Allahabad High Court Imposes 10K Cost On Income Tax Authority For Violation Of Principles Of Natural Justice

The Allahabad High Court on Wednesday imposed a cost of Rs. 10,000 to be paid by an erring officer of the Income Tax Department for violating the principles of natural justice while cancelling the earlier Assessment Order and initiating fresh proceedings under Section 263 of the Income Tax Act, 1961.

Assessment of the Petitioner was completed under section 143(3) of the Income Tax Act. Thereafter, a notice under Section 263 (Revision of order pre-judicial to revenue) of the Act was issued to the Petitioner by the Principal Commissioner Of Income Tax (PCIT) on the ground that the case of the Petitioner was selected for scrutiny under Computer Aided Scrutiny Selection (CASS).

Accordingly, by the impugned order, PCIT cancelled the assessment order passed by earlier by the Assessing Authority holding that the order passed was erroneous in so far as it was prejudicial to the interest of the Revenue. Assessing Authority was directed to pass fresh orders.

Counsel for Petitioner contended that the impugned order was passed merely based on a change of opinion and in violation of principles of natural justice. Procedure under Section 263 of the Income Tax Act, 1961 was never followed before passing the impugned order, it was argued.

Further, it was contended that the signature of the counsel for the petitioner before the PCIT were different on the manual order sheet and the affidavit filed. The petitioner submitted that its counsel was never given an opportunity to appear before PCIT. Since Petitioner received the notice on the last date of submission of reply, an adjournment application was filed which was never decided. No orders were passed on the adjournment application. Thus, there was a gross violation of principles of natural justice by the PCIT, counsel for the petitioner argued.

Counsel for the Department denied any violation of principles of natural justice as the Petitioner had submitted its reply the next day, which was considered while passing the impugned order. Further, he stated that since the order passed by the Assessing Authority was prejudicial to the interest of the Revenue, the impugned proceedings under Section 263 of the Act were valid.

A bench comprising Justice Piyush Agrawal noted that no orders were passed on the adjournment application. Further, no explanation had been given by the Department for maintaining different order sheets – electronic, where adjournment application was noted, and manual order sheet- where signatures of counsel for petitioner were made.

“Learned counsel for the petitioner has specifically denied the signature on the manual order sheet and has relied on the signature on the adjournment application (Annexure No. 5 to the writ petition), on perusal of which creates a doubt on two count; firstly, the signature are different and secondly, there was no occasion for adopting two different modes of maintaining order sheet; one computer generated order sheet and other manual order sheet. This aspect creates a serious doubt about the functioing of the respondent – authority,” noted the Court.

Further, the Court noted the discrepancies in the impugned order wherein in the preceding paragraph it had been stated the Petitioner had not submitted any reply. However, in the next paragraph, it was stated that the reply of the Petitioner had been considered.

“Once the respondent – authority himself records that no response has been filed in pursuance of the notice under section 263 of the Income Tax Act dated 27.03.2022, a contrary finding, as recorded in paragraph no. 5 of the impugned order, cannot be accepted in the eyes of law,” the Court said.

Relying on the decision of the Supreme Court in Whirlpool Corporation v. Registrar of Trade Marks Mumbai, the Court held that there was clear violation of principles of natural justice as no opportunity was given to the petitioner for defending or presenting its case.

The Court also noted there was no mention of what prejudice had been caused to the Revenue in the order passed under Section 263 of the Act.

Accordingly, the Court quashed the impugned order and directed the Respondent to deposit Rs. 10,000 with the Allahabad High Court Legal Services Committee.

Case Title: M/S M.L. Chains v. The Pr. Commissioner Of Income Tax - 1 and another 2023 LiveLaw (AB) 263 [Writ Tax No. - 638 of 2022]

Case Citation: 2023 LiveLaw (AB) 263

Counsel for Petitioner: Amit Mahajan

Counsel for Respondent: Gaurav Mahajan, Manu Ghildyal

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