WP (C) No. 7054/2009 nsk Page 1 of 55 Reportable * IN THE HIGH COURT OF DELHI AT NEW DELHI + WP (C) No. 13640 of 2006 and WP (C) No. 7054 of 2009 1. WP (C) No. 13640/2006 % Reserved on : February 26, 2009 Pronounced on : March 20, 2009 Arindam Lahiri . . . Petitioner through : Mr. P.S. Patwalia, Sr. Advocate with Mr. D.C. Pandey and Mr. Piyush Sharma, Advocates VERSUS Union of India & Ors. . . . Respondents through : Mr. H.K. Gangwani with Mr. Ashwani Bhardwaj, Advocates 2. W.P. (C) No. 7054 of 2009 % Reserved on : March 06, 2009 Pronounced on : March , 2009 Union of India & Ors. . . . Petitioners through : Mr. R.V. Sinha, Advocate VERSUS Arindam Lahiri . . . Respondent through : Mr. Sandeep Sethi, Sr. Advocate with Mr. D.C. Pandey, Advocate CORAM :- THE HON‟BLE MR. JUSTICE A.K. SIKRI THE HON‟BLE MR. JUSTICE SURESH KAIT 1. Whether Reporters of Local newspapers may be allowed to see the Judgment? WP (C) No. 7054/2009 nsk Page 2 of 55 2. To be referred to the Reporter or not? 3. Whether the Judgment should be reported in the Digest? A.K. SIKRI, J. 1. Subject matter of the afore-mentioned two writ petitions is different. In the petition filed by Shri Lahiri, challenge is to the penalty imposed upon him by the respondents therein after holding a departmental inquiry. His OA in this behalf has been dismissed by the Tribunal and, therefore, he has come up to this Court challenging the order of the Tribunal. Other writ petition is filed by the Union of India & Ors., which arises out of an OA filed by Shri Lahiri claiming promotion to the post of Chief Commissioner of Income Tax. That OA has been allowed by the Tribunal and certain directions are issued against which the Union of India has filed the writ. 2. Thus, though the subject matter is different, first writ petition preferred by Shri Lahiri has bearing on the second petition. There is some commonality of facts as well. In fact, promotion case is sequel to the departmental action. Because of this reason, though the two petitions were heard and reserved for judgment on different dates, albeit within a span of one week, we propose to pass one common judgment in order to avoid repletion of lengthy facts. However, in this common judgment, the two petitions are being considered separately. We first take up the case of departmental enquiry. WP (C) No. 7054/2009 nsk Page 3 of 55 3. WP (C) No. 13640/2006 The petitioner joined the services in the Income-Tax department as an Income Tax Officer (ITO) in the year 1972. He got promotions from time to time and rose to the position of Commissioner of Income Tax (Appeals), to which post he was promoted on 31.1.1994. While discharging his duties as CIT (Appeals), he was hearing appeals from the orders of the assessing authorities, obviously a quasi-judicial function. At the relevant period with which we are concerned, he was functioning as CIT (Appeals) (Central-IV), Mumbai. In respect of certain appeals decided by him, the respondent felt that the petitioner had not conducted himself properly. A charge memo dated 21/24.11.1995 was issued to him. However, in the meantime, one of his orders was upheld by the Income Tax Appellate Tribunal (ITAT). Because of that reason, said charge memo was withdrawn and instead another charge memo dated 28.2.1997 was served upon him under Rule 14 of the CCS (CCA) Rules, for major penalty proceedings. As per this memo, two articles of charge were leveled against him, which read as under :- “Article-I That the said Shri Lahiri while functioning as Commissioner of Income-Tax (Appeals) (Central) IV Mumbai in 1994, has with malafide intention entertained and disposed of a petition filed by M/s. GTC Industries Limited, for stay of demand in respect of A.Y. 1987-88, 89-90, 90-91 and 91-92. He passed an order dated 12.9.94 staying the recovery of demand in the above mentioned case ignoring statutory requirements and also the decision of ITAT on the same issue for A.Y. 84-85 to 86-87 and acted in a manner which was detrimental to the interest of revenue. WP (C) No. 7054/2009 nsk Page 4 of 55 By above acts of misconduct Shri A. Lahiri has failed to maintain absolute integrity, devotion to duty and exhibited conduct unbecoming of Government Servant and thereby violated provisions of Rule 3(1)(i), 3(1)(ii) and 3(1)(iii) of CCS (Conduct) Rules, 1964. Article-II That during the aforesaid period and while functioning in aforesaid office, the said Shri A. Lahiri decided appeals by passing perverse and malafide orders in the cases of (i) GTC Industries Ltd. (ii) Simplex Enterprises, (iii) Ashok Rupani and (iv) Hindustan Transmission Projects. The orders passed by him were prejudicial to the interest of revenue as material evidence on record was ignored and assessing officer was not given opportunity as required u/s. 250 of I.T. Act to represent revenue‟s case. By above acts of misconduct Shri A. Lahiri has failed to maintain absolute integrity, devotion to duty and exhibited conduct unbecoming of a Government Servant and thereby violated provisions of Rule 3(1)(i), 3(1)(ii) and 3(1)(iii) of CCS (Conduct) Rules, 1964.” 4. The petitioner denied the charges; a departmental inquiry was conducted leading to report dated 29.4.1999 of the Inquiry Officer holding both the charges as proved. He was given a copy of the said Inquiry Report to enable him to make representation thereagainst, if any. He submitted his representation dated 28.10.1999 taking various pleas, thereby questioning the findings arrived at by the Inquiry officer. The disciplinary authority, however, accepted the findings of the Inquiry Officer. Matter was referred to the Central Vigilance Commission (CVC) for second stage advice. The CVC sent its advice on 10.7.2001, as per which imposition of major penalty was opined. Decision was taken by the disciplinary authority to impose a major penalty subject to the advice of the Union Public Service Commission (UPSC). After receiving that advice dated WP (C) No. 7054/2009 nsk Page 5 of 55 13.8.2004 from the UPSC, the disciplinary authority passed orders dated 7.10.2004 holding the petitioner guilty of misconduct and imposed the penalty of reduction by three stages in the time-scale of pay for a period of three years upon the petitioner, with further direction that he would not earn increments during this period and that will also have the effect of postponing his future increments of pay. 5. The petitioner challenged the aforesaid penalty order by approaching the Tribunal in the form of an application under Section 19 of the Administrative Tribunal Act, which was registered as OA No. 189/2005. After eliciting response of the respondents in the form of reply to the said OA and hearing the parties, the Tribunal has passed impugned judgment dated 25.7.2006 dismissing the OA of the petitioner. Assailing this order, present writ petition is filed by the petitioner. 6. Mr. Patwalia, learned senior counsel appearing for the petitioner, made a fervent plea to the effect that the petitioner was exercising powers as a quasi-judicial authority when he had decided certain appeals in respect of which charge sheet was issued. These appeals related to three assessees, namely, M/s. GTC Industries Ltd.; Shri Ashok Rupani and M/s. Simplex Enterprises. Submission was that a bare perusal of the allegations leveled against the petitioner in the charge sheet would demonstrate that only apprehension/doubts were expressed by the respondents alleging that the petitioner had WP (C) No. 7054/2009 nsk Page 6 of 55 shown favours to those assessees. There was no evidence at all to implicate the petitioner and prove that he had shown any such favours to the said assessees while deciding the appeals. He submitted that the entire matter was to be examined keeping in view one important element, namely, the appeals were decided while discharging quasi-judicial functions and applying the test laid down by the Supreme Court while dealing with the charges relating to discharge of quasi-judicial function, on mere apprehension/doubts, such quasi-judicial authorities could not be proceeded departmentally. He pitched it to be a case of „No Evidence‟. 7. To buttress this submission, Mr. Patwalia referred to the advice of the UPSC wherein the UPSC itself had only conjectured to rope in the petitioner, conceding at the same time that there was no direct evidence to establish that the petitioner had shown any favour to the said assessees. 8. Mr. Patwalia also pointed out that Article of Charge No.I related to the orders of stay of demand granted by the petitioner in the appeal filed by M/s. GTC Industries Ltd. Specific allegation was that while doing so, he ignored statutory requirements and also the decision of ITAT on the same issue for the assessment year 1984-85 to 1986-87. He submitted that there was no denial of the fact that the petitioner had the requisite power to grant the stay. The respondent could not show as to which statutory provision or the decision of the ITAT which the petitioner had ignored. Furthermore, even the UPSC had WP (C) No. 7054/2009 nsk Page 7 of 55 accepted that the petitioner had power to grant stay; there was no evidence to prove that the petitioner had granted stay for some consideration and only doubt was expressed about the intentions of the petitioner in passing the orders, as is clear from para 7.3 of the UPSC advice. 9. His submission was that on the basis of such apprehension alone, it could not be stated that the charge is proved. He also made detailed submissions justifying the circumstances in which the petitioner had to pass order staying the recovery of demand. In this behalf, his submission was that proper explanation was given by the petitioner in defending the said charge which was not even taken due note of by the disciplinary authority. 10. As per the allegations of the department, the petitioner had granted stay against coercive recovery proceedings by means of attachment of overdraft bank account resorted to by the Income Tax Officer in favour of M/s. GTC Industries on 12.9.1994, the same day when the application was moved by the assessee. It was also alleged that when the jurisdiction in the case being transferred to some other CIT (A) has been made w.e.f. 24.10.1994 vide Circular issued on 18.9.1994, he passed the stay order in haste in order to circumvent the effect of circular dated 18.10.1994. Refuting this, the petitioner had explained that the application dated 12.9.1994 had been moved by the assessee namely M/s. GTC Industries in appeals pertaining to the assessment years 1986-87, 1987-88, 1988-89, 1990-91 and 1991- WP (C) No. 7054/2009 nsk Page 8 of 55 92 which had been pending on the applicant since 30.4.1990. The perusal of the application clearly shows that the ITO had initiated coercive proceedings against the assessee and issued attachment orders of the overdraft bank account acting in utter contravention and violation of Board‟s Circular prescribing the coercive proceedings ought not be initiated till the demand is confirmed in the first appeal i.e. by the CIT (Appeals). Further the proceedings had been initiated by the ITO in the manner amounting to circumvent the fall out/consequence of the order dated 05.09.1994 passed by the Bombay High Court in CWP No. 1805 of 1994 directing that evidence of witnesses who have not been put to cross-examination to the assessee shall not be relied upon the department in excise proceedings having vital bearing to the Income Tax Proceedings also being one and similar. The same principle has been reiterated by the High Court vide order dated 31st July 1995 passed in CWP No. 707 of 1995 qua proceedings under the Income Tax Act. Further the coercive proceedings were in direct contravention to the Ld. ITAT Order dated 9.2.1989 in the case of M/s. GTC Industries itself pertaining to assessment year 1984-85 wherein the matter was remanded to the CIT (Appeal) for compliance with directions. Consequently the order dated 12.9.1994 had been passed by the petitioner following the proposition of law and directions contained in the orders passed by the Bombay High Court and the Ld. ITAT Orders. The other contention that the proposal of assessee to liquidate the demands in installments before the CIT (Admn.) was WP (C) No. 7054/2009 nsk Page 9 of 55 also not correct. As held by the Kerala High Court in the case reported as 221 ITR 502, only CIT (Appeal) is empowered and competent to grant stay and CIT (Admn.) does not possess competence to entertain any such application. Even the High Courts have been pleased to hold that payment of demand in installments amounted to coercive recovery and thus cannot be resorted till first appeal is disposed. 11. His explanation was that the stay was granted by the petitioner looking to the fact that the ITO had issued attachment of overdraft Bank account of assessee which resulted in total closure of business operation of the company dealing in perishable goods viz. cigarettes in utter violation of the principles of natural justice, guidelines and circulars issued by the Board as also the Ld. ITAT order and Bombay High Court order on the aspect. The Board Circular vests such a discretion in the petitioner to stay demand pending disposal of the Regular Appeal in appropriate cases and so any allegation to the contrary is misplaced, fallacious and incorrect. 12. In nutshell, submission of the petitioner in respect of this charge was that the petitioner did not act beyond his powers and dealt with the application for stay as he was empowered to decide the same. Further, while granting the stay, he kept in mind the relevant factors and the law on the point. Furthermore, even when he granted the stay on 12.9.1994, at the same time he also assured that the appeals are decided within time bound period and, therefore, fixed the final WP (C) No. 7054/2009 nsk Page 10 of 55 hearings from 15.9.1994 and decided the appeals on 20.10.1994. This was also done with bona fide intentions in discharge of judicial duties. Above all, when no oblique motives were found, even as per the report of the Inquiry Officer or CVC, it could not have been stated that charge is established on mere suspicion. 13. Referring to Article of Charge-II, it was argued that the main allegation was that he did not decide appeals relating to the aforesaid three assessees fairly. Allegation qua the appeals of M/s. Hindustan Transmission products was that he decided the appeal on 18.10.1994 despite request for more time by the Assessing Officer and more so when the jurisdiction of the case was transferred, he still hastened to pass the order in order to circumvent the Notification of the DG (Inv.). In the case of Simplex Enterprises, the allegation, even as per the Inquiry Officer, was that he passed the orders without properly verifying the full facts and the correctness of the assessee‟s submission. Likewise, in the case of Ashok Rupali, the charge was that the petitioner passed the orders without correctly examining the facts and considering the new evidence without giving an opportunity to the Assessing Officer. Mr. Patwalia, learned senior counsel, reiterated that in the absence of any motive, etc. these could not be treated as the charges of misconduct against a person who was discharging quasi-judicial function. 14. On merits qua each allegation, the explanation of the petitioner was as under :- WP (C) No. 7054/2009 nsk Page 11 of 55 In terms of Section 119 of the Income Tax Act, even the board has not been authorized to interfere with the exercise of power and jurisdiction of CIT (Appeal) and thus the allegations so made are misplaced. Even otherwise the hearing in the appeal pertaining to M/s. GTC Industries had concluded on 18.10.1994 and the orders were reserved which had been pronounced on 20.10.1994. Thus even otherwise assuming, without admitting the veracity and legality of such contentions in any manner, that the jurisdiction was supposed to have been transferred in terms of Circular issued on 18.10.1994 when the hearing of appeal had already concluded it cannot be said that the same affected the pronouncement of orders on 20.10.1994 as in any case the petitioner had jurisdiction till 24.10.1994. The contentions of respondent that the Misc. Application dated 15.09.1994 filed by the Department seeking vacation of stay granted by Applicant vide order dated 12.09.1994 had been kept pending till 18.10.1994 when notice to the assessee for filing its response was fixed for 24.10.1994 is also not tenable. The petitioner while granting stay in favour of M/s. GTC Industries had directed day to day hearing of the appeal and the stay was to operate till 30.10.1994 (for 6 weeks) and he had made sure by that time the main appeal would be disposed of by him. Consequently, alleging contrary intentions by the respondents is highly untenable and unsustainable in the eyes of law. Further since the main appeal was disposed of on 20.10.1994, misc. application cannot be assumed to have been pending even after the disposal of the main appeal. WP (C) No. 7054/2009 nsk Page 12 of 55 The petitioner has stated that the contentions of issuance of the Circular on 18.10.1994 cannot be meant to be in the knowledge on 18.10.1994 or even prior to that time. The petitioner also refuted the contentions of the departmet that by passing the orders in the Appeals pertaining to M/s. GTC Industries the Applicant had caused loss to revenue. It is the settled position of law under the provisions of Section 220 of the Income Tax Act that the demand till it is confirmed in first appeal cannot be treated to be any demand as per the provisions of Income Tax Act and the assessee cannot be deemed to be in default thereby justifying any coercive proceedings being initiated against it by the Income Tax Department. Further the petitioner deleted those additions wherein the ITO himself has contradicted the basis of valuation being changed to MRP printed on the cigarette dealt with by M/s. GTC Industries i.e. double branding hypothesis being discontinued after September 1985 and so any additions made on that count was clearly contrary to such claims. The petitioner remanded the matter to the ITO to verify and after following the procedure prescribed in law as also the High Court‟s order and the Ld. ITAT directions to raise a fresh demand thus leaving it all open to raise demand afresh in accordance with law. Thus no loss had been caused to the revenue at all. 15. Explaining the appeal decided in Ashok Kumar Rupani‟s case, the petitioner submitted that it was wrong imputation that he relied upon the statement/order of the FERA Authorities while deciding the WP (C) No. 7054/2009 nsk Page 13 of 55 appeal and thus allowed additional evidence in violation of Rule 46A of the Income Tax Rules. The ITO had relied and had referred to the proceedings before the FERA Authorities as is clear from question No. 13 appearing in this Assessment Order. Consequently the violation as alleged are absolutely not made out and is rather false and misplaced. The petitioner vide his detailed appellate order, deleted the entire addition made by the AO amounting to Rs.1.07 crores accepting the assessee‟s arguments and the findings of the FERA authorities that Shri Rupani was only a go between in these transactions and was not involved in any way in his personal capacity. 16. As regards the contentions raised by the respondents pertaining to the appellate orders passed by the petitioner in the cases of M/s. Simplex Industries is concerned, submission was that the petitioner had passed the order based upon the applicable provisions of laws relevant for the case in hand. As noticed in the Appellate Orders including others, the fact that the AO had not been able to point out any defects in the books of accounts of the appellant. If somebody scrawls some figures on a sheet of paper in his house the books of accounts of the appellant cannot be rejected on the basis of that sheet of paper. Noticing in his appellate order the petitioner concluded in appellant‟s case before him that most of the sales were on credit for which the AO had vouched that the sale bill do not contain names and addresses of the parties to whom the sales had WP (C) No. 7054/2009 nsk Page 14 of 55 been made. Therefore, the additions made without confirming the transactions with the parties were also unwarranted. Similarly, in the case of M/s. Hindustan Transmission, the petitioner stated that in his appellate order he had stated the fact that the AO ought to have verified the contracts, statements, affidavits filed by the parties and Sh. Bothra. It was not open to the AO to simply brush them aside by saying that they were self serving and the AO should have pointed out fallacies and inconsistencies with facts. The petitioner further pointed out that the AO had not at all dealt with the explanation filed by the company vide their letters dt. 25.1.94 and 11.3.94. The petitioner found that there was no evidence to suggest that the company had allowed discount to the extent of 13.44% and the entire evidence relied upon by the AO related to the subsequent AY 1992-93. 17. On the basis of the aforesaid submissions, the learned senior counsel summed up his legal arguments in the following manner :- (a) No charge of misconduct, in law, was made out against the petitioner. (b) There was a delay in completing the inquiry. The appeals were decided in the year 1994 by the petitioner. However, charge sheet was served in the year 1997. The inquiry was unnecessarily prolonged even when there was full cooperation on the part of the petitioner, which is clear from the fact that the Inquiry Officer was appointed only on 11.2.1998. Though WP (C) No. 7054/2009 nsk Page 15 of 55 he concluded the inquiry and submitted his report on 29.4.1999, it was forwarded to the UPSC for advice more than four years thereafter, i.e. on 22.8.2003. UPSC took one year in submitting its observations on 13.8.2004; and punishment imposed on 7.10.2004. In this manner, argued the counsel, seven years were allowed to pass, which affected the petitioner adversely. Punishment which was ultimately imposed, namely, reduction of 3 stages in the time-scale for a period of three years in 2004 had its affect till 7.10.2007. Had it been imposed immediately after the conclusion of the inquiry, it would have been over much before the petitioner was considered for promotion to the post of Chief Commissioner of Income Tax in the year 2005 and would have been granted promotion as he was found fit for promotion by the DPC. Legal submission was that because of delay the punishment be quashed in view of the following judgments of the Supreme Court :- (i) P.V. Mahadevan v. MD, T.N. Housing Board (2005) 6 SCC 363 (ii) State of A.P. v. N. Radhakishan (1998) 4 SCC 154 (iii) State of M.P. v. Bani Singh 1990 (Supp.) SCC 738 (iv) M.V. Bijlani v. Union of India (2006) 4 SCC 88 WP (C) No. 7054/2009 nsk Page 16 of 55 Alternatively, he submitted that even if such a penalty is to be maintained, it should be ante-dated so as not to effect the promotional chances of the petitioner, as held in :- (i) Major Singh Gill v. State of Punjab 1992 (1) SCT 436 (ii) State of Punjab v. Major Singh Gill 1994 (1) SCT 811 (iii) Shiv Kumar Sharma v. HSEB & Ors. AIR 1988 SC 1673 (iv) FCI v. S.N. Nugarkar 2002 (1) SCT 1049 (c) There was no application of mind in the order passed by the disciplinary authority inasmuch as advice of the UPSC was followed mechanically thereby violating Rule 15(3) of the CCS Rules. (d) The UPSC advice was