2021 (8) TMI 570 - HC - Income Tax

Validity and scope of E-Proceeding facility introduced by the Income Tax Department - Single member bench of the HC granted relief to the assessee - Proper opportunity was not afforded to the department - addition made under Section 69A of the Act on the demonetized cash deposit by the respondent herein in the bank - HELD THAT - E-Proceeding does not foreclose the conduct of a physical hearing, but has circumscribed four conditions, on which, such hearing shall be conducted manually. In terms of Clause 5 of the Note, the assessee, who did not have e-filing account, were requested to get themselves registered. Admittedly, the respondent herein registered themselves and returns were filed through e-portal and the response to the notice u/s 142 of the Act was sent through the E-portal. It will be too late for the respondent herein now to state that all is not well with the E-Proceeding facility. There is nothing placed before us to show that the respondent herein assessee made a specific request in terms of paragraph 4 of the above Note stating that they require a physical hearing for a particular reason. In such circumstances, the sweeping observations and remarks are not called for especially when the system has been implemented and all the assessee through out the country have switched over from manual procedure to e-procedure. The Court can take judicial notice of the fact that all recruitments conducted by various specialized recruitment agencies as well as this Court have been accepting applications from candidates only as e-copies through e-portal and it has been many years since physical applications have been done away with. The e-filing of such applications for recruitment to various posts in this Court as well as the District Judiciary have made the process very transparent and user friendly. When such is the present state of affairs and when all persons have equipped themselves to handle such procedure, we feel that the observations made in paragraphs 15 and 17 of the impugned order are not required. Writ appeal is allowed and the impugned order passed in the said writ petition is set aside. All observations and findings regarding the effectiveness of the E-Governance implemented by the ITD are set aside. Likewise, the observations and findings rendered in the impugned order touching upon the merits of the assessment are also set aside.

Summary

Issues Involved:
1. Violation of principles of natural justice.
2. Non-application of mind in assessment.
3. Appropriateness of addition under Section 69A of the Income Tax Act.
4. Validity of E-Proceeding facility and its implications on the assessment process.

Issue-wise Detailed Analysis:

Violation of Principles of Natural Justice:
The respondent challenged the assessment order dated 27.12.2019, citing a violation of the principles of natural justice. The respondent argued that they were not given a fair opportunity to present their case, as the writ petition was heard and orders were reserved on the same day without allowing the appellant to file a counter affidavit. The High Court noted that when an effective alternate remedy is available under the statute, Writ Courts are generally slow in entertaining writ petitions under Article 226 of the Constitution of India. The Court emphasized that the respondent should have availed the appeal remedy provided under the Income Tax Act instead of bypassing it.

Non-application of Mind in Assessment:
The respondent contended that the assessment and demand were vitiated due to the Assessing Officer's total non-application of mind. The Court observed that such grounds, involving factual matrix, require thorough adjudication, which cannot be done by a Writ Court. The assessment order was challenged on the basis that the Assessing Officer did not consider the detailed explanations and documents provided by the respondent, including cash collections from subscribers and reconciliation statements.

Appropriateness of Addition under Section 69A:
The respondent argued that the addition made under Section 69A of the Act, concerning demonetized cash deposits, was erroneous. The respondent claimed that the cash deposits were from legitimate business activities under the Chit Funds Act and were supported by reconciliation statements. The High Court found that the learned Single Judge had made observations on the merits of the case, which should not have been done in a writ proceeding. The Court emphasized that the Assessing Officer should independently decide the issue without being influenced by the Court's observations.

Validity of E-Proceeding Facility:
The learned Single Judge had commented on the efficacy and efficiency of the E-Proceeding facility introduced by the Income Tax Department. The High Court noted that the respondent did not challenge the E-Proceeding facility itself but only the assessment order. The Court found that the observations regarding the E-Proceeding facility were unwarranted and needed to be eschewed. The Court highlighted that the E-Proceeding facility allows for seamless communication between the Department and the assessee, and physical hearings can still be conducted under specific conditions. The Court concluded that the respondent had registered for e-filing and responded to notices through the e-portal, making it inappropriate to challenge the E-Proceeding facility at this stage.

Conclusion:
The High Court allowed the writ appeal, setting aside the impugned order passed in the writ petition. All observations and findings regarding the effectiveness of the E-Governance implemented by the Income Tax Department were set aside. The Court also set aside the observations and findings touching upon the merits of the assessment. The respondent was granted liberty to file an appeal before the First Appellate Authority against the assessment order dated 27.12.2019 within four weeks from the date of receipt of the judgment. If the appeal is filed within this period, the First Appellate Authority shall exclude the period from 23.1.2020 till the date of filing of the appeal while computing the limitation. If the respondent fails to avail this opportunity within the stipulated period, the benefit of this order will not enure to the respondent.