In a ruling in favour of Federal Bank Ltd, the Kerala High Court held that failure of income tax authorities, by not considering a request for personal hearing of assessee has violated the principles of natural justice.
The petitioner is a Banking Company licensed by the Reserve Bank of India under the Banking Regulation Act, 1949. Respondent Nos.1 to 5 are the statutory authorities under the Income Tax Act, 1961. The petitioner has been an assessee on the file of respondent No.3 within the jurisdiction of respondent No.4 – the Principal Commissioner of Income Tax. The petitioner challenges the assessment order passed by the Income Tax Department for the Assessment Year 2018-19.
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The competent authority in the Income Tax Department passed a draft assessment order and issued a show cause notice to the petitioner as to why the assessment should not be completed as per the draft assessment order. In the show cause notice, the provision was given to submit a response through the registered e-filing account of the petitioner at www.incometaxindiaefiling.gov.in by 23:59 hours of 13/04/2021, whereby you may either:a. accept the proposed modification; or
The petitioner submitted response on 13.4.2021. In the response, the petitioner had sought for a personal hearing through video conferencing. Without giving an opportunity of personal hearing, respondent No.1 passed assessment order making an additional demand of Rs.321.26 Crores.
The respondent stated that in the show cause notice, it had the option to apply for a hearing through video conferencing in the e-filing module. But, the assessee has not opted for a personal hearing through video conferencing in the online module but filed its reply on 13.4.2021 through written submission against the show cause notice dated 8.4.2021.
It was argued that the assessee should have opted for a hearing through video conferencing while replying to the show cause notice online. The assessee cannot leave the choice for a personal hearing to be exercised by the Faceless Assessing Officer ( FAO ), as the FAO cannot initiate the same. The assessing officer does not have any power to initiate the Video Conferencing proceedings on his own.
Senior Counsel for the petitioner submitted that Section 143(3) mandates that an assessment order shall be passed only after the assessee has been granted an opportunity for a hearing. As per Section 144B(7)(vii) of the Income Tax Act mandates that in a case where a variation is proposed in the draft final assessment order or revised draft assessment order, the assessee has the option to request for personal hearing so as to make his oral submissions or present his case before the income-tax authority. The petitioner has not been given this liberty.
A single bench of Justice K. Babu observed that the adherence to principles of natural justice as recognized by all civilized States is of supreme importance when a competent statutory authority embarks on an action involving civil consequences. The fundamental principle is that no one should be condemned unheard.
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It was viewed that the assessee specifically made request for a personal hearing, which has not been considered. Therefore, there has been violation of the principles of natural justice, and hence, the petitioner has rightly invoked the provisions of Article 226 of the Constitution.The court viewed that the statutory authority was bound to afford a personal hearing to the petitioner through video conferencing as mentioned above.
The bench set aside the order and liberty was given to the statutory authorities who are at liberty to pass fresh assessment orders in accordance with law after affording an opportunity of being heard to the petitioner through video conferencing mechanism.
Counsel for the Petitioner: Advocates Joseph Markose (Sr.), V. Abraham Markos, Abraham Joseph Markos. Isaac Thomas, Alexander Joseph Markos, Sharad Joseph Kodanthara
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