2025 (6) TMI 85 - HC - Income Tax

Assistant Commissioner's rectification order disallowing Section 80IC hotel deduction quashed for violating judicial discipline

The HC quashed the Assistant Commissioner's rectification order u/s 154 that disallowed deduction u/s 80IC for a hotel located in an urbanized area. The ... Rectification u/s 154 - disallowance of deduction u/s 80IC - hotel run by the assessee is located in the most urbanized and prime location of the capital city and is not located in the area as per “eco tourism” policy of the State of Himachal Pradesh - HELD THAT:- The principal of judicial discipline requires that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. In our considered view, the action of the Assistant Commissioner of Income Tax in issuing order under Section 154 of the Act is clearly subversive to judicial discipline and amounts to gross impropriety. So long the aforesaid orders were operative and had attained finality, the Assessing Authority had no option but to give effect to the orders so passed and rather had already given effect to these orders, as noted in the order. Judicial discipline requires decorum known to law which warrants that the appellate directions should be followed in the hierarchical system by the Courts/quasi-judicial authorities, which exist in this country. It is, therefore, necessary for each lower tier to accept loyally the decision of the higher tier. The judicial or quasi-judicial system only works if someone is allowed to have the last word and if the last word, once spoken is loyally accepted. Once the order rendered by the ITAT and the earlier order passed by the Assistant Commissioner of Income Tax were absolutely clear and unambiguous, then judicial comity, discipline, con-committal, pragmatisim, poignantly point, per force to observe constitutional proprietary and adhere to the decision so rendered by the authorities. It is settled proposition of law that when a subordinate authority refuses to implement the judgment of the Appellate Authority, the situation is akin to anarchy and will result in complete breakdown of the judicial/quasi-judicial stem. Reverting back to the facts of the present case, clearly respondent No.3 has indulged in mis-adventure in sitting over the orders passed by its higher authorities, which orders, as observed above, have already attained finality and thus the proceedings clearly are without jurisdiction and in such circumstances, the petitioner is well within its right to file the instant writ petition. The core legal questions considered in this judgment include:1. Whether the order passed by the National Faceless Appeal Centre dismissing the petitioner's appeal against the Assessing Officer's order under Section 154 of the Income Tax Act, 1961, was valid, especially when it allegedly disregarded the order of the Income Tax Appellate Tribunal (ITAT) which had allowed the petitioner's claim under Section 80IC.2. Whether the Assessing Officer was competent to revise or rectify the appeal effect order under Section 154 of the Income Tax Act, 1961, withdrawing relief granted to the petitioner, particularly in light of settled legal principles and precedents on the scope of Section 154.3. Whether the respondents' action in initiating recovery proceedings and passing orders under Section 154, contrary to the ITAT's order and the Assistant Commissioner's earlier order, violated principles of judicial discipline and propriety.4. Whether the petitioner had an alternate efficacious remedy under the Income Tax Act, and if so, whether the writ petition was maintainable.Issue-wise Detailed Analysis:Issue 1: Validity of the National Faceless Appeal Centre's order dismissing the petitioner's appeal against the Section 154 orderThe relevant legal framework involves the powers and jurisdiction of the National Faceless Appeal Centre and the scope of appeal under the Income Tax Act. The petitioner challenged the dismissal of its appeal by the National Faceless Appeal Centre, arguing that the order under Section 154 was passed without jurisdiction and contrary to the ITAT's earlier order.The Court examined the sequence of events: the ITAT had allowed the petitioner's appeal on merits regarding the deduction under Section 80IC, the Assessing Officer gave effect to this order, and subsequently passed a rectification order under Section 154 withdrawing the relief. The National Faceless Appeal Centre dismissed the petitioner's appeal against this rectification order without addressing the jurisdictional issue.The Court reasoned that the National Faceless Appeal Centre erred in not considering that the Assessing Officer lacked jurisdiction under Section 154 to revisit the substantive issue of eligibility for deduction under Section 80IC, which required detailed adjudication beyond the scope of rectification of 'mistake apparent from the record.' The dismissal was therefore quashed.Issue 2: Competence of the Assessing Officer to pass order under Section 154 withdrawing relief granted under ITAT orderSection 154 of the Income Tax Act allows correction of 'mistake apparent from the record' but does not permit re-opening or re-adjudication of substantive issues already decided by appellate authorities.The respondents contended that the rectification was necessitated by an apparent mistake in the appeal effect order, as the ITAT had not adjudicated the core issue of eligibility under Section 80IC on merits. The Assessing Officer argued that the hotel was not an eco-tourism project as required and that the ITAT's order was limited to the issue of delayed filing of return.The Court analyzed the ITAT's order and found that the petitioner had indeed challenged the substantive issue of eligibility under Section 80IC before the appellate authorities. The ITAT had allowed the appeal, and the Assessing Officer had given effect to this order, which had attained finality. The subsequent attempt to withdraw relief under Section 154 was held to be beyond the scope of rectification powers.The Court emphasized that the Assessing Officer's action amounted to judicial impropriety and was subversive of judicial discipline, as it disregarded the binding appellate orders.Issue 3: Violation of judicial discipline and propriety by subordinate authoritiesThe Court underscored the principle that subordinate authorities must adhere to the orders of higher appellate authorities to maintain the hierarchical judicial system. It cited several Supreme Court decisions establishing that appellate orders are binding and must be followed unreservedly by lower authorities.The Court observed that the Assistant Commissioner's order dated 25.02.2020 giving effect to the ITAT's order had attained finality and was binding on all concerned. The subsequent rectification order and recovery proceedings initiated by the Assessing Officer were without jurisdiction and violated the principle of judicial discipline.The Court held that failure to implement appellate orders leads to anarchy and breakdown of the judicial system, and constitutes judicial impropriety.Issue 4: Maintainability of the writ petition in view of alternate remedyThe respondents raised preliminary objections that the petitioner had alternate remedies under the Income Tax Act and thus the writ petition was not maintainable.The Court, however, found that the petitioner was entitled to approach the High Court by way of writ because the respondents' actions were without jurisdiction and violated settled principles of law and judicial discipline. The petitioner's fundamental right to fair adjudication was at stake, justifying the exercise of writ jurisdiction.Significant Holdings:'The action of the Assistant Commissioner of Income Tax in issuing order under Section 154 of the Act is clearly subversive to judicial discipline and amounts to gross impropriety.''The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities.''The mere fact that the order of the appellate authority is not 'acceptable' to the subordinate authority cannot and should not be the ground for not following the said directions.''Willful refusal to implement the judgment of the appellate authority not only subvert the rule of law but also constitute judicial impropriety.''Once the order rendered by the ITAT and the earlier order passed by the Assistant Commissioner of Income Tax dated 25.02.2020 were absolutely clear and unambiguous, then judicial comity, discipline, con-committal, pragmatism, poignantly point, per force to observe constitutional proprietary and adhere to the decision so rendered by the authorities.'The Court concluded that the Assessing Officer and the National Faceless Appeal Centre had no jurisdiction to revisit the substantive issue under Section 154 after the ITAT's order had attained finality and relief was given effect to. The writ petition was allowed, quashing the impugned orders dated 29.03.2024 and 03.01.2025.