2022 (8) TMI 806 - HC - Income Tax

Reopening of assessment u/s 147 - information has been received that the petitioner has deposited a sum in its bank account which is undisclosed income and escaped assessment to tax - Allegation of breach of principles of natural justice - HELD THAT - Natural justice has been variously defined by different Judges, for instance a duty to act fairly, the substantial requirements of justice, the natural sense of what is right and wrong, fundamental justice and fair-play in action. Over the years by a process of judicial interpretation two rules have been evolved as representing the principles of natural justice in judicial process, including therein quasi-judicial and administrative process. They constitute the basic elements of a fair hearing, having their roots in the innate sense of man for fair-play and justice which is not the preserve of any particular race or country but is shared in common by all men. The first rule is nemo judex in causa sua' or nemo debet esse judex in propria causa sua' that is no man shall be a judge in his own cause. The second rule is audi alteram partem', that is, hear the other side'. A corollary has been deduced from the above two rules and particularly the audi alteram partem rule i.e. 'he who shall decide anything without the other side having been heard, although he may have said what is right, will not have been what is right' or in other words, as it is now expressed, justice should not only be done but should manifestly be seen to be done'. Natural justice is the essence of fair adjudication, deeply rooted in tradition and conscience, to be ranked as fundamental. The purpose of following the principles of natural justice is the prevention of miscarriage of justice. Order without valid reasons - unsustainable - In the present set of facts, we find that despite that material disclosed by the assessee before the respondent Nos.2 and 4 and despite specific stand taken by him that he has not deposited any cash amount in his bank account with Bank of Baroda what to say of Rs.13,67,24,000/-, the aforesaid respondents have neither considered the objection/ reply nor recorded any reasons for its rejection. Thus, right to reason which is an indispensable part of a judicial system, has been deliberately violated by the respondents. Objection as to alternative remedy of appeal - Objection raised by the learned senior standing counsel for the respondent Nos.2, 3 and 4 regarding maintainability of the writ petition on the ground of alternative remedy, is not tenable on the facts of the present case. In the present set of facts, in the absence of any valid information for invoking jurisdiction under Section 147/ 148 of the Act, 1961, the entire proceedings are without jurisdiction. Alternative remedy when not bar? - Article 226 of the Constitution of India confers very vide powers on High Courts to issue writs but this power is discretionary and the High Court may refuse to exercise the discretion if it is satisfied that the aggrieved person has adequate or suitable remedy elsewhere. It is a rule of discretion and not rule of compulsion or the rule of law. Even though there may be an alternative remedy, yet the High Court may entertain a writ petition depending upon the facts of each case. It is neither possible nor desirable to lay down inflexible rule to be applied rigidly for entertaining a writ petition. No Factual Dispute - We find that there is no factual dispute involved in the present writ petition that the information which was made basis for recording reasons to believe for escapement of income of the petitioner to tax, was unfounded and the cash deposit which has been shown by the petitioner in its bank account with Union Bank of India has not been disputed at all. That apart, the original assessment of the petitioner was made under Section 143(3) of the Act, 1961 in which Form 26AS as it existed at all relevant point of time, reflects the cash deposit by the petitioner in the Union Bank of India amounting to Rs.3,41,81,000/- which the petitioner assessee has always admitted and has shown in its books of accounts and a copy of statement of deposit was also filed by the petitioner before the respnodent No.4 during reassessment proceedings but arbitrarily the respondent No.4 baselessly assumed cash deposit in the bank account with Bank of Baroda amounting to Rs.13,67,24,000/- whereas as per bank statement of Bank of Baroda, there was no cash deposit. Abuse of Power - It is settled law that if a public functionary acts maliciously or oppressively and the exercise of power results in harassment and agony then it is not an exercise of power but its abuse. No law provides protection against it. Harassment by public authorities is socially abhorring and legally impermissible which causes more serious injury to society. In modern society no authority can arrogate to itself the power to act in a manner which is arbitrary. In a recent judgment in NABCO PRODUCTS PRIVATE LIMITED 2022 (8) TMI 692 - ALLAHABAD HIGH COURT this Court noticing increasing tendency amongst Assessing Officers, particularly the respondent No.4, i.e. National Faceless Assessment Centre to violate principles of natural justice, non-consideration of replies of assessees under one pretext or the other or rejecting it without recording reasons for rejection and thus expressed the need for evolving an effective system of accountability of erreing officers. Whether complete go-bye to Quashi-Judicial Function provided under the Act, 1961 ? - From the stands taken by the respondent No.1 in the aforequoted paragraphs 7, 8 and 9 of the counter affidavit, it is evident that all settled principles of law, duty to discharge quasi-judicial function and observance of statutory provisions of the Act, 1961 have been given complete go-bye and participation of assessees in proceedings under Section 148A or 148 or 147 of the Act, 1961 would remain an empty formality, inasmuch as the Assessing Officer would create liability on assessees only on the basis of data fed in the data base/ portal of the department and would not like to adjudicate the matter in accordance with law so as to take risk of initiation of disciplinary proceedings against himself. By no stretch of imagination or the provisions of the Constitution or the law evolved so far by judicial decisions, the stand so taken by the respondent No.1 in paragraphs 7 and 8 of the counter affidavit can be justified or conceived. It appears that either the deponent of the aforesaid counter affidavit namely Sri Shishir Kuamr Jha, Principal Chief Commissioner of Income Tax, U.P. (West) and Uttarakhand Region at Kanpur has stated the real state of affairs prevailing in the income tax department or has shown extreme negligence while making statement on oath on record in paragraphs 7 and 8 of the aforeaid counter affidavit. Quasi-Judicial Function - In Commissioner of Income Tax, Shimla vs. Greenworld Corporation Parwanoo 2009 (5) TMI 14 - SUPREME COURT Hon ble Supreme Court held that an order passed by quasi-judicial authorities on the dictates of the higher authority is illegal and being without jurisdiction, is a nullity. Hon ble Supreme Court further held that an Income Tax Officer while passing an order of assessment, performs a quasi-judicial function. Hon ble Supreme Court further held that it is one thing to say that while making the orders of assessment the Assessing Officer shall be bound by the statutory circulars issued by CBDT but it is another thing to say that the assessing authority exercising quasi-judicial function keeping in view the scheme contained in the Act, would lose its independence to pass an independent order of assessment. If the Assessing Officer passes an order at the instance or dictate of the higher authority, it shall be illegal. The stand so taken by the respondent No.1 in paragraphs-7 and 8 of the counter affidavit deserves to be rejected and is hereby rejected and it is directed that the respondent No.1 or other authorities under the Act, 1961 shall not interfere with the quasijudicial function and discharge of statutory duties by the Assessing Officers unless permitted by the Act, 1961. Let a circular be issued by the respondent No.1 forthwith clarifying the position. Accountability - 'Sovereignty' and acts of State are two different concepts. The former vests in a person or body which is independent and supreme both externally and internally whereas latter may be act done by a delegate of sovereign within the limits of power vested in him. No civilised system can permit an executive to play with the people of its country and claim that it is entitled to act in any manner as it is sovereign. No legal or political system today can place the State above law as it is unjust and unfair for a citizen to be deprived of his property illegally by negligent act of officers of the State. The need of the State to have extraordinary powers cannot be doubted. But with the conceptual change of statutory power being statutory duty for sake of society and the people the claim of a common man or ordinary citizen cannot be thrown out merely because it was done by an officer of the State even though it was against law and negligent. Needs of the State, duty of its officials and right of the citizens are required to be reconciled so that the rule of law in a Welfare State is not shaken. The practice of frequently violating principles of natural justice, non consideration of replies of assessees under one pretext or the other or rejecting it with one or two lines orders without recording reasons for rejection, is gradually increasing which needs to be taken care of immediately by the respondents at the highest level, otherwise prevailing situation of arbitrary approach and breach of principles of natural justice may not only adversely affect the assessees who pay revenue to the Government, but also may develop a perception amongst people/assessees that it is difficult to get justice from the authorities in statutory proceedings. Imposition of Cost - The respondents have acted arbitrarily, illegally without jurisdiction, caused harrassment to the petitioner and abused power conferred under the Act, 1961, which resulted in creation of illegal demand of income Tax of Rs.16,90,61,731/-, we find it a fit case to impose cost of Rs.50,00,000/- (Rupees Fifty Lakhs) upon the respondents which shall be deposited by the respondents in the Prime Minister National Relief Fund within three weeks from today. Writ petition is allowed with cost of Rs.50,00,000/- on the respondents, which shall be disposited in Prime Minister National Relief Fund within three weeks from today.

Summary

Issues Involved:
1. Validity of the notice issued under Section 148 of the Income Tax Act.
2. Validity of the Re-assessment Order for the Assessment Year 2017-18.
3. Constitutionality of the amendment to the Income Tax Act, 1961, omitting Sub-Section 9 of Section 144B.
4. Validity of the order issued under Section 151 of the Income Tax Act.

Issue-wise Analysis:

1. Validity of the Notice Issued Under Section 148 of the Income Tax Act:
The petitioner challenged the notice dated 31.03.2021 issued under Section 148 of the Income Tax Act, alleging that the information on which the notice was based was incorrect. The petitioner argued that no cash deposit of Rs.13,67,24,000/- was made in the Bank of Baroda as claimed by the respondents. The Court found that the reason to believe for initiating proceedings was unfounded and false, as the actual cash deposit was Rs.3,41,81,000/- in Union Bank of India, not Bank of Baroda. The Court held that the initiation of proceedings and the reassessment order were examples of highhandedness, arbitrary actions, and abuse of power by the respondents.

2. Validity of the Re-assessment Order for the Assessment Year 2017-18:
The petitioner argued that the reassessment order dated 31.03.2022 was made in gross violation of law and principles of natural justice. The Court found that the respondents did not consider the petitioner's objections or the evidence provided. The reassessment order was passed without any discussion or reference to evidence regarding the alleged cash deposit. The Court concluded that the reassessment order was passed in complete breach of principles of natural justice and was arbitrary and illegal.

3. Constitutionality of the Amendment to the Income Tax Act, 1961:
The petitioner initially sought a declaration that the amendment to the Income Tax Act, 1961, omitting Sub-Section 9 of Section 144B, was unconstitutional. However, this relief was not pressed by the petitioner's counsel and was subsequently deleted from the petition.

4. Validity of the Order Issued Under Section 151 of the Income Tax Act:
The petitioner also challenged the order dated 30.03.2021 issued under Section 151 of the Income Tax Act. The Court found that the information on which the order was based was incorrect and that the entire proceedings under Section 147/148 were without jurisdiction. The Court emphasized that the respondents acted arbitrarily and abused their power, leading to the initiation of reassessment proceedings based on false information.

Key Findings and Directions:
1. The Court found that the reassessment proceedings were initiated on false information and were without jurisdiction.
2. The Court emphasized the need for accountability of the officers who fail to observe statutory provisions or act in breach of principles of natural justice.
3. The Court directed the respondents to develop and implement a mechanism within one month to ensure that information fed into the department's database is verified and accurate.
4. The Court imposed a cost of Rs.50,00,000/- on the respondents to be deposited in the Prime Minister National Relief Fund within three weeks.
5. The Court directed the issuance of a circular clarifying that the quasi-judicial function of Assessing Officers should not be interfered with by higher authorities unless permitted by the Act.

Conclusion:
The writ petition was allowed with costs, and the impugned notice, order rejecting objections, and reassessment order were quashed. The Court issued several directions to ensure accountability and prevent harassment of assessees due to departmental errors.