Income tax officers frequently violate principles of natural justice: Allahabad High Court

The Allahabad High Court criticized the tax authorities for frequently violating the principles of natural justice. The Court ruled that the harassment of assessees and the violation of the principles of natural justice by income tax officers got out of control because of the lack of an effective system to hold offending officers accountable.

The Bench of Justices Surya Prakash Kesarwani and Jayant Banerji ordered the Central Board of Direct Taxes (CBDT) to take steps to address deficiencies in the computerization system it controls and to develop a system of accountability among officers and employees culprits of the tax administration. department.

The Income Tax Authority has issued a notice under Section 148A(b) of the Income Tax Act 1961 to the assessed Nabco Products Private Limited. A 148A(d) order was issued on the basis that no response had been submitted by the assessee to the notice given to him. Subsequently, the Income Tax Administration issued a notice under Section 148 of the Income Tax Act. Against this, the assessee filed a petition for an injunction in the Allahabad High Court.

Section 148A of the Income Tax Act provides that the assessment officer is required to make an inquiry and give an opportunity to hear the assessed person before issuing an opinion under the Section 148. Section 148 provides for the issuance of a notice by the assessment officer where the income of the person being assessed has escaped assessment.

Assessed person Nabco Products Private Limited told the High Court that it had submitted a response to the notice issued under Section 148A(b) of the Income Tax Act on 22.03.2022. However, the assessee claimed that the Revenue Department passed a 148A(d) order, dated 2022-03-30, on the basis that no response was submitted by the assessee.

The Court observed that the assessee subsequently filed a request for rectification of error under Section 154 of the Income Tax Act, which was denied by the Department of Revenue on the grounds that the assessee had not filed a response to the Section 148A notice. (b).

The High Court held that the order made by the Revenue Department under Section 148A(d), disregarding the assessee’s response, and the dismissal of the application for rectification of error submitted by assessed under Section 154 of the Income Tax Act, was arbitrary and in flagrant violation of the principles of natural justice.

Noting that the Revenue Department often cites a problem with the computerization system as an excuse, the High Court ruled that since the computerization system is introduced and implemented by the revenue authorities, it is their prime duty to immediately remedy any deficiencies in the system. The Court added that the assessee cannot be allowed to suffer and be harassed for the mistakes made by the tax authorities.

Observing that the courts are frequently confronted with cases where income tax authorities violate the principles of natural justice, the Court held that the harassment caused to assessees and the violation of the principles of natural justice by income tax result in a situation.

“The current situation clearly reflects that in the absence of any effective system of holding offending officers accountable, the harassment of assessees and officers’ violation of the principles of natural justice results in an unchecked situation. The practice of frequent violation of principles of natural justice, disregarding the responses of the appraisees under one pretext or another or rejecting them with one or two line orders without recording the reasons for rejection, gradually increases what must be taken care of immediately by respondents at the highest level, otherwise The current situation of arbitrary approach and violation of the principles of natural justice may not only negatively affect assessees who pay revenue to the government, but may also develop a perception among people/ assessees that it is difficult to obtain justice from authorities through legal procedures.” , the court said.

The Court thus quashed the order issued by the tax administration under Section 148 A (d) and Section 154 of the Income Tax Act, as well as the opinion issued under of Section 148, while granting him the freedom to issue a new order under Section 148A(d) after providing a reasonable opportunity for a hearing to the person being assessed. The Court ordered the Central Board of Direct Taxes (CBDT) to take measures to remedy the shortcomings of the computerization system and to develop a system of accountability for agents and employees at fault.

Additionally, the High Court imposed a cost of Rs. 50,000 on the revenue authorities, with an instruction to pay the cost as assessed within two weeks.

Title of Case: Nabco Products Private Limited v Union of India and Ors.

Date: 3.8.2022 (Allahabad High Court)

Applicant/Appraised Counsel: Abhinav Mehrotra, Satya Vrata Mehrotra

Counsel for the defendant/Directorate of Revenue: ASGI, Gaurav Mahajan

Click here to read/download the order

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