HC Quashes Assessment Order allowing Less than 24 Hours for personal hearing & adjournment
Facts and Issue of the Case
This is a petition under Article 226 read with Articles19(1)(g) and 14 of the Constitution of India aggrieved by the non-availment of the opportunity as required under the law, challenging the action of the respondent authority under Section 143(3) read with Section 144(B) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) assessing the income of the petitioner for the year 2018-19 and raising the demand of tax and penalty thereby vide order date 17.09.2021.
The brief facts leading to the present petition are as follows:-
- The petitioner is a trust. The trusties and the beneficiaries are individuals and citizens of India. It is a public trust carrying on charitable activities under the Bombay Public Trust Act, 1950 registered on 19.01.2002.
- The petitioner filed return of income for the assessment year 2018-19 on 26.10.2018 offering Nil income. The same was offered on 10.05.2019 under Section 143(1) of the Act. The case of the petitioner was selected under CASS for Complete Scrutiny to verify some issues. Various correspondences took place between the parties for the purpose of framing of the assessment and the same eventually resulted into the issuance of show cause notice on 21.04.2021 reproducing the draft assessment order therein.
- In response to the show cause notice, the petitioner uploaded reply on 26.04.2021 and also requested for personal hearing through video conferencing. The proposed time on the part of the petitioner was from 4:00 pm. to 6:00 pm. on any working day. In response to this, on 25.05.2021 a show cause notice was issued which said that due to technical error, the request of personal hearing through video conference could not be processed. The respondent acknowledged the reply and the request of personal hearing. It further directed to make a request for personal hearing through video conference through facility provided for this purpose by clicking on the hyperlink under the column video conferencing, through login at e-filing portal on or before 28.05.2021 so that the personal hearing through video conference can be provided.
- The petitioner was unable to find any hyperlink on the Income Tax Portal which could be activated for the purpose of confirming the virtual conference, therefore, he wrote for number of times to activate the hyperlink for making request for personal hearing. He submitted through various replies dated 27.05.2021, 23.08.2021, 01.09.2021, 04.09.2021, 07.09.2021 and 09.09.2021 that the link was not activated. Eventually on 13.09.2021 a letter was received fixing the personal hearing on 14.09.2021 at 12:09 p.m., leaving no time for the petitioner to prepare. No hyperlink for activating the video conference was available online and instead the link to join the video conference along with password was provided.
- It is the grievance of the petitioner that not only the hyperlink to activate the video conference was not available but the option to seek adjournment to the same video conference was also not available on the web portal. The given date and time of 14.09.2021 at 12:09 pm. was inconvenient to the petitioner due to non-availability of the authorized representative, however, due to system glitch at the end of the respondent, the petitioner was not able to seek adjournment through the portal, therefore, the petitioner wrote an e-mail to request to reschedule the video conference to Friday on 17.09.2021 between 3:00 pm. to 5:00 pm. It was replied that the petitioner needs to seek adjournment online through web portal only and e-mail will not be responded.
- It is the say of the respondent that the time of video conference for the personal hearing was not changed despite the legitimate request of the petitioner for keeping the personal hearing on 17.09.2021 and it was held on 14.09.2021, therefore, the petitioner joined five minutes earlier than the time given on 14.09.2021, however, it had started late due to technical glitch at the end of the respondent. The petitioner could not hear anything from the other side and while the petitioner made partial submissions and it was making further submissions, the video conference got abruptly terminated. The petitioner requested to provide personal hearing through video conference to complete the submissions vide letter dated 14.09.2021.
- It is averred by the petitioner that it was shocking not to receive any further communication regarding the video conference and instead to receive the impugned assessment order dated 17.09.2021 without availing any opportunity of personal hearing through video conference and in the said assessment order, it has been mentioned surprisingly that video conference was conducted although it was not properly conducted, as emphatically averred and the petitioner was not allowed to make the fullest submissions. There is no reference of the request of second personal hearing due to sudden disconnection.
- The demand notice to pay Rs. 6,33,50,88,520/- within 30 days of the service of notice as well as the notice of penalty under Section 274 read with Section 270(A) dated 17.09.2021 had been issued. The said assessment order issued under Section 143(3) read with Section 144(B) is under challenge. This is alleged to be an order without jurisdiction and violative of principles of natural justice and contrary to law.
In response to the same, affidavit-in-reply is filed by the Commissioner of Income Tax (Exemption), Ahmedabad denying all the averments. According to the respondent, there is an alternative efficacious remedy available if the petitioner is aggrieved by the assessment order and can file an appeal before the Commissioner of Income Tax (Appeals) and thereafter, challenge can lie before the Appellate Tribunal. It is a settled law that the person aggrieved cannot abandon the statutory mechanism stipulated under the Act.
- In case of Chhabil Dass Agarwal [357 ITR 357] the Apex Court has permitted the challenge to the assessment order on a very limited ground. The sole challenge here is the violation of principles of natural justice as the opportunity of personal hearing averredly not provided. The said contention, according to the respondent, is baseless and has been denied eventually. The video conference has been conducted, according to the respondent, on 14.09.2021 and the learned counsel for the petitioner also had joined. He raised similar contentions during the course of the hearing which also form the part of written submissions. Before framing the assessment, the concerned Assessing Officer had considered the submissions filed prior to the draft assessment order and the detailed submissions made along with the voluminous evidences filed in response to the draft assessment as also the arguments advanced have been considered.
- This is not a case of lack of jurisdiction nor violation of principles of natural justice. According to the respondent, through the prism of element of prejudice test, the aspect of violation of principles of natural justice shall need to be considered. Since the assessment order clearly reflected that the representative of the petitioner was heard, his allegations and averments would not hold the grounds on merit and the submissions written as well as oral made by the petitioner during the course of the assessment proceedings have already been taken note of.
- There had been para-wise denial which may not be necessary to be reproduced. The emphasis all along is that the matter does not deserve any consideration.
The affidavit-in-rejoinder is also filed where seriously the question is raised as to what amounts to the giving of opportunity as required under the law. It is also reiterated emphatically by the petitioner that the so called opportunity was of namesake and at every stage, the faceless assessment was in fact ear-less assessment.
Observation of the case.
Court has since noticed the reiterative submission of technical glitch which resulted into abrupt disconnection and reiterative emphasis on the same.
This Court has been made available the pen drive for watching the video of VC conducted and that exercise was conducted by this Court minutely and carefully. One glaring aspect we could notice was the amount of patience that would be required at the end of the assessees and their authorized representatives in conducting the video conference. Transparency through faceless assessment is a very laudable objective to be achieved which shall address various undesirable aspects, however, this surely cannot put the assesses to jeopardy and more particularly, when the entire system is at a nascent stage. Here is a stage where the system is in the making, where there are bound to be hiccups and there is a huge scope for improvisation.
Court would have expected the administration to come forward and also accept the limitations of the system. Once there is an acceptance of its limitations, there is a scope of improvisation and not otherwise. What means to be an opportunity of hearing or what amounts to the observations of principles of natural justice need not be conveyed and explained and told to the department and yet, we would like to quote the wisdom of the Apex Court on this aspect. In S.L.Kapoor vs. Jagmohan and Others [(1980) 4 SCC 379] after referring to certain English and Indian decisions, of course in the context of that case, “In our view the principle of natural justice know of no exclusionary rule dependent on whether it would have made any difference if natural justice had been observed. The non-observance of natural justice is itself prejudice to any man and proof of prejudice independently of proof of denial of natural justice is unnecessary.”
Watching of the video itself is a reason for us to hold in no uncertain terms that not only there is a violation of the need of availing opportunity of hearing but, there is surely a requirement of also paying heed to such complaints, often made and correct the system wherever needed. Why we say so, we hereby give the following reasons. It is a matter of record that the show cause notice dated 21.04.2021 was responded to on 26.04.2021. The hearing through video conference was requested for between 4:00 pm. to 6:00 pm. on any working day, however, the show cause notice was received on 25.05.2021 in response to the said request on 21.04.2021. This communication admits that due to technical glitch, the request for video conference could not be provided. It is further directed that for availing the video conference clicking on the hyperlink under the column video conference through login at e-filing portal on or before 28.05.2021 should be done so that the personal hearing through video conference can be provided.
Court has watched the video of proceedings of case as on 14.09.2021 as provided to us pursuant to the directions issued by us as mentioned herein above and it is quite obvious that the learned senior advocate representing the petitioner went on asking and also waited, however, from the other side, there was no reply. It is only after about 22:00 minutes in the chat box, the reply was received that the authorized person was audible and therefore, he could speak. A request was also made whether the submissions could be uploaded to which the answer is in affirmative however, there was no facility for sharing the screens of submissions. It is also quite clear that from 26:00 minutes to 40:00 minutes hearing continued and then from 40:52 minutes to 45:06 minutes the audio was silent though the video went on and learned counsel went on speaking on the first issue and at 45:06 minutes, as rightly urged, the video of learned advocate was abruptly terminated while learned advocate was speaking.
This Court would like to refer to the Circular F No. PR. CCIT/NeAC/SOP/2020-21 dated 23.11.202 which is a Standard Operating Procedure (SOP) for personal hearing through video conference under Faceless Assessment Scheme, 2019. The Principal Chief Commissioner of Income Tax, National e- assessment Centre, with the prior approval of the Central Board of Direct Taxes (CBDT), New Delhi, laid down the circumstances in which the personal hearing through video conference is allowed in the faceless assessment scheme. Where any modification is proposed in the draft assessment order issued by the AU and the Assessee or the authorized representative in her/his written response disputes the facts underlying the proposed modification and makes a request for a personal hearing, the CCIT ReAC may allow personal hearing through video conference after considering the facts and circumstances where the assessee can submit written submissions in response to the draft assessment order. The video conference will ordinarily be of 30 minutes duration. It may be extended on the request of the assessee or the authorized representative. The assessee also may furnish documents / evidences to substantiate the point raised in the video conference during the session or within reasonable time allowed by the AU after considering the facts and circumstances of the case.
HC Quashes Assessment Order allowing Less than 24 Hours for personal hearing & adjournmentAs can be noticed from the instant case, here also, the modification is proposed in the draft assessment order and the assessee had requested for personal hearing. It is to be noted that as averred in the petition, in a response to the show cause notice dated 21.04.2021 raising objections on 26.04.2021, the petitioner has furnished the fresh documents which have been paged from 93 to 284 in its submission of objections, explanation and details. It has also answered to the serious question raised questioning the creditworthiness of Arrow Electronics India Pvt. Ltd. It has also chosen to substantiate the uploading of these documents by various documents furnished before this Court and also downloading the details from the e-portal of Income Tax Department. An attempt is made to show to this Court that in the final assessment order which has been pronounced on 17.09.2021, there is no whisper of any of these materials. There is no change made in the draft assessment order after these additional material has been sent. This also is indicative of the fact that the opportunity of hearing given after the request made on the receipt of the draft assessment order is mere a formality. Not only the time granted is of less than 24 hours, the non-response initially and disruption which eventually resulted into sudden snap of the link, never was thereafter responded to, even when request was made on the part of the petitioner for permitting the hearing which had remained unconcluded.
The decision of High Court of Orissa in case of Elite Education Society vs. Chairman, Central Board of Direct Taxes, Ministry of Finance, Department of Revenue and Others [W.P. (C) No. 18472 of 2021] shall be necessary to be referred to at this stage where the Court has held that the requirement for providing the hearing in terms of Section 144(B)(7)(vii) is not merely directory but mandatory one. The decision of Bombay High Court in case of Piramal Enterprises Limited vs. Addl./Jt./Dy./Asstt. Commissioner of Income Tax/Income Tax Officer, Delhi [ 129 taxmann.com 18 (Bombay)], where also the Court held that the faceless assessment is not made in accordance with the procedure laid down under Section 144(B). There is a telling / pronounced rigour, to follow the procedure under section 144B, lest the assessment would be non est. It further held that as per the provisions of Section 144(B), when the hearing has been envisioned and incorporated, it is imperative to observe the principles of natural justice as stipulated. Court would, therefore, hold that the provisions which have been envisioned to bring transparency and accountability in the system if are not observed as contemplated under the law, it will become imperative for the Court to intervene.
In case of Hiralal Bhagwati vs. Commissioner of Income-tax [ 246 ITR 188], the trust in question was registered as public charitable trust and was registered with the office of Charity Commission under the provisions contained under the Bombay Public Trust Act. The object of the trust was to help by giving financial aid to the employees of the Gujarat Law Society, in cases of death of an employee during his/her services, illness or permanent disability which incapacitates the employee to discharge his/her duties. The trust was denied exemption under Section 80(G) of the Act on the ground that the object of the trust was to register only the employees of the assessee and therefore, the object could not be of the general public utility. The Income Tax Officer issued notice under Section 148 of the Act. The petitioner had questioned this notice as being without jurisdiction. The Court held that the registration of the charitable trust under Section 12(A) is not idle or empty formality. It required that not only the application to be filed in a prescribed form stating all the details but also the names and addresses of the trusties and managers to be furnished to serve the charitable purpose. The Court held that it is not necessary that the object must be to serve the whole mankind or all persons living in a country or province. Even if a section of public is given benefit, it cannot be said that it is not a trust for charitable purpose in the interest of public. It is not necessary that the public at large must get the benefit. Considering the object of general public utility, the matter needs to be decided.
According to this Court, this is an argument on merit as on the ground of nonobservance of principles of natural justice the Court is choosing to relegate the matters to the concerned authority, it would prefer not to enter into this arena of merit. The same shall be reserved to be agitated before the Income Tax Authorities and thereafter, if eventuality arises in future. The other two decisions are along the line and therefore are not required to be diluted being along the very line.
With the aforesaid reasons, we are of the firm opinion that this is a matter where the order needs to be quashed and the petitioner needs to be availed an opportunity afresh by the respondent from the stage where it was left. Accordingly, the petition is Allowed. The order dated 17.09.2021 is quashed and set aside with all its consequences. Notice issued of penalty under Sections 274 and 278(A) dated 17.09.2021 also shall be quashed. This will not in any manner prejudice the rights of either side. Pursuant to the order of this Court on 14.10.2021, three fixed deposits maturing on 23.04.2022 for the sum of Rs. 25,00,00,000/- if matures prior to the passing of the order, the amount shall be continued to be in the bank and shall not be withdrawn by the respondents.
Let the matter be proceeded with from the stage of availing opportunity of hearing through video conference on fixing the time of such conference within two weeks of the receipt of copy of this order. Let the entire process be completed, as far as possible in eight weeks’ time.