2021 (12) TMI 1217 - HC - Income Tax

Revision u/s 263 by CIT - Violation of principles of natural justice - no opportunity of hearing to the assessee given - HELD THAT - The procedure followed by the Principal Commissioner in passing the impugned order without giving an opportunity of hearing to the assessee is in clear violation of Section 263 of the IT Act and in breach of principles of natural justice. Thus, on this score alone, we allow this Writ Petition by setting-aside the impugned orders and remand the matters before the Principal Commissioner of Income-Tax (Central), Visakhapatnam, who is directed to give an opportunity of hearing to the assessee and pass appropriate orders in accordance with law. Such exercise shall be concluded within three (3) months from the date of communication of this order and the assessee shall not seek un-necessary adjournment in the matter. We further make it clear that we have not expressed any opinion with regard to merits of the case, which is kept open to be decided by the respondent-Principal Commissioner, independently

Summary

Issues:
Challenge to order passed under Section 263 of the Income Tax Act, 1961 for lack of pre-decisional hearing to the assessee.

Analysis:
In this case, the petitioner challenged the order passed by the Principal Commissioner of Income-Tax directing a redo of assessment under Section 263 of the IT Act. The petitioner contended that no pre-decisional hearing was provided, which is mandated by law. The respondent argued that the Assessing Officer's orders were erroneous for not following CBDT directions, justifying the revision without a pre-decisional hearing. The court noted that Section 263 empowers the Principal Commissioner to revise orders if found erroneous and prejudicial to revenue, but a pre-decisional hearing for the assessee is essential. The court found that the Principal Commissioner did not grant a pre-decisional hearing due to the pandemic and proceeded to redo the assessment, violating the law.

The respondent argued that the assessee would have an opportunity to present their case during the assessment proceedings, but the court disagreed. The court held that a post-decisional hearing before the Assessing Officer cannot substitute a pre-decisional hearing before the Principal Commissioner. The court emphasized that the right to a hearing is fundamental, and failure to provide it breaches natural justice principles. Citing precedent, the court highlighted that lack of opportunity for hearing renders the revisional order legally fragile. Therefore, the court concluded that the Principal Commissioner's actions violated Section 263 and principles of natural justice, setting aside the impugned orders and remanding the matter for a proper hearing and lawful decision within three months.

In conclusion, the court's judgment focused on the importance of a pre-decisional hearing for the assessee under Section 263 of the IT Act. The court emphasized that the failure to provide such an opportunity violates natural justice principles, rendering the revisional order legally fragile. The court set aside the impugned orders and directed the Principal Commissioner to grant a proper hearing to the assessee and make decisions in accordance with the law within a specified timeframe, without expressing any opinion on the case's merits.