ANAVILASAM SERVICE CO-OPERATIVE BANK LIMITED vs. THE ASSISTANT COMMISSIONER OF INCOME TAX
What did the High Court hold?
The High Court held that while it would not normally interfere with assessment orders under Article 226 of the Constitution, it can intervene when there is a violation of the principles of natural justice. In this case, the Court found that the petitioner's response (Ext.P10) to the show-cause notice (Ext.P9), which was issued to elicit a response on the proposed disallowance of deduction under Section 80P(2)(d), was not considered in the final assessment order (Ext.P11). The Court noted that the petitioner had raised objections of substance and produced documents along with its response. The failure to consider this response and the accompanying documents was deemed a negation of the petitioner's right to natural justice. Therefore, the assessment order was set aside. The Court directed the respondent to pass fresh orders after affording an opportunity of hearing to the petitioner, within 60 days, without being influenced by the Court's observations.
What were the facts?
The petitioner, Anavilasm Service Co-operative Bank Limited, is a primary agricultural credit society. For Assessment Year 2018-19, it filed its return claiming deduction under Section 80P of the Income Tax Act, 1961. Despite filing replies to notices under Section 142(1) of the Act, the petitioner alleges that its response to a show-cause notice (Ext.P9) and accompanying documents were not considered before the final assessment order (Ext.P11) was passed. The respondent, Assistant Commissioner of Income Tax, initiated assessment proceedings, issued various notices and received replies from the assessee, including a response to a draft assessment order proposing disallowance of deduction under Section 80P(2)(d). The final assessment order disallowed this claim.
What were the issues?
1. Whether the assessment order dated 19.04.2021 (Ext.P11) issued by the respondent is vitiated by a violation of the principles of natural justice, specifically by failing to consider the petitioner's response (Ext.P10) to the show-cause notice (Ext.P9) and the documents filed therewith, thereby impacting the deduction claimed under Section 80P(2)(d) of the Income Tax Act, 1961? Assessee's Contention: The petitioner argues that the assessment order is bad in law as its reply to the show-cause notice and supporting documents were not considered, which amounts to a violation of natural justice. It contends that had its reply been considered, the assessment order might have been different. It also notes that while an appeal under Section 246A is available, the failure to consider its reply necessitates intervention by the High Court. Revenue's Contention: The respondent, through its statement, detailed the procedural steps taken, including the issuance of notices and the assessee's responses, and stated that the assessment was finalized after all these procedures.
Which sections of the Income-tax Act were involved?
Section 80P,Section 142(1),Section 143(2),Section 246A,Section 80P(2)(d)
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
JUDGMENT Petitioner is a primary agricultural credit society. As an assessee, petitioner had filed its return for the assessment year 2018-19 and claimed deduction under section 80P of the Income Tax Act, 1961 (for short ‘the Act’). Though petitioner was served with notices under section 142(1) of the Act and appropriate replies were filed to such notices, it is now complained that the reply filed by the petitioner was not even referred to, while passing the order of assessment. Petitioner further contends that though an appeal is available under section 246A of the Act, failure to consider the reply submitted by the petitioner amounts to violation of the principles of natural justice. It is also contended that had the reply of the petitioner been considered, the nature of the assessment order could have been different.
A statement has been filed on behalf of the WP(C) NO. 11960 OF 2021 3 respondent stating that the assessment proceedings were initiated by issue of Ext.P1 notice under section 143(2) of the Act, which was followed by a notice under section 142(1), which is produced as Ext.P3, in which several queries were raised and clarifications sought for, to which the assessee offered clarifications by Ext.P4. Another notice under section 142(1) of the Act was issued to the petitioner, which was responded to by Ext.P6 letter which was yet again followed by Ext.P7 notice under section 142(1) seeking further explanation on the deduction claimed under section 80P(2)(d) of the Act. Respondent has also mentioned in the statement that the assessee had responded to the aforesaid notice by Ext.P8 letter and attempted to justify the claim of deduction by producing a copy of the certificate from the Registrar of Co-operative Societies. According to the respondent, it is thereafter that the draft assessment order was issued where the disallowance of the claim under section 80P(2)(d) of the Act was proposed as per Ext.P9 to which Ext.P10 objection was filed by the assessee. It was after all these procedures
WP(C) NO. 11960 OF 2021 4 that the assessing officer finalised the assessment order by issuing Ext.P11 wherein the claim under section 80P(2)(d) of the Act was disallowed.
I have heard the arguments of Adv.Anil D. Nair, the learned counsel for the petitioner as well as Adv. Christopher Abraham, the learned Standing Counsel for the respondent.
As rightly argued by the learned Standing Counsel for the respondent, this Court will not interfere normally under Article 226 of the Constitution of India on orders of assessment issued by the assessing authorities. It is equally settled that when there is a violation of the principles of natural justice, this Court can step in, even against assessment orders, to avoid the unnecessary travails of an assessee, in pursuing the statutory remedies.
In the instant case, Ext.P9 show cause notice was issued on 22.03.2021 directing the petitioner to show cause as to why the assessment should not be completed as per the draft assessment order. The response of the petitioner was also sought for in the said show-cause notice. Petitioner’s
WP(C) NO. 11960 OF 2021 5 response to Ext.P9 is produced as Ext.P10, wherein it has raised an objection of some substance, however brief it may be. Certain documents were also produced along with Ext.P10. However, while issuing the order of assessment, it is seen that there is no reference at all to the response submitted by the petitioner nor is there any consideration of the document produced along with Ext.P10. Whether the contentions raised by the petitioner in Ext.P10 or whether the document produced along with Ext.P10 may have a bearing upon the case is not a matter which this Court can go into at this stage. An order of assessment is the foundation on which the rights of the assessee depend upon. It is necessary that the assessing authority considers the objections filed by the petitioner especially when a show- cause notice in the form of Ext.P9 had been issued, eliciting the response of the petitioner. Failure to consider the said response offered by the petitioner in the facts of the case is a negation of the rights of natural justice. In the said view of the matter, I find that the order of assessment suffers from WP(C) NO. 11960 OF 2021 6 the infirmity of violation of the principles of natural justice and is liable to be set aside. Accordingly, I set aside Ext.P11 assessment order dated 19-04-2021 issued by the respondent and direct the respondent to consider and pass fresh orders for the assessment year 2018-19, relating to the petitioner, after affording an opportunity of hearing to the petitioner, as expeditiously as possible, and untrammelled by any of the observations of this Court in this judgment. The decision as aforesaid shall be taken within an outer time limit of 60 days from today. The writ petition is allowed as above. BECHU KURIAN THOMAS JUDGE AJ/01.10.2021
WP(C) NO. 11960 OF 2021 7
Appendix — schedule of exhibits
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