Allahabad HC imposes costs of Rs. 10K on errant Revenue Officer for contravening natural justice

While hearing a matter involving the exercise of Revisionary Powers of the Commissioner of Income Tax, as provided under Section 263 of the Income Tax Act 1961, the High Court of Allahabad observed that an authority could not ‘blow hot and cold’ at the same time, while referring to completely contradictory findings recorded within the same order, and on account of which, the High Court proceeded to quash the same.

Further observing that the Appellant-Assessee had not been granted an opportunity of personal hearing or any opportunity to present submissions, leading to the Principles of Natural Justice getting contravened, the High Court proceeded to impose costs to the tune of Rs 10000/-, recoverable from the errant officer.

A Single Judge Bench of Justice Piyush Aggarwal noted how in the impugned order, one paragraph mentioned that the assessee had not submitted any reply in response to the notice under Section 263, whereas the next paragraph mentioned that the notice under Section 263 had been served to the Appellant-Assessee and in respect of which, the Assessee had furnished a reply and that said reply had been examined by the officer concerned before passing the impugned order. (Paras 13 – 15)

The Bench observed – “…Once the respondent – authority himself records that no response has been filed in pursuance of the notice under section 263 of the Income Tax Act dated 27.03.2022, a contrary finding, as recorded in paragraph no. 5 of the impugned order, cannot be accepted in the eyes of law…”.

The Appellant was represented by Mr. Amit Mahajan, Advocate, whereas the Respondent was represented by Mr Gaurav Mahajan, Advocate.

The facts of the matter, in brief, are that the Appellant-Assessee had filed Income Tax Returns for the relevant period, declaring income of about Rs 53 Lakhs. Its return was picked up through the Computer Aided Scrutiny Assessment (CASS) system and subsequently, the Assessing Officer accepted the income declared by the Assessee. Subsequently, jurisdictional Commissioner of Income Tax issued notice to the Assessee, proposing to exercise power of revision vested vide Section 263 of the Act, on account of the original assessment order as passed by the AO, being erroneous as well as prejudicial to Revenue’s interests.

On hearing the contentions of both sides, the Bench went on to observe that – “…Further, the notice under section 263 dated 27.03.2022 was prepared and uploaded/sent on 28.03.2022 and the same was 7 received on the date fixed, i.e., 29.03.2022 and the impugned order dated 31.03.2022 has been passed in gross violation of the principles of natural justice….”.

The Bench observed there to be a gross contravention of the rules of natural justice, considering how the various stages of the proceedings, such as preparation of Show Cause Notice, despatch of the notice, its receipt by the Assessee and the passing of the revisionary order, were separated by only a single day for each stage, thus leaving the Assessee with barely any time to prepare reply to the notice or prepare for personal hearing. (Para 18)

As the order contravened the principles of natural justice, the Bench was satisfied that the order warranted being set aside.

Moreover, the Bench observed that the order did not contain any finding to show as to how the original assessment order, as passed by the AO, was prejudicial to the Revenue’s interests. (Para 19)

Therefore, the Court directed that the revisionary order passed under Section 263 be set aside on account of the fallacies contained therein and directed that the matter be listed for hearing in three months’ time.

Cause Title: M/S M.L. Chains Vs Pr. Commissioner of Income Tax and Anr. [WRIT TAX No. – 638 of 2022 / 2023-Enterslice-3-HC-All-IT]

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M.L.-Chains-Vs-Pr.-Commissioner-of-Income-Tax-and-Anr