The All India Federation of Tax Practitioners (AIFTP Western zone) had organized a Webinar on June 14, 2020 on the subject of “Principles of Natural justice as applicable to Tax proceedings and Writs in taxation”. The speaker was Advocate Mr. Manish J.Shah, Ahmedabad and Chairman was Dr K. Shivaram, Senior Advocate, Mumbai. For the benefit of the readers, a brief summary of the proceedings has been prepared by Advocate Shashi Bekal
Chairman in his introduction referred the Article 265 of the Constitution of India 1950.
“No tax shall be levied or collected except by authority of law”
Article 265 is the foundation for various Writ Petitions under the Income tax Law.
The collection of tax has to be also within the frame work of law. The Circular No. 14 (XL-35), dt. 11/04/1955, also states that a duty is cast upon the Assessing Officerto assist and aid the assessee in the matter of taxation. Assessing Officersare supposed to advise the assessee and guide them and nottake advantage of any error or mistake committed by the assessee or of their ignorance. The function of the Assessing officeris to administer the statute with solicitude for public exchequer with an inbuilt idea of fairness to taxpayers. The scope of the above circular is explained in CIT v. AhmedabadKeiser-E. Hind Mills Co. Ltd(1981)128 ITR 486 (Guj.) (HC) (492), Parekh Bros v. CIT (1984) 150 ITR 105 (Ker) (HC) (118), and Dattatraya Gopal Sathe v. CIT (1984) 150 ITR 460 (Bom.)(HC) (463-464)
Chairman referred the following case laws:
Dharkeswari Cotton Mills Ltd v CIT (1954) 26 ITR 775 (SC)
Violation of principle of natural justicemay lead to violation of Fundamental rights of equality guaranteed by Articles14 or 21 of the Constitution of India.
R.B Shreeram Durga Prasad &Fatechand Nursing Das v Settlement Commission (1969) 176 ITR 169 (SC)
Where the principle of natural justice violated, the Supreme Court set aside the assessment.
Maneka Gandhi v UOI1978 AIR 597(SC)/1978 SCR (2) 621 (SC)
Art 21: Natural Justice – Opportunity to be heard is universally recognized as an essential ingredient of principle of natural justice.
Kishanchand Chellaram v. CIT (1980) 125ITR 713 (SC)
Authorities cannot use the statement without giving an opportunity of cross examination
C.B Gautam v. UOI (1993) 199 ITR 530 (SC)
Violation of the principle of natural justice may lead to violation of Fundamental rights of equality guaranteed by Article 14 or 21 of the Constitution of India
Sona Builders v UOI(2001)251 ITR 197 (SC)
Only three days’ notice to respond the notice -Order of appropriate authority had to be quashed. Prayer for set aside the matter was not entertained.
Sahara India (Firm) v CIT (2008) 300 ITR 403 (SC)
Even in absence of an express provision for affording an opportunity of pre-decisional hearing to an assessee and in absence of any express provision in section 142(2A) barring giving of a reasonable opportunity to an assessee, requirement of observance of principles of natural justice is to be read into said provision
Andaman Timber Industries v CCE (2015) 127 DTR 241/ 281 CTR 241 (SC)
Order passed denying the opportunity of crossexamination is violates principle of natural justice which is a serious flaw which renders the order a nullity.
H.R Mehatav.ACIT (2016) 387 ITR 561(Bom)(HC)
Assessing Officer should have provided assessee material used against him apart from providing him an opportunity to cross examine deponents whose statements were relied upon (S.68)
CIT v Odeon Builders ( P ) Ltd ( 2019) 418 ITR 315 (SC)
Entire disallowance was based on third party information gathered by Investigation Wing of Department, which had not been independently subjected to further verification by Assessing Officer and he had not provided copy of such statements to appellant, thus, denying opportunity of cross examination to appellant.Addition was deleted .
Further the Chairman stated that the learned speaker has to discuss two subjectsi.e.1.Natural Justice and 2.Writs
Chairman stated that,Natural Justice as applicable to tax proceedingscan be divided in to four parts: 1.Appellate Tribunal, 2. Commissioners, 3. CIT (A) and 4. Assessing Officer.
Similarly, Writ Petition, relating to tax proceedings can divided into four parts, viz. 1. Order of Tribunal, 2.Order of Commissioner, 3. Order of CIT (A), and 4. Order of Assessing Officer.
1. Appellate Tribunal
CIT v. Tara Ripu Dhamanpal Trust (2018) 409 ITR 102 (P&H)(HC)
Reasoned speaking order which is the mandate as laid down by the Supreme Court in Kranti Associates Pvt. Ltd. v. Masood Ahmed Khan (2010) 9 SCC 496 and Canara Bank v. V. K. Awasthy (2005) SC 2090.
CC (Import) Mumbai v. Wartsila India Ltd 2010 (254) ELT 406 (Bom) (HC)
Judgement cited but no reference found in the order, nor any discussion with respect to rival submission found in the order.One of the salutary requirements of natural justice is spelling out reasons for the order made, in other words, a speaking out.Order of Tribunalwas set aside.
Shapoorji Pallonji & Co. Ltd v. CCES 2011(263) ELT 206 (Bom.) (HC)
Absence of reasons suggestive of order being arbitrary and in breach of principle of natural justice. Order of Tribunal wasset aside
DSP Investment Pvt. Ltd. v. ACIT( ITA No 2342 of 2013 dt 8 -3 2016) ( AY. 2008 -09) (Bom.)(HC); www.itatonline.org
Non-consideration by the ITAT of a judgement of the Co-ordinate Bench makes the order a non-speaking one and breaches the principles of natural justice. Order of Tribunal was set aside.
Bhavya Construction Co. v. ACIT( ITA No. 1009 of 2017 dt 30-1 -2020 ( AY. 2007 -08) www.itatonline.org
Relying on the case laws not cited by both the parties, not dealing with the case law cited by the representative of the assessee. Matter remanded to the Tribunal to pass the fresh order
Reliance Infrastructure Ltd v. Dy .CIT (ITA No.701of 2014 dt.29-11-2016 ( AY. 2008 -09) (2016) 76 taxmann.com 238 (Bom) (HC) www.itatonline.org
Referring the judgment in favour of assessee and not dealing with the case would make the order suspect. Ex facie, it is a breach of principle of natural justice. Order of Tribunal wasset aside.
Dattani and Co v. ITOITA No. 847 of 2013 dt 21-10 2013 (Guj) (HC)
Decision relied not considered; order of the Tribunal is remanded.
HDFC Bank Ltd. v. DCIT (2016) 383 ITR 529(Bom.)(HC).
Where Appellate Tribunal refused to follow a binding decision in assessee’s own case for the earlier years, the Hon’ble Bombay High Court exercised its powers under Article 227 of the Constitution of India as the Tribunal has chosen to disregard and/ or circumvent the binding decision of this Court.
Brief summary of lecture by the Speaker Mr. Manish J.Shah, Advocate, Ahmadabad.
The Speaker interesting traced the origins of the concept of principles of natural justice in common law, according to him it has travelled from the banks of the river Thames to the banks of the Ganges.
He explained the two facets of the principles of Natural justice i.e. Nemo judex in causa sua (No man can judge his own case) and Audi alteram partem (No person should be judged without a fair hearing)
Speaking on the first principle he cited the example of a situation where the bench consisted of 9 judges of the Supreme Court of USA, the Ladyship recused herself from the matter as her husband was a shareholder of the company which was appearing before the bench to avoid any unconscious bias.
With the second principle, the speaker gathered inspiration from the Greek mythology. Prometheus stole fire from Olympus and brought it to earth. Zeus had convicted him for his act of theft. “Truth and Justice” visited Zeus and dethroned him for a day on account of convicting Prometheus without giving him an opportunity to be heard.
The Speaker then pointed out that technical and jurisdictional considerations are sometimes not appreciated by tax officials and it is only the judiciary that upholds the same.
Further, he stated that principles of Natural Justice need not be provided by the statute, rather it must be read into its provisions. Some of the important case laws are as under:
Peerless General Finance & Investment Co. Ltd. v DCIT 236 ITR 671 (Cal) (HC)
Sahara India (Firm) v. CIT  300 ITR 403 (SC)
Maneka Gandhi (Smt.) v. UOI AIR 1978 SC 597
The Speaker then analyzed serval decisions, which are as under:
Rajesh Kumar v. DCIT  287 ITR 91 (SC)
Where for auditing books of account of assessee, Deputy Commissioner passed order under section 142(2A) without giving an opportunity of hearing to assessee and refusing assessee’s request for supply of reasons therefor, action of Deputy Commissioner was vitiated in law.
CIT v. ED Benny  283 CTR 212 (Ker)(HC)
Even if additional evidence produced by assessee are in nature of clinching evidence leaving no further room for any doubt or controversy, Commissioner (Appeals) is under statutory obligation to put additional material/evidence taken on record by him to Assessing Officer, otherwise principles natural justice is violated
Speaking on the concept of Bias, he cited the case of Kraipak v. UOI 1970 SC 150. Bias can be on account of friendship, relationship, pecuniary interest and personal grievances etc.
Even the likelihood of a bias is to be avoided. In the case of Tata Motors v. Govt of West Bengal, Justice Soumitra Paul recused from the matter on account of a known/related party contesting the matter.( Business line dt 12 -3 – 2018)
UOI vVipan Kumar Jain  260 ITR 1 (SC)
In absence of any challenge to provisions of Act relating to jurisdiction of Assessing Officer to carry out search under section 132, subject to his being appointed as an authorised officer thereunder, there is no question of imputing or presuming a bias where action is followed under that section. There is nothing inherently unconstitutional in permitting Assessing Officer to gather information and to assess value of information himself. Courts cannot read in limitations to jurisdiction conferred by statutes, in absence of a challenge to provision itself, when language of Act clearly allows for an ostensible violation of principles of natural justice including principle that a person cannot be a judge in his own cause
The Speaker respectfully doesn’t agree with the above decision.
Olga Tellis&Ors vs Bombay Municipal Corporation &Ors 1986 (SC) 180
Discretion to act with or without noticemust be exercisedreasonably,fairly and justly, otherwise it is a violation of principles of Natura Justice.
GKN Driveshafts (India) Ltd. v. ITO( 2003) 259 ITR 19 (SC)
When a notice is issued under section 148, proper course of action for noticee is to file return and if he so desires, to seek reasons for issuing notice and on receipt thereof to file objections to issuance of notice.
Anand Chauhan v CIT  273 CTR 296/ 231 Taxman 76 (Himachal Pradesh)(HC)
Where reasons specified in order transferring assessees cases to other jurisdiction were totally different from what was spelt out in show cause notices, impugned order was to be quashed and set aside
With respect to Writ Petitions the Speaker’s comments are as under:
That, while replying to reasons recorded i.e. Objections to reopening, the Consultant must take every contention, case law, averment etc as possible.
Gujarat Institute of Desert Ecology v. CIT (2003) 260 ITR 595 ( HC )
When decision on question whether delay should be condoned or not entails drastic civil consequences on assessment of petitioner-trust, principles of natural justice are required to be read into in provisions of section 119(2)(b) of the Act. since impugned order was vitiated for non-consideration of relevant criteria for deciding an application for condoning delay under section 119(2)(b), it should be set aside and concerned authority directed to decide matter afresh in accordance with law after giving petitioner an opportunity of personal hearing.
LaljibhaiKanjibhaiMandalia v. PCIT  416 ITR 365 (Guj)(HC)
Search warrant is invalid if provisions of section 132 not attracted; HC quashes search proceedings.
Whirlpool Corporation v Registrar of Trade Marks AIR 1999 SC 22
Writ Petition can be filed for the enforcement of any of the Fundamental rights or where there has been a violation of the principle of natural justice or where the order or proceedings are wholly without jurisdiction or the vires of an Act is challenged.
Calcutta Discount Co. Ltd. v ITO  41 ITR 191 (SC)
If there are some reasonable grounds for thinking that there had been any non-disclosure as regards any primary facts, which could have a material bearing on question of ‘under-assessment’, that would be sufficient to give jurisdiction to ITO to issue notice under section 34 of 1922 Act.
Gujarat State Fertilizers & Chemicals Ltd. v DCIT  226 ITR 270 (Guj)( HC)
In terms of the Board’s Circular No. 530 dated 6-3-1989, where the demand in dispute relates to issues that have been decided in favour of the assessee in an earlier order by an appellate authority or a Court in the assessee’s own case, the assessee was to be treated as not being in default in respect of the amounts attributed to such disputed amounts.
Saroj Ceramics Industries v ITO  42 taxmann.com 372 (Guj)( HC)
Once an appeal under section 260A against order passed by Tribunal is dismissed, there cannot be any rectification application to rectify order passed by Tribunal in appeal
The Chairman remarked that 80 percent of the Writ Petitions before the Hon’ble High Courts are arising out of challenge against reopening and another 10 percent arises out of stay of demand. Therefore, Consultants have to be very careful in filing submissions at the early stages of the trial to lay down a proper foundation for availing benefit of technical considerations before the judiciary.
The Chairman also pointed out instances where the judiciary has been careful so as to ensure no principles of natural justice is violated, precautions are taken to ensure that the bench or its members do not have any pecuniary interest in the assessee-company or the matter was decided by the member when they were acting as a revenue officer. The integrity of the judiciary in ensuring Natural Justice is remarkable and deserves to be praised.
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