2024 (12) TMI 1179 - HC - Income Tax

Validity of orders passed by the Local committee on High Pitched Scrutiny Assessment - violation of principles of natural justice as an opportunity of personal hearing was not granted by the said Committee - HELD THAT - Local Committee can administratively advice the Principal Commissioner of the Income Tax concerned to prevent any cohersive recovery in cases where it had identified such assessments to be high pitched. There has been a depature in placing the said Report before the Appellate Authority under the old instructions, where such Reports were to be placed before the Appellate Authority to curb the litigations. The same has been left out under the amended instructions. The amended instructions stops with sharing the Report with the Appellate Authority namely the National Faceless Assessment Center. It should be noted that both the instructions in clear terms envisaged that the Local Committees should not be treated as alternative forum of disputes resolution/ appeallate proceedings. A reading of the said instructions would clearly indicate that the constitution of Local Committees was to curb unnecessary assessment orders which are made high Pitched by the Assessing Officer/ Assessing Units. Report of the Local Committee shall not be binding on the Appellate Authorities/ Revisional Authorities. It is also to be noted that it is on the discretion of the Principal Chief Commissioner of Income Tax to take any departmental action based on that Report. There is no instructions for giving an opportunity of hearing by the Local Committee. The Local Committee being neither a quasi judicial authority or a statutory authority is not bound to give an opportunity of hearing to the grieving tax payer. It is primarily an internal mechanism only to curb the high Pitched assessment without any reasons or in violation of law or principles of natural justice. A learned Single Judge of this Court in 2019 (9) TMI 614 - MADRAS HIGH COURT had categorically held that the mechanism provided in constitution of the Local Committee is not in lieu of appellate remedy and that the contentions and the rights of the assessees before the Appellate Authorities can very well be decided by the Appellate Authority not withstanding the fact that the Local Committee had decided otherwise. The learned Judge had also held that the rejection of the petitioner's complaint before the Local Committee will not prejudice the right of the assessee to persue his appellate remedy by raising all grounds available to him. A Division Bench of the Punjab and Haryana High Court in the case of Liberty Shows Ltd., vs. Ld., Chairman Central Board of Direct Taxes 2024 (10) TMI 778 - PUNJAB AND HARYANA HIGH COURT had held that there is no necessity for granting an opportunity of hearing to an assessee by the Local Committee as there is no provisions laid down in the SOP. The Act itself envisages that an opportunity of hearing ought to have been given by the Assessing Authority before passing orders of assessment. Similarly, the judgment made in 2024 (9) TMI 1672 - MADRAS HIGH COURT it could be seen that the learned Single Judge had not dealt with the submissions made by the petitioner as in that case, the petitioner himself had submitted that it could be suffice to issue necessary directions to the Appellate Authority to consider the petitioners appeal within a time bound manner. Law envisaged by the learned Single Judge of this Court and the Division Bench of the Punjab and Haryana High Court, no merits in the contentions raised by the petitioner.

Summary

Issues Involved:

1. Violation of principles of natural justice due to lack of personal hearing.
2. Legitimacy and function of the Local Committee in High Pitched Scrutiny Assessment.
3. Applicability of the Local Committee's findings on the Appellate Authority.
4. Maintainability of a writ petition against the Local Committee's findings.

Detailed Analysis:

1. Violation of Principles of Natural Justice:

The petitioner challenged the orders passed by the Local Committee on the grounds of violation of principles of natural justice, as no opportunity for a personal hearing was granted. The petitioner argued that the assessment was based on information obtained without their knowledge, and the lack of a hearing severely prejudiced their case. The petitioner relied on precedents from the Allahabad High Court and a Single Judge of the Madras High Court, asserting that an opportunity for a personal hearing is mandatory before the Assessing Authority. However, the court found that the Local Committee is neither a quasi-judicial nor a statutory authority, and therefore, it is not bound to provide a hearing to the taxpayer. The court concluded that the Local Committee's function is primarily an internal mechanism to curb high-pitched assessments, and thus, the absence of a hearing does not constitute a violation of natural justice.

2. Legitimacy and Function of the Local Committee:

The Local Committee was constituted to address taxpayer grievances regarding high-pitched assessments. Initially established by instructions dated 09.11.2015 and later superseded by instructions on 23.04.2022, the Local Committee's role is to review grievances and determine if an assessment is high-pitched. If so, the Principal Chief Commissioner of Income Tax may take administrative action. The court emphasized that the Local Committee is not an alternative to appellate proceedings and is meant to check the Assessing Officer's conduct, ensuring assessments are fair and reasonable. The Local Committee's findings are not binding on the Appellate Authority, as it serves as an internal mechanism without the power to resolve disputes or provide appellate relief.

3. Applicability of the Local Committee's Findings on the Appellate Authority:

The court clarified that the Local Committee's findings are not binding on the Appellate Authority. The Appellate Authority, as a fact-finding body, is responsible for independently considering the merits of a case, regardless of the Local Committee's conclusions. The court referenced a Single Judge decision, which stated that the rejection of a complaint by the Local Committee does not prejudice an assessee's right to pursue an appeal. The court also noted that the amended instructions removed the requirement to present the Local Committee's report before the Appellate Authority, reinforcing that the Local Committee's role is not to influence appellate proceedings.

4. Maintainability of a Writ Petition Against the Local Committee's Findings:

The court addressed the maintainability of a writ petition against the Local Committee's findings, concluding that such a petition is not maintainable. The Local Committee's findings do not have a binding effect on the Appellate Authority or the Department, and its primary purpose is to prevent high-pitched assessments. The court referenced a Division Bench decision from the Punjab and Haryana High Court, which held that there is no requirement for the Local Committee to provide a hearing, as no such provision exists in the Standard Operating Procedure (SOP). Consequently, the petitioner's claim for a hearing by the Local Committee was deemed without basis.

Conclusion:

The court dismissed the writ petitions, finding no merit in the petitioner's contentions. The court reiterated that the Local Committee's role is not to serve as an appellate or dispute resolution forum but as an internal mechanism to ensure fair assessment practices. The absence of a hearing by the Local Committee does not violate principles of natural justice, and the findings of the Local Committee do not bind the Appellate Authority. The court concluded that the petitioner's rights to pursue appellate remedies remain unaffected by the Local Committee's decisions.