FACE LESS ASSESSMENT - WP HC RESTORED TO AO WITH DIRECTION OF ONE DAY PERSONAL HEARING OPPORTUNITY TO BE ALLOWED – WHETHER IT WILL MEET STANDARDS OF PRINCIPAL OF NATURAL JUSTICE.

[DEV KUMAR KOTHARI]

Recent case under study:

NAGALINGA NADAR. M.M. VERSUS THE ADDITIONAL/JOINT/DEPUTY/ASSISTANT COMMISSIONER OF INCOME TAX/INCOME TAX OFFICER, THE INCOME TAX OFFICER, WARD – 3, TAMIL NADU [2021 (10) TMI 684 - MADRAS HIGH COURT]             

In the above case assessment was completed in faceless proceedings.

 The assessee had replied to all questionnaire and submitted supporting documents

Admittedly assessee did not request for personal hearing before completion of assessment.

Admittedly the assesse has an alternative remedy to file appeal before the first appellate authority.

Ld. AO made huge additions on account of loans obtained for which documents were submitted by the assesse and loan creditors both.

Challenge in Writ Petition (WP):

Assessee challenged such assessment by way of WP  and sought  Writ of Certiorari, calling for the records of the Respondent No.1  that is the AO contained in its assessment order bearing DIN:ITBA/AST/S/143(3)/2021-22/1035116185(1) passed under Section 143(3) read with Section 144B of the Income Tax Act, 1961 dated 26.08.2021, for  the assesse having PAN:AAFFM6487J, for  assessment year (AY) 2018-19, and all proceedings in furtherance thereof, and to quash the same on the sole ground that in this case, though personal appearance was not sought, still the AO should have allowed personal hearing to meet the principal of natural justice. It was contended that what could not be satisfactory explanation on mere submission of documents could be satisfactory explanation if personal hearing was allowed wherein assesse could produce books of account and bank statements etc. so that assesse could explain its case availing proper opportunity.

The honorable Court considered that a WP can be entertained , even though alternate remedy is available it there was violation of principal of natural justice. In this case, although personal appearance was not sought by assesse, inadvertently, however, principal of natural justice demand that a personal opportunity should have been allowed.

The Senior Counsel Shri R,V.Easwar pressed only this aspect in his submission.

The honorable High Court accepted that submission and allowed WP and set aside assessment order with directions to the AO TO ALLOW  OPPORTUNITY OF ONE DAY ONLY  in the following terms vide paragraph 25 onwards which are reproduced below with highlights added by author for easy analysis, understanding and catch words:  

                       “   25.When this aspect has been projected, this Court feel that, such a chance can be given to the petitioner/Assessee, otherwise even if appeal is field against the assessment order, if this point is once again raised before the appellate authority, the appellate authority also has to necessarily consider the same and in that case, the entire assessment process, which culminated in the impugned order, would get further delayed. Therefore, instead of relegating the Assessee to approach the appellate authority to raise the same point of getting a personal hearing from the revenue, this Court feel that, since the chance of getting a personal hearing is part and parcel of the principles of natural justice, therefore, it comes within the domain of the writ jurisdiction, and on that ground, this Court feel that this writ petition can be entertained, and accordingly, it is disposed of with the following orders:

“that the impugned order for the aforesaid reasons and discussions hereinabove made, is hereby set aside, and the matter is remitted back to the respondent Assessing Authority for reconsideration. While, reconsidering the same, the respondent revenue shall give one day personal hearing to the petitioner/Assessee, which shall be between 1st of October and 8th of October. Within these days, in any working day, such a personal hearing for one day can be given to the petitioner, for which advance notice shall be given by the respondent to the petitioner/Assessee, and on receipt of the same, the petitioner/Assessee, without fail, shall appear on the date so fixed for personal hearing and produce all documents, if not anything already produced and try to explain, to the satisfaction of the revenue, the case of the Assessee.”

            26.It is made clear that except the one day personal hearing, no further personal hearing shall be sought for by the petitioner/Assessee and, if any such request is made, the same need not be considered by the revenue.

27. After giving such an opportunity of personal hearing as indicated above for one day, it is open to the revenue to proceed to pass a fresh order of assessment, in accordance with law and on merits.

28.With these directions, this writ petition is disposed of. However, there shall be no order as to costs. Consequently, connected miscellaneous petitions are closed.”

UN QUOTE:

We find that the honorable High Court has given strict order and instructions fixing period within which opportunity is to be given and only one days opportunity is to be given.

It seems that at his own AO can allow further opportunity of additional day (s), but the assessee cannot seek adjournment, and if assesse seeks further time or opportunity or adjournment, revenue need not to allow the same.

Whether one day’s opportunity is enough and will meet end of justice:

With due respect to the honorable Court, and particularly in view of difficult working conditions and uncertainties due to COVID related problems, author feels that only one days opportunity for personal hearing in a matter wherein huge additions have been ,made is not sufficient. There must be some flexibility so that the principal of natural justice can be satisfied in reality.

After hearing the assesse, the AO may require some more explanation, evidence, witnesses and that may require time , but AO is not allowed to allow such time if sought by assesse. Fortunately, as noted earlier, the AO appears to have discretion to adjourn and allow further time if he so consider (but not on request of assesse). Let us hope that the LD. AO himself will be judicious and allow time in case of need.

Merits of case:

It appears that Ld. AO made addition due to doubt, bias, presumption and conjecture and without proper understanding  of / or by ignoring realities of financing business.  

The loans were obtained through proper banking channels. The AO made addition for wrong reason that money lender had insignificant income.  

Such reason is wrong because for giving loan, what is relevant is capital base , capital available that is funds available with the money lender that can be by way of capital – own or borrowed, credit facilities from banks and markets, cash accruals by way of payments received etc.

 Where money has flown from bank account of loan creditor  / money lender to the account of borrower/ debtor, the   source is self- proved that is funds available in bank account of money lender. In such cases, S. 68 should not be applied at all. However, these contentions could not be raised in WP and were not raised in WP.  All such contentions can be raised in opportunity allowed for one day.

Earlier article:

For preparing case on merits, the following article will be helpful:

S.68- not applicable in case of banking transactions done digitally with names appearing in bank statement – illustrative submission before the AO. Dated April 17, 2021 available on this website.