2002 (11) TMI 62 - HC - Income Tax

(A) Whether the order passed by the respondent is vitiated by non-application of mind, arbitrariness and is violative of the Kar Vivad Samadhan Scheme provisions ? - (B) Whether the order is vitiated for failure to follow the principles of natural justice ? - (C) Whether the action of the respondent in including the tax liability for the disputed items which were originally included in the assessment by original authority, but set aside by the appellate authority and remanded back for de novo consideration as a disputed liability and make a demand under the KVSS ? On the ground that there is violation of principles of natural justice, on the view that the interpretation placed by the respondent in respect of the order passed by the Commissioner (Appeal), and proceedings being not in conformity with the KVSS, the proceedings impugned are set aside and the matter is remitted back to the respondent for de novo consideration. It is needless to add that the respondent shall afford necessary opportunity and also take into consideration the developments if any which have taken place before the crucial date which is relevant under the Kar Vivad Samadhan Scheme 1998, and thereafter pass orders according to law. The points (A), (B) and (C) are answered as above.

Summary

Issues Involved:

1. Non-application of mind and arbitrariness in the order.
2. Violation of principles of natural justice.
3. Inclusion of tax liability for disputed items remanded for de novo consideration.

Issue-wise Detailed Analysis:

1. Non-application of Mind and Arbitrariness in the Order:

The petitioner challenged the respondent's determination of tax arrears under the Kar Vivad Samadhan Scheme (KVSS) for the assessment years 1992-93, 1993-94, and 1994-95. The respondent issued a certificate in Form No. 2A demanding tax amounts that the petitioner contended were arbitrarily fixed. The petitioner argued that the respondent should have considered only the tax arrears mentioned in Form No. 1A and that the respondent's failure to provide reasons or an opportunity to the petitioner before fixing the arrears was arbitrary. The court found that the respondent's proceedings, particularly the inclusion of disputed items set aside by the appellate authority and remanded for fresh consideration, were based on a misconception of the KVSS provisions.

2. Violation of Principles of Natural Justice:

The court emphasized that the respondent failed to afford the petitioner an opportunity of hearing before passing the order and issuing Form No. 2A. The principles of natural justice necessitate that when a burden to pay additional tax liability is imposed, the affected party must be given an opportunity to be heard and provided with the materials justifying such imposition. The court held that the principles of natural justice should be read into the provisions of the KVSS, and the lack of an effective opportunity of hearing rendered the respondent's order vitiated.

3. Inclusion of Tax Liability for Disputed Items Remanded for De Novo Consideration:

The appellate authority had set aside the additions made by the assessing officer for items (ii) and (iii) and remanded the matter for fresh consideration. The court noted that till fresh proceedings are passed by the assessing officer, it cannot be stated that there is a disputed tax liability that could be settled under the KVSS. The definition of "disputed tax" under Clause 87(f) and "tax arrears" under Clause 87(m) of the KVSS requires a determined and payable tax amount. Since the appellate authority had set aside the additions, there was no determination or assessment available for those items on the crucial date. Therefore, including these items as disputed tax under the KVSS was incorrect.

Judgment:

The court set aside the respondent's proceedings dated May 12, 1999, for being arbitrary, violative of the principles of natural justice, and not in conformity with the KVSS provisions. The matter was remitted back to the respondent for de novo consideration, with instructions to afford the petitioner an opportunity of hearing and to consider any developments relevant under the KVSS before passing fresh orders. The writ petition was allowed, and the connected WMP was closed. Each party was ordered to bear their respective costs.