ADVOCATE ASSOCIATION BENGALURU versus ANOOP KUMAR MENDIRATTA AND ANR on 17 May 2022

1. The contempt proceedings relate to appointments to the IncomeTax Appellate Tribunal[1].

2. On 6 July 2018, an advertisement was issued for 37 vacantGposts in the ITAT. Of them, 21 were for Judicial Members and 16 forAccountant Members. The selection process was set in motion. TheSearch cum Selection Committee[2] was chaired by Hon’ble Mr JusticeA M Khanwilkar, Judge, Supreme Court of India.

1 “ITAT”H2“SCSC”

3. On 21 September 2019, the SCSC recommended the names of41 persons for appointment as members of the ITAT. The reply whichhas been filed by the Secretary to the Department of Legal Affairsindicates that the SCSC had recommended 28 persons (16 as JudicialMembers and 12 as Accountant Members) in the main list and anadditional 13 persons in the wait list. The recommendations were receivedby the Department of Legal Affairs on 3 October 2019 and weresubmitted on 16 October 2019 for consideration and approval of theAppointments Committee of the Cabinet[3]. The ACC approved 13 personsfor appointment on 11 September 2021 and 9 persons on 1 October2021. Thus, appointments of a total of 22 candidates were approved.Offers of appointment were issued by the Department of Legal Affairson 11 September 2021 and 1 October 2021.

4. Out of 28 recommendations in the main list and 13 in the waitlist, the ACC selected 16 persons from the main list and 6 from the waitlist. Since the SCSC had recommended the names of 41 persons forappointment (28 in the main list and 13 in the wait list) and 22 personshave been selected, 19 persons remain to be appointed.

5. On 16 December 2021, this Court, while issuing notice in theseproceedings, observed thus:

“We are informed by the learned Attorney General that 37vacancies were advertised in the Income Tax Appellate Tribunal.The Search-cum-Selection Committee of the Supreme Courtrecommended 28 names, out of which 16 persons are beingconsidered for appointment as Members – Judicial and 6 personsas Members-Technical. The learned Attorney General assuresus that the appointments would be made by the end of this month.

So far as the remaining recommended names are concerned,the learned Attorney General submits that the Government hasnot yet cleared the names due to certain inputs received from IBReport(s) as also Medical Report(s) which are still beingexamined.

In view of the same, we direct the learned Attorney Generalto produce the concerned file on the next date of hearing andplace the same before the Bench for its perusal.

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AThe Respondents are at liberty to file a counter affidavit inthe meantime, if necessary.”

6. In pursuance of the above directions, Mr K K Venugopal,Attorney General for India has tendered copies of the file pertaining tothe appointment of the members of the ITAT, pursuant to theBrecommendations of the SCSC for perusal by the Court.

7. We have heard Mr R Basant, senior counsel appearing on behalfof the petitioner and Mr K K Venugopal, Attorney General for India forthe Respondents. Mr Arvind Datar, senior counsel has assisted the Courtas amicus curiae.

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8. Mr R Basant submitted that:

(i) Though 41 persons were recommended by the SCSC(28+13), 22 persons were selected by the ACC leaving 19persons yet to be appointed; (ii)19 new vacancies have since arisen as a consequence ofwhich 38 vacancies remain unfilled in the ITAT; D

(iii) 22 persons who have been selected by the ACC have beenselectively appointed both from the main list and the waitlist, as a consequence of which only 16 out of 28 in themain list have been appointed and 6 out of 13 have beenEappointed from the wait list; and

(iv) In making its selection, the ACC has placed reliance oncertain reports and feedback obtained subsequent to therecommendations of the SCSC, none of which have beenplaced before the SCSC which was chaired by a Judge ofFthe Supreme Court.

9. Mr Arvind Datar, amicus curiae, urged the followingsubmissions:

(i) Since the SCSC had recommended 28 persons in the mainGlist and 13 in the wait list, no person in the wait list could beor ought to have been appointed unless the main list wasexhausted;

(ii) The ranking which has been indicated in therecommendations of the SCSC should not be deviated fromHand must be followed;

(iii) Section 184(7) of the Tribunal Reforms Ordinance 2021contained a provision requiring the SCSC to recommendtwo candidates for each vacancy and though this provisionwas struck down in the judgment of the three-Judge Benchof this Court dated 14 July 2021, the same provision hasbeen re-enacted in Section 3(7) of the Tribunals ReformsAct, 2021; and

(iv) Any inputs obtained subsequent to the recommendations ofthe SCSC from any other source must be placed before theSCSC in order to enable it to consider whether anymodification in its recommendations is necessitated on thebasis of tangible material which has come to the knowledgeof the competent authority subsequent to therecommendations of the SCSC.

10. On the other hand, Mr K K Venugopal, learned AttorneyGeneral for India submitted that:

(i) The SCSC has recommended 28 candidates in the main listand 13 candidates in the wait list. Appointment of candidatesin the wait list is legitimate where appointments are notmade from the main list or persons in the main list have notaccepted appointment;

(ii) Section 3(7) of the Tribunals Reforms Act 2021contemplates that two names have to be recommendedagainst each vacancy and, hence, the names in the wait listhave been considered by the competent authority, togetherwith the list of names which were submitted in the mainlist;

(iii) In some cases, it has come to the notice of the competentauthority that there are penalty proceedings against thecandidate under the provisions of the Income Tax Act, 1961.

(iv) No case for the exercise of the contempt jurisdiction hasbeen made out since:

(a) The Finance Secretary is not concerned with theappointment of the Members of the ITAT under theAllocation of Business Rules 1961; and A

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A(b)The then Secretary, Department of Legal Affairs hassince been appointed as a Judge of the High Courton 25 February 2022.

11. The Attorney General, however, has fairly submitted that wheresubsequent inputs have been drawn to the attention of the competentBauthority after the submission of the recommendations by the SCSC, itis fair and proper that these comments, together with the originalIntelligence Bureau[4] report, are remitted back to the SCSC to enable itto apply its mind to the material which is placed before it. Along thesame lines, it has been stated by the learned Attorney General that, inthe future, it would be ensured that:C

(i) All inputs which are available with the Government whetherfrom the IB or from any other source including the CentralBoard of Direct Taxes[5] should be placed before the SCSCin advance, before it makes its recommendations, so thatthese inputs are duly borne in mind in an appropriate mannerDbefore the recommendations are finalized; and

(ii) In the present case, the objections of the competentauthority to some of the recommendations made by theSCSC should be placed for consideration by the SCSC.

E12. In pursuance of the order dated 16 July 2021, the relevant filehas been placed before the Court. It would not be appropriate for thisCourt to discuss or refer to individual names of candidates from therecommendations which have been made by the SCSC or from the filenote. It would suffice, however, to note that the file contains a feedbacksheet for candidates recommended by the SCSC for Members of theFITAT; there being two separate sheets dated 8 September 2021 and 29September 2021. Against the name of each candidate recommended forappointment either as Judicial Member or, as the case may be, AccountantMember, there is a column which tabulates the “IB Report”; anothercolumn which reads as “Feedback” and a final column containingG“Remarks”. The real bone of contention would pertain to the columnwhich is titled as “Feedback”. The file note does not indicate the underlyingmaterial on the basis of which the feedback is formulated or the processwhich is followed before arriving at the feedback. In many cases, we 4 “IB”5 “CBDT”H

4 “IB”5 “CBDT”H

find from the tabulation that the feedback is diametrically at variancewith the contents of the IB report. The IB report under the extantprocedure is placed before the SCSC before the process of shortlistingtakes place and candidates are called for interview. Hence, the candidateswho are recommended by the SCSC are those who had been cleared bythe IB after verifying their credentials, integrity, character and otherrelevant aspects. Evidently, many of the comments which are containedin the feedback column are of a subjective nature without any disclosureof underlying material. This would substantially detract from the fairnessof the process. If, in an exceptional case, subsequent to the formulationand submission of recommendations of the SCSC, any tangible materialcomes to the knowledge of the competent authority, it is only proper andappropriate, as the Attorney General submits, that such material shouldbe placed before the SCSC. We are in agreement with the submissionof the Attorney General that as a general practice, all inputs bearing onthe candidature of each prospective applicant under consideration, whetherthe inputs emanate from the IB or from any other source, ought to beplaced by the Union Government on the record of the SCSC in advance,before the recommendations are formulated. For instance, in the caseof a few candidates in the process which forms the subject matter of thedispute, the objection was on the ground that penalty proceedings havebeen initiated by the CBDT. In this context, Mr Arvind Datar submittedthat the provisions of Section 270A of the Income Tax Act 1961 result inthe automatic initiation of penalty proceedings where the income tax, asassessed, is higher than the income as reported by the assessee in theincome tax return resulting in the invocation of proceedings for theimposition of a penalty. Having regard to these and other aspects, itwould, in our view, be appropriate if such material which has come tothe knowledge of the competent authority must be drawn to the attentionof the SCSC which would then be in a position to determine as to whetherany modification of its original recommendation is necessitated by suchfacts as have come on the record subsequent to its recommendations.This can happen only in exceptional situations. In the generality of cases,all material must be placed in advance before the SCSC. It must beemphasized that the SCSC, which is chaired by a Judge of the SupremeCourt also consists of two Secretaries of the Union Government. Acomprehensive exercise is conducted by the Committee, inter alia,involving calling for inputs from the IB, verifying the record of eachcandidate and conducting personal interaction. Hence, all such inputs, A

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Aas are available with the Government, must be placed before the SCSCin advance. In an exceptional situation, where certain material comes tolight after the submission of the recommendations, that must also bedrawn to the attention of the SCSC so as to enable it to consider whetherany modification of its recommendations is necessary.

B13. In view of the above discussion, we are of the consideredview that the feedback which has been tabulated in the file note beforethe competent authority must be placed before the SCSC so as to enableit to consider whether any modification in the terms of itsrecommendations is warranted. If the feedback is based on any tangibleunderlying material, such material should be placed before the SCSC.CThe Union Government shall carry out this exercise and place all therelevant material before the SCSC within a period of one week from thedate of this judgment. We would request that a meeting of the SCSCmay be convened thereafter so that a final decision can be arrived at onwhether any modification in the terms of the recommendations isDwarranted. The recommendations of the SCSC shall be processed bythe Union Government and the court shall be apprised of the decisionwhich has been taken.

14. Before concluding, it would be necessary to refer to one otheraspect. In the affidavit which has been filed by the Secretary to theEDepartment of Legal Affairs, the following tabulation of the pendencyposition before the ITAT has been adverted to:

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15. The Attorney General, while placing the above tabulation duringthe course of the submission, has adverted to the fact that the pendencybefore the ITAT which stood at 92,386 at the end of 2016-2017 haswitnessed a reduction to 50,426 at the end of 2021-2022.

16. Responding to the above tabulation, both Mr R Basant andMr Arvind Datar have submitted that the above reduction is largely dueto the following reasons:

(i) Disposal of appeals attributable to the Vivad Se VishwasScheme;

(ii) Withdrawal of appeals as a result of the enhancement ofthe tax threshold; and

(iii) Nearly 5.5 lakh appeals are pending before the CIT(Appeals) and once these appeals are disposed of, thetransient reduction in the pendency figures of the ITAT willundergo a substantial change.

17. At this stage, since no decision has been taken by the UnionGovernment on the appropriate strength for the ITAT, it is not necessaryfor the Court to render any finding, on this aspect.

18. Having devoted our anxious consideration to the issue as towhether the exercise of contempt jurisdiction is warranted, we are ofthe view that it would not be expedient in the interests of justice topursue proceedings under the contempt jurisdiction. The Contempt Petitionshall, however, be re-numbered as an interlocutory application. Thevacancies in the ITAT shall be duly filled up so as to enable the ITAT tofunction effectively.

19. These proceedings be listed before the Court on 12 July 2022so that the Court can be apprised of the final decision which has beentaken by the competent authority after the submission of therecommendations of the SCSC and the appointment orders which havebeen issued.

20. The submissions of the learned amicus curiae which remainto be debated upon shall be open for consideration at the final hearing.

Nidhi Jain

Directions issued.

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