2021 (10) TMI 1111 - HC - Income Tax

Deduction claimed u/s 80P(2)(d) - as argued reply filed by the petitioner was not even referred to, while passing the order of assessment - Petitioner contends that though an appeal is available u/s 246A of the Act, failure to consider the reply submitted by the petitioner amounts to violation of the principles of natural justice - HELD THAT - As rightly argued by the respondent, this Court will not interfere normally under Article 226 of the Constitution of India on orders of assessment issued by the assessing authorities. It is equally settled that when there is a violation of the principles of natural justice, this Court can step in, even against assessment orders, to avoid the unnecessary travails of an assessee, in pursuing the statutory remedies. In the instant case, Ext.P9 show cause notice was issued on 22.03.2021 directing the petitioner to show cause as to why the assessment should not be completed as per the draft assessment order. The response of the petitioner was also sought for in the said show-cause notice. Petitioner s response to Ext.P9 is produced as Ext.P10, wherein it has raised an objection of some substance, however brief it may be. Certain documents were also produced along with Ext.P10. However, while issuing the order of assessment, it is seen that there is no reference at all to the response submitted by the petitioner nor is there any consideration of the document produced along with Ext.P10. Whether the contentions raised by the petitioner in Ext.P10 or whether the document produced along with Ext.P10 may have a bearing upon the case is not a matter which this Court can go into at this stage. An order of assessment is the foundation on which the rights of the assessee depend upon. It is necessary that the assessing authority considers the objections filed by the petitioner especially when a show-cause notice in the form of Ext.P9 had been issued, eliciting the response of the petitioner. Failure to consider the said response offered by the petitioner in the facts of the case is a negation of the rights of natural justice. In the said view of the matter, I find that the order of assessment suffers from the infirmity of violation of the principles of natural justice and is liable to be set aside. Accordingly, set aside Ext.P11 assessment order dated 19-04-2021 issued by the respondent and direct the respondent to consider and pass fresh orders for the assessment year 2018-19, relating to the petitioner, after affording an opportunity of hearing to the petitioner, as expeditiously as possible.

Summary

Issues: Violation of principles of natural justice in assessment order under section 80P of the Income Tax Act, 1961.

Analysis:
1. The petitioner, a primary agricultural credit society, filed its return for the assessment year 2018-19 claiming deduction under section 80P of the Income Tax Act, 1961. Despite responding to notices under section 142(1) of the Act with appropriate replies, the petitioner alleged that its responses were not considered during the assessment process, leading to a violation of natural justice principles.

2. The respondent, Income Tax Department, initiated assessment proceedings by issuing notices under sections 143(2) and 142(1) of the Act. The petitioner provided clarifications and justifications for the claimed deduction under section 80P(2)(d) of the Act through various correspondences. However, the final assessment order disallowed the deduction without considering the petitioner's responses adequately.

3. During the hearing, the petitioner's counsel and the Standing Counsel for the respondent presented their arguments. The Standing Counsel contended that interference by the Court in assessment orders is not usual unless there is a breach of natural justice principles, allowing the Court to intervene to prevent unnecessary hardship to the assessee.

4. The Court acknowledged that while it generally refrains from interfering in assessment orders, it can step in if there is a violation of natural justice principles. In this case, the Court found that the assessing authority failed to consider the petitioner's objections and responses adequately, leading to a violation of natural justice.

5. The Court noted that the show-cause notice issued to the petitioner was not adequately addressed in the final assessment order. As the response submitted by the petitioner was not considered, the Court concluded that the assessment order was flawed due to the violation of natural justice principles. Consequently, the Court set aside the assessment order and directed the respondent to reconsider and pass fresh orders after giving the petitioner a proper opportunity of being heard within 60 days.

In conclusion, the High Court of Kerala ruled in favor of the petitioner, emphasizing the importance of adhering to natural justice principles in assessment proceedings under the Income Tax Act, 1961.