Income Tax Officers Are Frequently Violating Principles Of Natural Justice: Allahabad High Court

The Bench of Justices Surya Prakash Kesarwani and Jayant Banerji directed the Central Board of Direct Taxes (CBDT) to take steps to remove the shortcomings in the computerisation system controlled by it and to develop a system of accountability among the erring officers and employees of the revenue department.

The Income Tax Authority issued a notice under Section 148A (b) of the Income Tax Act, 1961 to the assessee Nabco Products Private Limited. An order under Section 148A (d) was passed on the ground that no reply was submitted by the assessee to the notice issued to it. Subsequently, the Income Tax Authority issued a notice under Section 148 of the Income Tax Act. Against this, the assessee filed a writ petition before the Allahabad High Court.

Section 148A of the Income Tax Act provides that the Assessing Officer is required to conduct an inquiry and provide an opportunity of hearing to the assessee before issuing a notice under Section 148. Section 148 provides for issue of notice by the Assessing Officer where the income of the assessee has escaped assessment.

The assessee Nabco Products Private Limited submitted before the High Court that it had submitted a reply to the notice issued under Section 148A (b) of the Income Tax Act on 22.03.2022. However, the assessee averred that the revenue department passed an order under Section 148A(d), dated 30.03.2022, on the ground that no reply was submitted by the assessee.

The Court observed that the assessee had subsequently filed an application for rectification of mistake under Section 154 of the Income Tax Act, which was rejected by the revenue department on the ground that the assessee had failed to file a reply to the notice issued under Section 148A (b).

The High Court held that the order passed by the revenue department under Section 148A(d), without considering the reply of the assessee, and the rejection of the application for rectification of mistake submitted by the assessee under Section 154 of the Income Tax Act, was arbitrary and in gross violation of the principles of natural justice.

Noting that the revenue department often cites a problem with the computerisation system as an excuse, the High Court ruled that since the computerisation system is introduced and is being implemented by the revenue authorities, it is their primary duty to immediately remove any short comings in the system. The Court added that the assessee cannot be allowed to suffer and be harassed for the errors committed by the revenue authorities.

Observing that the Courts are frequently coming across cases where the Income Tax Authorities are violating the principles of natural justice, the Court held that the harassment caused to the assessees and the breach of principles of natural justice by the Income Tax Officers is resulting in an uncontrolled situation.

"Prevailing state of affairs clearly reflects that in the absence of any effective system of accountability of the erring officers, the harassment of the assessees and breach of principles of natural justice by the Officers is resulting in uncontrolled situation. The practice of frequently violating principles of natural justice, non consideration of replies of assessees under one pretext or the other or rejecting it with one or two lines orders without recording reasons for rejection, is gradually increasing which needs to be taken care of immediately by the respondents at the highest level, otherwise prevailing situation of arbitrary approach and breach of principles of natural justice may not only adversely affect the assessees who pay revenue to the Government, but also may develop a perception amongst people/assessees that it is difficult to get justice from the authorities in statutory proceedings.", the Court said.

The Court, thus quashed the order passed by the Income Tax Authority under Section 148 A(d) and Section 154 of the Income Tax Act, as well as the notice issued under Section 148, while granting it the liberty to pass a fresh order under Section 148A (d) after affording a reasonable opportunity of hearing to the assessee. The Court directed the Central Board of Direct Taxes (CBDT) to take steps to remove the shortcomings in the computerisation system and to develop a system of accountability among the erring officers and employees.

Additionally, the High Court imposed a cost of Rs. 50,000 on the revenue authorities, with a direction to pay the cost to the assessee within two weeks.

Case Title: Nabco Products Private Limited versus Union of India and Ors.

Dated: 3.8.2022 (Allahabad High Court)

Counsel for the Petitioner/Assessee: Abhinav Mehrotra, Satya Vrata Mehrotra

Counsel for the Respondent/Revenue Department: A.S.G.I., Gaurav Mahajan

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