2025 (1) TMI 1355 - HC - Income Tax

Validity of order passed by ITAT in breach of principles of natural justice - impugned order was admittedly made without hearing the Petitioners - only issue involved imposing a penalty on such additions - HELD THAT - Though we agree with respondent that the Appellants should have pursued the matter given the peculiar facts of this case the argument made on their behalf is not entirely unreasonable. Besides the argument on the disproportionality of the proposed action could not be advanced. Appellants may not have contested the additions. Still that does not mean that the penalty has to be imposed automatically once there is no contest. In any event given the peculiar facts of this case the appellants should be given an opportunity to hear and attempt to convince the tribunal that no penalty or reduced penalties ought to have been imposed in these matters. Based on instructions appellants has offered to pay a consolidated cost of Rs 1, 50, 000/-. Based on this the learned Counsel has urged that the interest of justice would be met if an additional opportunity is granted to the Appellants to argue the matter before the tribunal. After considering the above circumstances and the peculiar facts of this case we agree that the interest of justice would be met if the appellants were granted an additional opportunity to argue the matter before the tribunal.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issue considered in this judgment was whether the Appellate Tribunal's order dated 31 March 2017 was passed in breach of the principles of natural justice. This issue arose from the appellants' claim that they were not given an opportunity to be heard before the order was made, which they argued constituted a violation of natural justice.

ISSUE-WISE DETAILED ANALYSIS

1. Breach of Principles of Natural Justice

Relevant Legal Framework and Precedents: The principles of natural justice require that parties affected by a decision be given a fair opportunity to present their case. This includes the right to be heard and the right to receive notice of proceedings. The breach of these principles can render a decision void or subject to being set aside.

Court's Interpretation and Reasoning: The Court noted that the impugned order was made without the appellants being heard. The appellants argued that they were not informed of the hearing date, despite filing an application for consolidation of appeals. The Court recognized that the appellants had not been given notice of the hearing, which was a critical factor in determining whether natural justice was observed.

Key Evidence and Findings: The records indicated that the appellants had filed an application on 19 October 2016 seeking consolidation of appeals, but neither received a response nor were informed of a new hearing date. The order sheet showed that the appeals were consolidated and a hearing was scheduled for 22 December 2016, but no notice was served to the appellants or their counsel. Consequently, they were unaware of the proceedings and could not attend.

Application of Law to Facts: The Court applied the principles of natural justice to the facts of the case, concluding that the appellants were not given a fair opportunity to be heard. The failure to notify the appellants of the hearing date constituted a breach of these principles.

Treatment of Competing Arguments: The respondent's counsel argued that the appellants had the responsibility to pursue the matter and that their failure to contest the additions justified the penalties. However, the Court found that the lack of notice was a significant procedural flaw that could not be overlooked, regardless of the appellants' actions.

Conclusions: The Court concluded that the appellants should be granted an opportunity to present their case before the tribunal, as the original decision was made in violation of natural justice. The Court set aside the impugned order and remanded the matter for fresh consideration.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: The Court stated, "The impugned orders dated 31 March 2017 are set aside, and the matter is remanded to the tribunal for fresh consideration in accordance with law and on its own merits."

Core Principles Established: The judgment reinforced the principle that decisions made without affording parties the opportunity to be heard are in breach of natural justice and can be set aside. The right to notice and the opportunity to be heard are fundamental components of fair legal proceedings.

Final Determinations on Each Issue: The Court determined that the appellants were entitled to a rehearing before the tribunal. The order was set aside, and the case was remanded for fresh consideration, subject to the appellants paying a consolidated cost of Rs 1,50,000/- to the Government KEM Hospital. The Court left the merits of the case open for determination by the tribunal, emphasizing that the decision to set aside the order was solely based on the procedural breach.