.05.2009 i.e. after the amendment
made by the Finance Act 2008 by substituting Third proviso to section
254(2A) with effect from 1.10.2008 ( ‘2008 amendment’ in short ). In the
said order, the Tribunal had mainly relied on the decision of the Hon’ble
Bombay High Court in the case of Narang Overseas P. Ltd. Vs. ITAT and
others 295 ITR 22( Bom) which was delivered prior to 01.10.2008. The
Division Bench of the Tribunal which initially heard these stay applications
filed by the assessee was of the opinion that the reliance of the Tribunal on
the decision of the Hon’’ble Bombay High Court in the case of Narang
Overseas P. Ltd. (supra) to extend the say beyond the period of 365 days in
the case of Ronak Industries Ltd., by an order passed on 22.05.2009 i.e. after
01.10.2008 was misplaced. The division Bench of the Tribunal, therefore,
felt that the decision of the Coordinate Bench in the case of Ronak Industries
Ltd., (supra) extending the date beyond the period of 365 days required re-
consideration/review by a larger bench and accordingly a reference was made
by it to the Hon’ble President of the I.T.A.T for constitution of a Special
Bench for the reasons given elaborately in its referral order dated 22.09.2009.
Accordingly, the Hon’ble President, I.T.A.T. constituted this Special Bench
to decide the question as already indicated above.

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3. As per the order of the Hon’ble President, I.T.A.T., this case was
posted for hearing before the Special bench. The hearing, however, got
adjourned from time to time, inter alia, on the ground that the appeal filed by
the revenue against the order passed by the Tribunal in the case of Ronak
Industries Ltd. (supra) involving a similar issue was already heard by the
Hon’ble Bombay High Court and the decision of Their Lordships thereon
was awaited. The Hon’ble Bombay High Court finally delivered its
judgment on 22nd November, 2010 dismissing the appeal filed by the revenue
in the case of Ronak Industries Ltd., being IT Appeal No. 3190 of 2009.
Thereafter, this case was taken up for hearing by the Special Bench and the
arguments raised by the learned representatives of both the sides have been
heard.

4. The learned counsel for the assessee, Shri Dinesh Vyas, Senior
Advocate, submitted that the issue raised in this case for the consideration of
Special Bench now stands squarely covered in favour of the assessee by the
decision of the Hon’ble Bombay High Court in the case of Ronak Industries
Ltd. (supra). He submitted that the decision of the Tribunal in the case of
Ronak Industries Ltd.(supra) granting the stay of outstanding demand beyond
the period of 365 days was challenged by the Revenue in the appeal filed
before the Hon’ble Bombay High Court and the question raised in the said
appeal was -
“Whether on the facts and in the circumstances of the case and in
law, the I.T.A.T. was justified in holding that the case of the assessee
is a fit case for stay of outstanding demand beyond the period of 365
days as per the provisions of section 254(2) by ignoring the
mandatory amendment in the Third proviso to section 254(2A) made
by the Finance Act, 2008 with effect from 01.10.2008, providing that
the order of the stay granted shall vacate after the expiry of 365 days

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even if the delay in disposing of the appeal is not attributable to the

assessee?”
Shri. Dinesh Vyas submitted that the Hon’ble Bombay High Court has
upheld the order of the Tribunal passed in the case of Ronak Industries Ltd.
(Ltd.) and dismissed the appeal filed by the assessee thereby answering the
said question in the affirmative i.e. in favour of the assessee. He contended
that since the issue referred to this Special Bench is identical to the issue
involved before the Hon’ble Bombay High Court in the case of Ronak
Industries Ltd. (supra), the same now stands squarely covered in favour of
the assessee by the judgment of the Hon’ble Bombay High Court delivered in
the said case. He contended that as held by the Hon’ble Bombay High Court
in the case of Ronak Industries Ltd. (supra), the Tribunal thus has the power
to grant the stay of outstanding demand beyond the period of 365 days and
proceeded to make his submissions in support of the stay applications filed
by the assessee in this case on merits.

5. On merit, Shri Dinesh Vyas submitted that the assessee has a good
prima facie case to succeed in its appeals filed before the Tribunal
challenging the penalties imposed by the Assessing Officer under section
271(1)(c) and confirmed by the learned CIT(A). He submitted that the said
penalties are imposed mainly in respect of additions made on two issues. He
submitted that although the first issue in respect of which penalty is imposed
has been decided against the assessee by the Special Bench of I.T.A.T in the
quantum proceedings, the fact that one Member of the Special Bench has not
agreed with the majority view and has expressed a different view which is in
conformity with the view adopted by the assessee, is sufficient to show that
the said issue is highly debatable on which two views are possible. He
submitted that the claim made by the assessee on the said issue thus is based
on one possible view of the matter and although the said claim has been

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disallowed by the Special Bench of I.T.A.T as per the majority view, there is
no concealment as envisaged in section 271(1)(c). He submitted that the
other issue in respect of which the addition has been made and penalty has
been levied is whether the expenditure claimed by the assessee is of capital
nature or revenue nature. He submitted that this issue is purely a legal issue
and since all the material facts relevant to the said issue were fully and truly
furnished by the assessee, no penalty u/s.271(1)(c) can be imposed in respect
of addition made by way of disallowance of assessee’s claim involving such
a legal issue. Shri Dinesh Vyas submitted that the assessee thus has a good
prima facie case on merit to succeed in its appeal filed before the Tribunal
challenging the imposition of penalty u/s.271(1)(c) and it is, therefore, a fit
case to grant the stay of the outstanding demand. He submitted that the
Assessing Officer, however, has already recovered the entire outstanding
demand by way of adjustment of the refund due to the assessee for other
years as a result of relief given by the Tribunal in the said years. He
submitted that the entire outstanding demand thus has been recovered by the
Assessing Officer during the period when the stay applications filed by the
assessee before the Tribunal were pending. He submitted that substantial
amount has been borrowed by the assessee for the purpose of its business
which shows that the assessee continuously requires funds for the purpose of
its business and as a result of recovery made by the by Assessing Officer by
way of adjustment of refunds for other years, the assessee is deprived of an
opportunity to utilize the amount of refund for the purpose of its business. He
submitted that a specific objection was raised by the assessee before the
Assessing Officer in writing to his proposal of making adjustment of the
refund due for other years against the outstanding demand pending on
account of penalty imposed under section 271(1)(c). He submitted that it
was specifically brought to the notice of the Assessing officer that the stay
applications fixed before the Tribunal are pending before the Special Bench,

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but still he proceeded to ignore the objection of the assessee and recovered
the outstanding demand by adjusting the refund due for other years. He
contended that the amount so recovered by the Assessing Officer ignoring
the specific objection raised by the assessee and disregarding the position
that stay applications filed by he assessee were pending before the Tribunal
thus may be directed to be refunded to the assessee while allowing these stay
applications. In support of this contention, Shri. Dinesh Vyas relied on the
decision of Delhi bench of this Tribunal in the case of Hewlett Packard India
(P) Ltd. Vs. Addl. CIT (S.A. No. 426/D/04 dated 16.02.2005) and submitted
that in the similar facts and circumstances when the stay applications filed by
the assessee were pending before the Tribunal, the amount recovered by the
Assessing Officer against the outstanding demand was directed to be
refunded. He also relied on the following judicial pronouncements:
(i) Mahindra & Mahindra Ltd. 59 ELT 504 (Bom)
(ii) RPG Enterprises Ltd. 251ITR (AT) 20 (Mum.)
(iii) M.S.E.B. 81 ITD 299 (Mum)
(iv) Western Agencies (Madras) Ltd. 86 ITD 462(Mad.)

6. The learned Departmental Representative, on the other hand,

submitted that the case of Ronak Industries ltd. (supra) involving a similar
issue as raised before this Special Bench has been decided by the Hon’ble
Bombay High Court following its earlier decision in the case of Narang
Overseas P. ltd. (supra). He submitted that the issue involved in the case of
Narang Overseas Pvt. Ltd., however, was different inasmuch as the position
of law under consideration in that case was prior to the 2008 amendment. He
submitted that the amendment made in the year 2007 was only considered by
the Hon’ble Bombay High Court in the case of Narang Overseas Ltd. (supra)
and there was thus no occasion for the Hon’ble Bombay High Court to
consider the 2008 amendment. He contended that the said amendment made

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in the year 2008 in the relevant provisions is very clear in this regard and
keeping in view the legislative intention behind the said amendment to limit
the maximum period of stay which can be granted by the Tribunal to 365
days, it cannot be said that after the said amendment, the Tribunal still has
the power to grant stay beyond a period of 365 days. The learned
Departmental Representative contended that the decision of the Hon’ble
Bombay High Court in the case of Ronak Industries Ltd. (supra) thus need
not be followed by this Special Bench as a binding precedent. In support of
this contention, he relied on the decision of the Full Bench of the Hon’ble
Andhra Pradesh High Court in the case CIT vs. B.R. Construction reported in
73 Taxman 473 and submitted that the binding precedent, as held therein, can
be ignored inter alia in three situations viz. (i) when it is inconsistent with the
earlier decision of the same rank, (ii) when it is sub-slientio and (iii) when it
is rendered per incuriam.

7. The learned Departmental Representative submitted that in the case

of Jethamal Faujimal Soni vs. ITAT reported in 231 CTR 332, the Hon’ble
Bombay High Court had an occasion to consider the effects of 2008
amendment and on such consideration, it was clearly laid down by the
Hon’ble Bombay High Court that after the 2008 amendment, the Tribunal
cannot grant the stay of outstanding demand beyond the period of 365 days
even if the delay in disposal of the appeal by the Tribunl is not attributable to
the assessee. He contended that the decision of the Hon’ble Bombay High
Court in the case of Ronak Industries Ltd.(supra) taking a different view thus
is inconsistent with its own decision taken in the case of Jethamal Faujimal
Soni (supra). The learned Departmental Representative then submitted that
the effect of 2008 amendment has not been considered at all while deciding
the case of Ronak Industries Ltd. (supra) by the Hon’ble Bombay High
Court, inasmuch as, there is no discussion whatsoever made on this vital

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aspect. He submitted that the Hon’ble Bombay High Court while deciding
the said case, on the other hand, has simply relied on its earlier decision in
the case of Narang Overseas P. Ltd. (supra) which was rendered on
13.07.2007 i.e. much before the amendment was made in the year 2008 in the
relevant provision. He contended that the decision of the Hon’ble Bombay
High Court in the case of Ronak Industries Ltd.(supra) is thus sub-silentio in
so far as the amendment made in 2008 is concerned and the said amendment
being very vital and material to decide the issue under consideration, the
decision of the Hon’ble Bombay High Court in the case of Ronak Industries
Ltd.(supra) cannot be followed as a binding precedent. He contended that the
non-consideration of its earlier decision in the case of Jethamal Faujimal
Soni (supra) as well as non-consideration of the relevant amendment made in
the year 2008 while deciding the case of Ronak Industries Ltd. (supra) thus
has rendered the decision of the Hon’ble Bombay High Court per incuriam
and the same cannot be followed as a binding precedent as held by the full
bench of Hon’ble Andhra Pradesh High Court in the case of CIT v. B.R,.
Constructions (supra). The learned Departmental Representative submitted
that in the similar situation, the Special Bench of I.T.A.T. At Delhi in the
case of Hindustan Mint & Agro Products (P) Ltd. reported in 119 ITD 107,
has declined to follow the decision of the Hon’ble Madras High Court in the
case of SCM Creations vs. ACIT although the same was on a similar issue
holding that it was per incuriam. He invited our attention to the paragraph
11.5 and 11.6 of the order passed by the Tribunal in the said case and read
out the relevant portion thereof. He submitted that even the Hon’ble Bombay
High Court in the similar situation did not follow the decision of the Hon’ble
Supreme Court in the case of Vinay Cement Ltd. 212 CTR 384 while
deciding the case of CIT vs. Pamwi Tissues Ltd. 215 CTR 150. He also
relied on the decision of the Andhra Pradesh High Court in the case of CIT
vs. Gangappa Cables Ltd. 116 ITR 778 and the Third Member decision of the

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Ahmedabad Bench of the I.T.A.T in the case of Kanel Oil & Export Inds.
Ltd. 121 ITD 596 in support of his contention that in a situation like the one
in hand, the decision of the higher judicial forum/Court need not be followed
as a binding precedent. He contended that decision of the Hon’ble Bombay
High Court in the case of Ronak Industries Ltd. (supra) is also per incuriam
as the same is inconsistent with its earlier decision and has been rendered
without considering the amendment made in 2008 which was material and
relevant. He also contended that the case of Ronuk Industries Ltd. (supra) has
been decided by the Hon’ble Bombay High Court by upholding the order of
the Tribunal and dismissing the appeal of the revenue without any discussion
and the same, therefore, cannot be said to be laying down any ratio
decidendi.

8. As regards the contention raised by the learned counsel for the

assessee claiming refund of outstanding demand already recovered to by the
Assessing Officer, the learned Departmental Representative submitted that
the recovery of outstanding demand has been made by the Assessing Officer
only after a period of three years from the date when it was raised and that
too after the expiry of stay granted by the Tribunal. He submitted that the
said recovery has been made by the Assessing Officer by way of adjustment
of refund due to the assessee for other years and there is no coercive measure
which has been taken by him to recover the outstanding demand. He stated
that in all cases cited by the learned counsel for the assessee in support of the
assessee’s claim for refund of outstanding demand recovered, there was
coercive measure taken by the Assessing Officer to recover the outstanding
demand and that too when the stay applications filed by the assessee were
pending for hearing before the Tribunal. He contended that the facts involved
in the present case, however, are entirely different from the facts involved in
the said cases cited by the learned counsel for the assessee and the same

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cannot be of any help to support the claim of the assessee for refund of tax
already recovered.

9. The learned Departmental Representative then raised a preliminary

objection regarding the power of this special bench to dispose of the stay
applications. In this regard, he contended that this Special has been
constituted by the Hon’ble President, I.T.A.T, for the limited purpose of
answering the specific question referred to it and keeping in view this limited
purpose for which the Special Bench has been constituted, the question
referred to it can only be answered and the matter of disposing of the stay
applications should be left to the Division Bench. In support of this
contention, he relied on the judicial pronouncements in the cases of ACIT vs.
DHL Operation BV 13 SOT 581 (Mum) (SB), Central Wines Vs. ITO 244
ITR 307 (AP) and CIT vs. Highway Construction Co. (P) Ltd. 217 ITR
234(Gauhati).

10. Keeping in view the various submissions made by the learned

Departmental Representative in the rejoinder and after taking leave of the
Special Bench, the learned counsel for the assessee has prepared and
furnished a written note explaining how the various judicial pronouncements
cited by the learned Departmental Representative are distinguishable on facts
and in law. He has also summarized in the said note the issues which are
required to be considered and decided by the Special Bench and the various
judicial pronouncements which the assessee has cited in support of its case
on the said issues.

11. We have considered the rival submissions and also perused the
relevant material on record. We have also carefully gone through the various
judicial pronouncements cited by the leaned representatives of both the sides.

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The preliminary issue which is required to be considered and decided by this

Special bench is whether the main issue referred to the Special Bench now
stands squarely covered by the decision of the Hon’ble Bombay High Court
in the case of Ronak Industries Ltd. (supra) and whether the same has to be
followed being a binding precedent to decide the said issue. There is no
dispute that the issue before the Hon’ble Bombay High Court in the case of
Ronak Industries Ltd. (supra) was identical to the one referred to this Special
Bench. The learned Departmental Representative, however, has contended
relying on the decision of the Hon’ble Andhra Pradesh High Court in the
case of B.R. Constructions (supra) that the same need not be followed by this
special bench being per incuriam as it is inconsistent with its earlier decision
rendered in the case of Jethamal Faujimal Soni (supra) and the amendment
made in 2008 in the relevant provision has not been taken into consideration.
A perusal of the judgment of the Hon’ble Bombay High Court passed in the
case of Jethamal Faujimal Soni (supra), however, shows that a writ petition
was filed by the assessee in the said case challenging the constitutional
validity of 2008 amendment whereby the third proviso was inserted in
section 254(2A) by the Finance Act of 2008 w.e.f. 1.10.2008 and the same
was finally disposed by the Hon’ble Bombay High Court without deciding
the issue raised therein on merit by simply directing the Tribunal to dispose
of the pending appeal within a period of four months keeping in view the
assurance given by the learned counsel for the revenue that no coercive steps
shall be taken by the department to enforce the demand which formed the
subject matter of the appeal. Hon’ble Bombay High Court in the case of
Jethamal Faujimal Soni (supra) thus has not rendered any decision on merit
of the issue and in our opinion, it cannot be said that the decision given by
the Hon’ble Bombay High Court in the case of Ronak Industries Ltd. (supra)
is inconsistent with that decision rendered earlier.

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12. As regards non-consideration of the 2008 amendment, the learned

Departmental Representative has submitted that the decision in the case of
Ronak Industries Ltd.(supra) has been rendered by the Hon’ble Bombay
High Court mainly relying on its earlier decision in the case of Narang
Oversea Ltd.(supra) which was rendered in the year 2007 i.e. prior to 2008
amendment. He has contended that the Hon‘ble Bombay High Court thus
had no occasion to consider the effect of 2008 amendment and its judgment
on this material and relevant aspect is sub-silentio. It is no doubt true that
reliance was placed by the Hon’ble Bombay High Court while deciding the
case of Ronak Industries Ltd., on its earlier decision in the case of Narang
Overseas Ltd(supra) which was rendered in the year 2007 when the 2008
amendment was not on the statute. However, a perusal of the judgment
passed by the Hon’ble Bombay High Court in the case Narang Overseas
Ltd(supra) shows that a wider view on the issue was taken therein by holding
as under :
“1) The power to grant stay or interim relief has to be read as co-
extensive with the power to grant final relief, the object
being that in the absence of the power to grant interim
relief, the final relief itself may be difficult.
2) Once an appeal is provided, it cannot be rendered nugative in
cases where the assessee was not at fault.
3) The object of amendment made in Section 254(2A) by the
Finance Act (2007) was not to defeat the vested right of an
appeal in an assessee whose appeal could not be disposed not
on account of any omission or failure on his part, but either
the failure of the Tribunal or acts of Revenue resulting in
non-disposal of the appeal within the extended period as
provided.

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4) It would not be possible on one hand to hold that there is a

vested right of appeal and on the other hand to hold that there
is no power to continue the grant of interim relief for no fault
of assessee by divesting the incidental power of the Tribunal
to continue the interim relief. Such a reading would result in
such an exercise being rendered un-reasonable and violative
of Article 14 of the Constitution.”

13. It is also observed that the following question was raised before the
Hon’ble Bombay High Court in the case of Ronak Industries Ltd.(supra) :
“Whether on the facts and in the circumstances of the case and in
law, the I.T.A.T. was justified in holding that the case of the assessee
is a fit case for stay of outstanding demand beyond the period of 365
days as per the provisions of section 254(2) by ignoring the
mandatory amendment in the Third proviso to section 254(2A) made
by the Finance Act, 2008 with effect from 01.10.2008, providing that
the order of the stay granted shall vacate after the expiry of 365 days
even if the delay in disposing of the appeal is not attributable to the
assessee?”
A perusal of the above question makes it clear that the material change stated
to be brought about by the amendment made in the Third proviso to section
254(2A) by the Finance Act, 2008 with effect from 01.10.2008 was
specifically highlighted therein. As a matter of fact, the grievance specifically
projected by the Revenue in the said question was that the said amendment
had been ignored by the Tribunal while extending the stay of demand granted
earlier beyond the period of 365 days. In our opinion, it cannot therefore be
said that the Hon’ble Bombay high Court has not taken cognizance of the
said amendment or effect thereof while deciding the case of Ronuk Inustries
Ltd. (supra). In any case, Hon’ble Madhya Pradesh in the case of National

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Textile Corpn. Ltd. Vs. CIT (2008) 171 Taxman 339 (MP) has held that it is
not permissible for the Tribunal to sidetrack or/and ignore the decision of the
jurisdictional High Court on the ground that it did not take into consideration
a particular provision of law. It was held that if such approach is resorted to
by the subordinate court or Tribunal, the same will be liable to be deprecated
being not in conformity with the law laid down by Hon’ble Supreme Court.

14. The learned Departmental Representative has also contended before

us that in the absence of any discussion whatsoever about the 2008
amendment in the judgment of the Hon’ble Bombay High court passed in the
case of Ronbak Industries Ltd.(supra), the said decision cannot be taken as
laying down any ratio decidendi. It is pertinent to note here that even though
there is no such discussion made in the judgment of Hon’ble Bombay High
Court passed in the case of Ronak Industries Ltd. (supra), the decision of the
Tribunal has been upheld by the Hon’nle Bombay High Court dismissing the
appeal filed by the revenue. In the case of Nirma Industries Ltd., 283 ITR
402, the Hon’ble Gujarat High Court has held that the only jurisdiction that
the High Court has while hearing the appeal filed under section 260A is the
appellate jurisdiction and where an order of subordinate forum is reversed or
modified exercising such appellate jurisdiction or the appeal filed is merely
dismissed confirming the order under appeal without any modification, it is
the appellate decision alone which subsists and is operative and capable of
enforcement. It was held that in all such eventualities, what emerges is the
operative part of the order under appeal after its confirmation, reversal or
modification and there would be a merger even in a case where the reasoning
of the subordinate forum is not expressly approved. It was held that if the
merger is issue specific, there is fusion of the order only to that limited
extent but it cannot be successfully contended that where appellate court
merely accords approval to the reasoning of the lower court or forum, there is

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no decision of the appellate court or forum. Keeping in view this proposition

propounded by the Hon’ble Gujarat High Court in the case of Nirma
Industries Ltd.(supra), we find it difficult to accept the contention of the
learned Departmental Representative that in the absence of any discussion on
the 2008 amendment, the decision of the Hon’ble High Court in the case of
Ronak Industries Ltd. (supra) cannot be said to be laying down any ratio
decidendi and that the same, therefore, need not be followed by this Special
Bench as a binding precedent. In our opinion, as a result of dismissal of the
appeal filed by the revenue and upholding of the order passed by the
Tribunal, the question referred to in the case of Ronak Industries Ltd.,(supra)
has been answered by the Hon’ble Bombay High Court in the affirmative
thereby holding that the Tribunal even after the 2008 amendment has the
power to grant the stay beyond the period of 365 days in the cases where the
delay is not attributable to the assessee and this is the ratio which has been
laid down in the said decision by the Hon’ble jurisdictional High Court,
which is binding on this Special Bench.

15. At the time of hearing before us, the learned Departmental

Representative has relied on various judicial pronouncements wherein the
decision of the higher appellate forum has not been followed by the lower
appellate authorities. A perusal of the orders passed in the said cases,
however, shows that the factual position in which the decision of the higher
forum was not followed by the lower forum was entirely different. For
example, in the case of Hindustan Mint & Agro Products (P) Ltd. (supra), the
decision in the case of SCM Creation (supra) which the Delhi Special Bench
of the I.T.A.T did not follow was that of a non-jurisdictional High Court i.e.
Hon’ble Madras High Court. Moreover, the relevant statutory provision
having a direct bearing on the issue under consideration was found to be not
at all considered by the Hon’ble Madras High Court while deciding the said

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issue. Furthermore, there was a subsequent decision rendered by the Hon’ble

Madras High Court itself on 27.12.2008 in the case of General Optics (Asia)
Ltd. whereby the controversy was put beyond any shadow of doubt after
taking into consideration the statutory provision which was not considered
while deciding the case of SCM Creation (supra). In the case of Gangappa
Cables Ltd. (supra), the decision of the Hon’ble Supreme Court in the case of
Gurjargravures P. Ltd. 111 ITR 1 was found to be no bar to the entertaining
of claim by the AAC or the Tribunal and the same, therefore, was not
followed by the Hon’ble Andhra Pradesh High Court being distinguishable
on facts. In the case of Kanel Oil & Export Inds. Ltd. (supra), the decision in
the case of Snowcem India Ltd. which the Third Member did not follow was
again of a non-jurisdictional High Court i.e. Hon’ble Bombay High Court
and the same was rendered without taking into consideration certain
statutory provision which was relevant and material. In the case of CIT vs.
Pamwi Tissues Ltd. (supra), the decision of Hon’ble Supreme Court in the
case of Vinay Cement Ltd. (supra) was not followed by the Hon’ble Bombay
High Court on the ground that only the Special Leave Petition filed in the
said case having been dismissed by the Hon’ble Supreme Court, there was no
law laid down therein on the issue involved. As already discussed, the
position arising in the present case, however, is entirely different inasmuch
as, a specific question as referred to the Hon’ble jurisdictional High Court
incorporating the relevant provision as amended in 2008, was answered by
Their Lordships in the affirmative dismissing the appeal filed by the revenue
thereby holding that the Tribunal has the power to extend the stay beyond
the period of 365 even after the insertion of Third proviso to section 254(2A)
w.e.f. 1.10.2008 in the cases where the delay in disposing of the appeal is not
attributable to the assessee. Respectfully following the said decision of the
Hon’ble Bombay High Court in the case of Ronak Industries Ltd., (supra),
we hold that in the case like the one in hand where the delay in the disposal

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of the relevant appeals is not attributable to the assessee, the Tribunal has the
power to extend the stay beyond the period of 365 even after the insertion of
Third proviso to section 254(2A) w.e.f. 1.10.2008. The question referred to
this special bench is answered accordingly.

16. The next issue raised by the learned Departmental Representative at

the time of hearing before us is that the special bench has been constituted by
the Hon’ble President I.T.A.T only for the limited purpose of answering the
question referred to it. He has contended that this Special bench thus
should confine itself to answer the said question and leave the matter of
disposing of the stay applications filed by the assessee to Division Bench
keeping in view the limited scope of reference made by the Hon’ble
President, I.T.A.T. In support of this contention, he has relied on the cases
of ACIT vs. DHL Operation BV (supra), Central Wines V/s. ITO (supra)
and CIT vs. Highway Construction Co. (P) Ltd. (supra). From the perusal of
the orders passed in the said cases, it is, however, observed that a restricted
reference was made therein whereby only the specific question was referred
for the consideration and decision of the Special Bench. In the present case,
the Hon’ble President, I.T.A.T however, has passed the following order dated
14.10.2009 while constituting this Special Bench.
“Reg:- Reference u/s.255(3) in the case of Tata Communications
Ltd., S.A. 196 to 198/M/09 for A.Ys. 2000-01 to 2002-03

“After considering facts and circumstances of the case, the

notices of the Ld. Members of the Bench and of the Zonal
Vice-President including Notes dated 14.10.2009, I constitute
Special Bench in ITA No. 1106/M/08, ITA No.1107/M/08,
1108/M/08, 1387/M/08 and ITA No. 1835, 1836/M/08, ITA
4218, 4219/M/05, ITA 4220, 4221/M/05, ITA 6981/M/05, ITA
7071/M/05, 7205/M/04, 3062/M/03 and ITA No. 3438/M/03,
comprising of Shri G.D. Agarwal, Vice-President, Shri P.M.
Jagap, Accountant Member and Smt. P. Madhavi Devi,
Judicial Member. The Special bench may hear entire appeal

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or only the referred question as deemed necessary on the facts

and circumstances of the case. In case, an objection is raised
by any party to the inclusion of any Hon’ble Member in the
Special Bench on the ground that he or she has already
expressed view on the issue, the Vice-President is authorized
to take necessary action on such objection. Let files of all
quantum and penalty appeal be placed before the Special
Bench for action in accordance with law.”

17. As is clearly evident from the perusal of the above order passed
while constituting this special Bench, the Hon’ble President, I.T.A.T has not
only referred the stay applications filed by the assessee but even the
corresponding appeals pending before the Tribunal to the Special Bench with
a liberty to either consider and decide only the question referred or even to
dispose of the stay applications and the appeals. While constituting this
special bench, the Hon’ble President of I.T.A.T thus has passed a specific
order whereby the stay applications bearing Nos.SA 196 to 198/M/2009 have
also been referred to the special bench for hearing and disposal. Even the
provisions of section 255(3) specifically provides that the President I.T.A.T
may for the disposal of any particular case constitute a special bench
consisting of three or more members. It is observed that the Delhi Spl. Bench
of the I.T.A.T in the case of National Thermal Power v. IAC 24 ITD 1 also
had an occasion to consider a similar issue wherein it was held that while
referring a case to the special bench, the question is framed in order to enable
the possible interveners to understand the issue or the range of controversy
going to be considered by the Special Bench so that they could assist the
Bench by placing their views on the issue concerned. It was held that the
entire appeal, however, is open before the Special Bench and it is not
confined to the question framed like a question of law framed and referred to
the Hon’ble High Court u/s.256 of the I.T.Act, 1961. The special bench of
I.T.A.T in the case of National Thermal Power (supra) thus overruled the

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similar preliminary objection as sought to be raised by the learned DR in the

present case. This issue again came up for consideration before another
special bench of the Tribunal at Mumbai in the case of ACIT v. DHL
Operations, BV. (2007) 13 SOT 581 wherein it was held that section 255(1)
provides that the powers and functions of the Tribunal are to be exercised
and performed by the Benches constituted by the President from among the
members thereof. It was held that section 255(3) further provides, inter alia,
that the President, I.T.A.T, may constitute a Special Bench for disposal of a
particular case and it is, therefore, clear that it is the bench so formed which
will exercise the powers of the Tribunal unless, of course, reference to the
special bench itself restricts the powers of such a special bench, as may be
expedient and necessary, to deal only with a limited aspect of the appeal.
Keeping in view these two decisions of the special bench of this Tribunal, the
provisions contained in section 255(3) and the order of the Hon’ble
President, ITAT referring, inter alia, the stay applications filed by the
assessee to this Special Bench, we find no merit in the objection raised by the
Ld. D.R. in this regard and overruling the same, we proceed to dispose of the
stay applications filed by the assessee in the present case being S.A. Nos.
196 to 198/Mum/2009 on merits.

18. As pointed out by the learned counsel for the assessee, the entire
amount of outstanding demand on account of penalties imposed for the three
years under consideration, i.e. A.Y. 2000-01, 2001-02 and 2002-03 has
already been recovered by the AO by way of adjustment of refund due to the
assessee for the other years as a result of relief given by the Tribunal in the
said years. He has, therefore, urged that while granting the stay as sought by
the assessee in the present applications, the AO may be directed to refund the
amount of demand recovered especially during the pendency of these stay
applications before the Tribunal. In support of this contention, he has relied

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on various judicial pronouncements. We have carefully gone through these

judicial pronouncements cited by the learned counsel for the assessee. There
cannot be a dispute that the Tribunal, as held in the said cases after taking
into consideration the proposition propounded on this issue in the various
judicial pronouncements, can issue direction while exercising its power to
grant the stay to refund the amount already recovered by the Revenue in
appropriate cases where such direction is warranted in the facts and
circumstances of the case. As a matter of fact, the Co-ordinate Benches of
this Tribunal have directed the Department to grant the refund of outstanding
amount recovered inter alia in the cases of RPG Enterprises Ltd. 251 ITR
(AT) 20 (Mum), MSEB Vs. Joint CIT 81 ITD 299 (Mum), Western Agencies
(Madras) Ltd. 86 ITD 462 (Mad) and Hewlett Packard India (P) Ltd. since
the facts and circumstances involved in the said cases justified such direction.

19. It is observed that the facts and circumstances as involved in the

aforesaid cases, however, were materially different from the facts involved in
the present case in as much as in the said cases, the outstanding demand was
recovered by the Assessing Officer by coercive measures and that too when
the stay applications filed by the assessee before the Tribunal were pending
in the sense that they were not even fixed for hearing. For instance, in the
case of RPG Enterprises Ltd. (supra), the order of the Assessing Officer
giving effect to the order of the Commissioner and the demand notice were
both dated March 21, 2000. In the demand notice, the Assessing Officer had
recorded that he recovered the outstanding demand from the assessee’s
banker but the demand was actually recovered from the bank only March 29,
2000. Since it was not possible to mention the fact of recovery in the demand
notice issued on March 21, 2000 unless he had pre-dated the notice and the
coercive action for recovery of demand was taken even before the expiry of
time available to the assessee for filing of the appeal before the Tribunal, the

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action of the AO to recover the demand was held to be improper and

unjustified by the Tribunal and refund of the amount so recovered was
granted. In the case of MSEB Vs. Joint CIT (supra), the assessee was a State
Electricity Board and the demand raised against it was stayed by the Hon’ble
High Court up to 28.2.2001. Before the expiry of the said period, the assessee
moved an application for stay before the Tribunal which was fixed for
hearing on 2.3.2001. The notice of the said hearing had been served on the
office of the departmental representative on 27.2.2001. The Assessing
Officer, however, issued garnishee orders to the bank on 1.3.2001 and
recovered the entire outstanding demand. Even in the case of Mahindra &
Mahindra Ltd. (supra) cited by the learned counsel for the assessee, the
recovery of outstanding demand was made by the Assistant Collector of
Central Excise by encashing the bank guarantee on 3.2.1992 when the
statutory period of three months available to the assessee to file the appeal to
the Tribunal had not expired and when the assessee had specifically informed
that the stay application filed by it was fixed for hearing before the Tribunal
on February 17, 1992. In these facts and circumstances, Hon’ble Bombay
High Court held the action of the Assistant Collector of Central Excise to be
improper and directed him to refund the amount recovered. Similarly, in
other cases cited by the learned counsel for the assessee, coercive steps were
found to be taken by the AO to recover the outstanding demand in undue
haste so as to render the process of stay proceedings before the Tribunal as
nugatory and in these facts and circumstance involved in the said cases, the
amount recovered was directed to be refunded by the Tribunal.

20. The facts and circumstances involved in the present case, however,
are entirely different inasmuch as the stay granted by the Tribunal had
already been expired and the application filed by the assessee seeking further
extension of stay beyond the period of 365 days was referred to the Special

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Bench in view of the 2008 amendment. The Division Bench, which heard the
said stay applications of the assessee initially, was of the opinion that in view
of the 2008 amendment, further stay beyond the period of 365 days was not
possible after 1.10.2008. Keeping in view this opinion expressed by the
division Bench, it can reasonably be said that the AO had a justifiable basis
to believe that the assessee was not entitled to get a stay of outstanding
demand beyond the period 365 days and with this bona fide belief, he
proceeded to recover the outstanding demand which was pending for more
than three years. Moreover, the said recovery was made by him by way of
adjustment of refund which had become due to the assessee for other years as
a result of relief allowed by the Tribunal. The mode of recovery adopted by
the Assessing Officer, therefore, cannot be regarded as a coercive measure
taken by him to recover the outstanding demand from the assessee in undue
haste and that too with an intention to thwart the stay proceedings before the
Tribunal. In the case of Ramanathan Chettiar 29 ITR 683 cited by the learned
DR, it was held by the Hon’ble Madras High Court that even though the
petitioner could not be deemed to an assessee in default, he continued to be a
person liable to pay the tax and the liability to pay the tax should suffice to
bring the assessee’s case within the scope of section 49E of the 1922 Act
(section 245 of the 1961 Act). It was held that the ITO thus acted well within
his jurisdiction when he exercised the discretion vested in him by section 49E
of the 1922 Act (section 245 of the 1961 Act) to adjust certain portion of the
amount refundable to the petitioner towards the arrears payable by the
petitioner out of the tax to which he had been assessed in other years. This
proposition was reiterated by the Hon’ble Madras High Court in the case of
Sabena Detergents Ltd. Vs. CIT 248 ITR 385 (Mad) wherein it was held that
section 245 requires mere intimation in writing to the assessee and it does not
require any show-cause notice being given nor does it contemplate any
hearing to the assessee before adjustment of refund against tax arrears.

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Keeping in view these decisions of Hon’ble Madras High Court in the cases
of Ramanathan Chettiar (supra) and Sabena Detergents Ltd. (supra) and
having regard to all the relevant facts of the case as discussed above, we are
of the view that it is a not fit case to direct the refund of the amount already
recovered by the Assessing officer. As a result of the said recovery made by
the AO of the entire outstanding demand, which is being sought to be stayed
by the assessee, the present applications filed by the assessee have become
virtually infructuous. Accordingly, the same are dismissed.

21. Before parting, we may clarify that all the judicial pronouncements
cited by the learned representatives of both the sides in support of their
respective stands have been considered and deliberated upon by us while
arriving at our conclusions. Some of them, however, are not specifically
mentioned or discussed in the order as the same have been found to be not
directly relevant to the issue or the proposition propounded therein is found
to be repetitive which has already been considered by us.

22. In the result, the stay applications filed by the assessee are dismissed.

Order pronounced in the open court on this 29th day of March, 2011.

Sd. Sd. Sd.

(R.S. Padvekar) (R.V. Easwar) (P.M. Jagtap)
Judicial Member President Accountant Member
Mumbai,
Dated, this 29th day of March 2011.
kn\
Copy to:
1. The Assessee
2. The ACIT, Range 1(3), Mumbai

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3. The CIT-I, Mumbai,

4. The CIT(A)-2, Mumbai
5. The D.R. ‘F’ Bench, Mumbai. By Order
(True copy)
Assistant Registrar
Income-tax Appellate Tribunal, Mumbai

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