In a recent arbitration dispute, an appellant, who was a retiring partner in a partnership firm, challenged an order issued by the arbitrator. The order required him to sign the firm's financial statements, including balance sheets and profit and loss accounts, which he contested as being manipulated. The appellant had initiated arbitration under a clause in the retirement deed due to a disagreement over the firm's financials, suspecting the accounts were altered to show a loss and potentially mislead tax authorities.
The arbitrator, operating under Section 17 of the Arbitration and Conciliation Act, 1996, had directed the appellant to sign such financial statements. The appellant argued that this order was beyond the arbitrator's jurisdiction and that forcing him to sign incorrect financial documents could expose him to penalties under the Income Tax Act, specifically Sections 271 and 271A, which address failures to maintain proper accounts and deliberate misstatements.
The appellant further contended that if the financial statements, which he believed to be faulty, were filed with income tax returns, both the partnership firm and he could face severe legal consequences. This could include penalties for misstatements or concealment of the firm's true financial condition.
The Hon’ble High Court on appeal reviewed the situation and determined that compelling the appellant to sign the disputed financial statements before the final adjudication of the arbitration and without a complete examination of the accounts was not appropriate. The court acknowledged that such an order could unfairly penalize the appellant and was beyond the arbitrator’s authority. Consequently, the order was found to suffer from a lack of jurisdiction and was set aside. The decision emphasized that the appellant should not be forced to sign potentially incorrect financial documents until a final resolution was reached through proper assessment of the evidence.
Prashant Mohta v. Manoj Kumar Bothra
[2024] 164 taxmann.com 785 (Calcutta)
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