Natural Justice cannot be Circumvented: Kerala HC restores Income Tax Appeal after AO Denied Hearing Opportunity [Read Order]
The Court set aside the Tribunal's order and the Commissioner's order, restoring the appeals before the Commissioner
![Natural Justice cannot be Circumvented: Kerala HC restores Income Tax Appeal after AO Denied Hearing Opportunity [Read Order]](https://images.taxscan.in/h-upload/2025/10/04/2093697-natural-justice-taxscan.webp "Natural Justice cannot be Circumvented: Kerala HC restores Income Tax Appeal after AO Denied Hearing Opportunity [Read Order]")
In a recent ruling, the Kerala High Court restored income tax appeals after holding that the principles of natural justice were violated when the Assessing Officer(AO) passed orders without granting a hearing opportunity, despite the appellant's inordinate delay in pursuing statutory remedies.
The appellant, Sea Castle An Ayurvedic and Leisure Hotel, challenged the dismissal of its appeals for assessment years 2010-11, 2011-12, and 2012-13. The hotel had claimed deductions for interest paid to Kerala Financial Corporation, which the Assessing Officer disallowed under Section 43B of the Income Tax Act, contending the interest was not actually paid. The AO revised the assessment orders without providing the appellant any opportunity to be heard, violating natural justice principles.
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The appellant's appeals before the Commissioner of Income Tax (Appeals) were dismissed on 27.02.2023 due to non-submission of written defenses despite multiple hearing opportunities. Subsequent appeals before the Income Tax Appellate Tribunal were dismissed on 25.03.2025 due to a 588-day delay, which the Tribunal refused to condone based on vague explanations about the appellant being "out of station."
The appellant, represented by Senior Counsel Sri. Anil D. Nair and other advocates, argued that while the delay was unjustified, the AO's order was unsustainable ex facie due to denial of natural justice. The appellant offered to compensate for the delay through costs if granted an opportunity to contest the matter. The Revenue, represented by Sri. P.G. Jayashankar and Sri. Navaneeth.N. Nath, contended the delay was inexcusable and the appellant's lackadaisical approach warranted dismissal.
The Division Bench of Justice Amit Rawal and Justice P.V. Balakrishnan acknowledged the appellant's reprehensible delay and vague explanations. However, the Court emphasized that the AO's failure to provide a hearing opportunity constituted a more fundamental violation. The Court held that while delay could be compensated monetarily, denial of natural justice could not be overlooked.
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Accordingly, the Court set aside the Tribunal's order and the Commissioner's order, restoring the appeals before the Commissioner. The Court imposed costs of ₹3 lakhs as a condition precedent, payable to the Mediation and Conciliation Centre of the High Court. The appellant was directed to appear before the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, for fresh adjudication. The Court clarified that the cost payment was mandatory for restoration of the appeals.
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