Latest Expert Exchange Queries

GST Demo Service software link:
Username: demouser Password: demopass
Get your inventory and invoicing software GST Ready from Binarysoft
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing | GST - Goods and Services Tax
Popular Search: Central Excise rule to resale the machines to a new company :: ARTICLES ON INPUT TAX CREDIT IN VAT :: VAT RATES :: ACCOUNTING STANDARDS :: TAX RATES - GOODS TAXABLE @ 4% :: empanelment :: cpt :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: TDS :: form 3cd :: list of goods taxed at 4% :: VAT Audit :: articles on VAT and GST in India :: due date for vat payment :: ACCOUNTING STANDARD
News Headlines »
 Govt to simplify income tax laws, sets up task force under taxman Arbind Modi to study overhaul
 Infosys to configure GST network for filing returns
 Save income tax through mutual fund investment. All you need to know
 Income tax returns (ITR): On sale of property, here is what you should know
 Section 35 of the Income-tax Act?
 Notification regarding extension of last date w.r.t submission of closing stock by dealer.
 Integrated Goods and Services Tax (IGST) Rules, 2017 (As on 15.11.2017)
 Central Goods and Services Tax (CGST) Rules,2017 (As on 15.11.2017)
  101st Constitution Amendment Act, 2016
 Pr. Commissioner Of Income Tax-6 Vs. Mccain Foods India Pvt. Ltd.
 Section 10 of the Income-tax Act, 1961

Quasi-judicial proceedings `Taxing' the adjudicating authority
February, 10th 2007
While applying the principles of natural justice the court must also bear in mind the theory of useless formality and the prejudice doctrine.

The Supreme Court has cast an onerous duty on Assessing Officers to spell out specific reasons when they adjudicate on any administrative or quasi-judicial issue under the Income-Tax Act, 1961. This point was decided while construing the provisions of Section 142(2-A) which permits the Assessing Officer to direct a tax audit.

The apex court was resolving a conflict arising from different judicial interpretations given by several High Courts on the powers of Assessing Officers to direct a tax audit which require that the following factors should be taken into account: (i) the nature of the accounts, (ii) the complexity of accounts, and (iii) the interests of Revenue.

Conjunctive not disjunctive

The formation of the opinion of the Assessing Officer must be on the premise that while exercising his power, regard must be had to the factors enumerated therein. The use of "and" shows that it is conjunctive and not disjunctive. All the aforementioned factors are conjunctively required to be read. The formation of opinion indisputably must be based on objective consideration.

Whereas the Calcutta and the Kerala High Courts have taken a view that before issuance of a direction under Section 142(2-A), it is necessary to comply with the principles of natural justice, the Allahabad, the Bombay and the Delhi High Courts have thought otherwise.

Inquiry before assessment

While deciding this controversy, the apex court observed that Section 142(2-A) is relevant in the context of an order of assessment. An order of assessment follows the filing of a return in terms of Section 139. Various other steps in that behalf are also contemplated under Sections 139-A, 140 and 141-A. An inquiry may be made before passing an order of assessment by the Assessing Officer under Section 142. Section 136 raises a legal fiction that a proceeding under the Act shall be judicial and every income-tax authority shall be deemed to be a civil court for the purposes of Section 195 of the Code of Criminal Procedure. The power of inquiry conferred upon the assessing authority is of wide amplitude.

According to the apex court, the principles of natural justice are based on two basic pillars: (i) nobody shall be condemned unheard (audi alteram partem), and (ii) nobody shall be judge of his own cause (nemo debet esse judex in propria sua causa).

`Useless formality'

In Rajesh Kumar v. CIT (287 I.T.R. 91), the Supreme Court held in the context of Section 142(2-A) that when an authority, be it administrative or quasi-judicial, passes an order that is appealable or subject to judicial review, it would be necessary to spell out the reasons therefor. While applying the principles for natural justice, however, the court must also bear in mind the theory of "useless formality" and the "prejudice doctrine".

If an assessee files a return, the same is presumed to be correct. When the Assessing Officer, however, intends to pass an order of assessment, he may take recourse to such steps including asking the assessee to disclose documents in his possession. He may also ask third parties to produce documents.

Section 136 of the I-T Act, by reason of a legal fiction, makes an assessment proceeding a judicial proceeding. The assessment proceeding, therefore, is part of the judicial process. When a statutory power is used by the assessing authority in exercise of its judicial function, which is detrimental to the assessee, the same is not and cannot be administrative in nature.

Where a tax audit is directed, the assessee has to undergo the process of further accounting even if his accounts have been audited by a qualified auditor in terms of Section 44-AB. An auditor is a professional. He has to function independently. He is not an employee of the assessee. In case of misconduct, he may become liable to be proceeded against by a statutory authority under the Chartered Accountants Act, 1949.

The Supreme Court held in the Rajesh Kumar case that the factors enumerated in Section 142(2-A) of the Act, are not exhaustive. Once it is held that the assessee suffers civil consequences and any order passed by it would be prejudicial to him, principles of natural justice must be held to be implicit.

Principles of natural justice

An order directing tax audit is also not to be mechanically granted. The same should be done having regard to the materials on record. The explanation given by the assessee, if any, would be a relevant factor. The approving authority is required to go through it. He may arrive at a different opinion. He may correct the Assessing Officer if he is found to have adopted a wrong approach or posed a wrong question so as to save the Revenue from suffering any loss.

Whereas the order of assessment can be the subject matter of an appeal, a direction issued under Section 142(2-A) is not. No internal remedy is prescribed. Judicial review cannot be said to be an appropriate remedy. The appellate power under the Act does not contain any provision such as Section 105 of the Code of Civil Procedure. The power of judicial review is limited; it is discretionary. The court may not interfere with a statutory power.

The Supreme Court concluded that when an authority, be it administrative or quasi-judicial, adjudicates on a dispute and if its order is appealable or subject to judicial review, it would be necessary to spell out the reasons therefor. While, however, applying the principles of natural justice the court must also bear in mind the theory of useless formality and the prejudice doctrine.

The aforesaid decision will have a material bearing on all orders passed by Assessing Officers and other authorities under the Income-Tax Law. Every single order may be challenged on the ground that the principles of natural justice have not been adhered to.

The procedural law will, therefore, have to be overhauled by Parliament if certain principles of natural justice are to be applied and the others are to be specifically excluded by a mandate of law.

H. P. Ranina
(The author, a Mumbai-based advocate specialising in tax laws)

Home | About Us | Terms and Conditions | Contact Us
Copyright 2017 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Organic SEO Outsourcing Organic Search Engine Optimization Outsourcing Organic Website SEO Organic SEO India Website SEO India Organic Search Engine Optimization India Organic Internet SEO India Organic Web

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions