Not Considering Income Tax Assessee's Request For Personal Hearing Violates Natural Justice: Kerala High Court

“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.”

The Income Tax authority had passed a draft assessment and issued a show cause notice against Federal Bank asking why the assessment should not be completed as the per the draft assessment order. In the show cause notice, it was given that the Bank can request for a personal hearing after filing a written reply. In their reply, the bank sought for a personal hearing through video conference. Without giving that opportunity, the Income Tax Authority passes an assessment order making an additional demand of Rs 321.26 Crore. Against this, the bank approached the High Court.

The tax authority submitted before the Court that the bank should have applied for hearing through the e-filing module and not through their reply to the show cause notice.

The Court noted that the Central Government had introduced a scheme for 'faceless' assessment. The scheme does not mandate personal appearance in the Assessment Centres or Units. The assessee can seek personal hearing through video conference. This scheme was incorporated into the Income Tax Act and Section 144B was inserted into the Act. As per Section 144B of Income Tax Act, a person can request for personal hearing where a variation is proposed in the draft assessment order. Further, the section says that standards, procedures and processes for effective functioning of the National Faceless Assessment Centres shall be laid down. The Court observed that nothing has been placed before it to show that such standards have been framed.

The Court said that the asssessee cannot be denied an opportunity to be heard just because he did not apply for that through the e-filing module. The Court said that such denial is against the statutory provision especially considering that no standards, procedures and processes for approving the request for personal hearing have been approved by the competent authority.

The Income Tax authority argued that the assessee should have opted for the alternate remedy and should have chosen for an appeal under Section 246A of the Income Tax Act. The Court held that there was violation of natural justice, and the assessee can move the High Court in spite of there being an alternate remedy.

The Court directed the authorities to issue a fresh assessment order after affording an opportunity of being heard to the petitioner.

Counsel for the Petitioner: Advocates Joseph Markose (Sr.), V. Abraham Markos, Abraham Joseph Markos. Isaac Thomas, Alexander Joseph Markos, Sharad Joseph Kodanthara

Counsel for the Respondents: Advocates P. K. R. Menon (Sr.), Jose Joseph, P. R. Ajith Kumar

Case No: WP(C) No. 10803 of 2021

Case Title: The Federal Bank Ltd. v The Additional/ Joint/ Dputy/ Assistant Commissioner of Income Tax

Citation: 2024 LiveLaw (Ker) 750