Allahabad High Court Imposes Fine on Income Tax Officer for Violating Principles of Natural Justice

Allahabad High Court Imposes Fine on Income Tax Officer for Violating Principles of Natural Justice

Orders him to deposit Rs.10,000 with the Legal Services Committee

The Allahabad High Court has imposed a penalty on an erring officer of the Income Tax Department for violating the principles of natural justice.

A bench comprising Justice Piyush Agrawal canceled the Assessment Order and initiated fresh proceedings under Section 263 of the Income Tax Act, 1961.

The assessment of the petitioner was completed under Section 143(3) of the IT Act. Thereafter, a notice under Section 263 (Revision of order pre-judicial to revenue) was issued by the Principal Commissioner Of Income Tax (PCIT). This was on the ground that the petitioner was selected under Computer Aided Scrutiny Selection (CASS).

Accordingly, the PCIT cancelled the assessment order passed by the earlier assessing authority. He held that the order was erroneous and prejudicial to the interest of the revenue department. The assessing authority was then directed to pass fresh orders.

The counsel for the petitioner contended that the impugned order was passed merely based on a change of opinion and in violation of the principles of natural justice. The procedure under Section 263 was not followed.

Also, the signature of the counsel before the PCIT differed on the manual order sheet and the affidavit. The petitioner submitted that its counsel was never given an opportunity to appear before PCIT. Since the notice was received on the last date of the submission of the reply, an adjournment application was filed, which was not considered. Thus, there was a gross violation of principles by PCIT.

However, denying any violation of principles of natural justice, the counsel for the IT department said that the petitioner submitted its reply to the department, the next day, which was considered while passing the impugned order. He added that since the order passed by the assessing authority was prejudicial to the interest of the revenue department, the proceedings under Section 263 were valid.

The bench noted that no orders were passed on the adjournment application and no explanation was given by the department for maintaining different order sheets – electronic, where the adjournment application was noted, and manual, where signatures of the counsel were made.

The Judges held, “The counsel for the petitioner has specifically denied the signature on the manual order sheet and has relied on the signature on the adjournment application (Annexure No. 5 to the writ petition), on perusal of which creates a doubt on two counts. First, the signatures are different. Second, there was no occasion for adopting two different modes of maintaining order sheets. This creates a serious doubt on the authority’s functioning.”

The bench observed the discrepancies in the impugned order, wherein in the preceding paragraph it was stated the petitioner did not submit any reply, and in the next, it mentioned considering the petitioner’s reply.

The Court stated, “Once the respondent authority records that no response was filed in pursuance of the 27.03.2022 notice under Section 263 of the IT Act, a contrary finding, as recorded in paragraph No. 5 of the impugned order, cannot be accepted.”

Relying on the top Court’s decision in the Whirlpool Corporation v. Registrar of Trade Marks, Mumbai case, the Judges held that there was clear violation of principles of natural justice as no opportunity was given to the petitioner for defending or presenting his case. It added that there was no mention of what prejudice was caused to the department in the Section 263 order.

Thus, Justice Agrawal quashed the impugned order and directed the revenue department’s officer to deposit Rs.10,000 with the Allahabad High Court Legal Services Committee.