Telangana High Court
Zareen Sahar Syed vs Assistant Commissioner Of Income Tax ... on 11 March, 2024
Author: P.Sam Koshy
Bench: P.Sam Koshy, N.Tukaramji
THE HON'BLE SRI JUSTICE P.SAM KOSHY
AND
THE HON'BLE SRI JUSTICE N.TUKARAMJI
WRIT PETITION Nos.21054 and 20920 of 2022
COMMON ORDER :
(per Hon'ble Sri Justice P.SAM KOSHY) These are two writ petitions where the petitioners/assessees are daughter and father respectively challenging the assessment orders dated 20.12.2019 and 26.12.2019 passed by respondent No.1 under Section 143 (3) of the Income Tax Act, 1961 (briefly referred to hereinafter as 'the Act') for the assessment year 2017- 2018.
2. Heard Ms. Vedula Chitralekha, learned counsel for the petitioner and Mr. J.V.Prasad, learned Senior Standing Counsel for Income Tax appearing for the respondents.
3. The petitioners herein initially filed their income tax return vide e-filing on 19.11.2017 and 31.10.2017 respectively. However, due to oversight, there was an error reflected under the long term capital gains. The petitioners therein filed a revised return on 06.12.2017 and these revised returns were processed and accepted by the respondent authorities. Subsequently, the revised returns submitted by the petitioners were subjected to scrutiny and a notice under Section 142 (1) of the Act was issued to which the 2 petitioners immediately responded. Without considering the submissions which the petitioners have raised, respondent No.1 has passed the impugned assessment orders dated 20.12.2019 and 26.12.2019 respectively, both of which are under challenge in the two instant writ petitions.
4. Though the learned counsel for the petitioner had raised various other grounds assailing the impugned orders, however, at the first instance she contended that the impugned orders are bad for the simple reason that they are passed relying upon the valuation report submitted by the Sub-Registrar. It is the contention of the learned counsel for the petitioner that the valuation report and its details were not made available to the petitioners while issuing show cause notice and therefore there was clear violation of the principles of natural justice.
5. It was also the contention of the learned counsel for the petitioner that from plain reading of the contents of the impugned orders i.e. the two assessment orders, it would clearly reflect that the show cause notice in both the cases were issued prior to obtaining the Sub-Registrar's valuation report. Therefore the petitioners were not in a position to give an effective reply to the show cause notices. It was further contended that apart from the fact that it has been obtained subsequent to the show cause 3 notices, these valuation reports were not made available to the petitioners to peruse nor were they permitted or given an opportunity to file their objections if any.
6. The whole contention of the learned counsel for the petitioner was that once when the respondent authorities in the course of passing of an order relies upon certain documents which in the instant cases were the Sub-Registrar's valuation report, it was incumbent upon the Assessing Officer to have made available the Sub-Registrar's report to the petitioners enabling them to file their response to the said reports. In the absence of which the assessment order remains to be an assessment order which has been passed taking into consideration certain extraneous documents and the contents of which were either not made available to the petitioners nor was it formed part of the show cause notices itself. Thus, the entire action stands vitiated on this ground alone.
7. Learned counsel for the petitioner heavily relied upon the decision of the Hon'ble Supreme Court in the case of T.Takano vs. Securities and Exchange Board of India and Another 1 wherein the Hon'ble Supreme Court had ordered for quashment of an order which was passed relying upon certain documents which were 1 (2022) 8 Supreme Court Cases 162 4 either not formed part of the show cause notice nor was the same made available to the petitioners.
8. On the previous date of hearing, we had requested the learned Senior Standing Counsel for Income Tax Department to seek instructions particularly on the aspect whether the report of the Sub-Registrar was made available to the petitioners along with the show cause notices or the contents of Sub-Registrar's report being reflected in the show cause notice itself.
9. Today when the matter is taken up for hearing, the learned Senior Standing Counsel for Income Tax Department upon instructions submits that from the materials made available to him by the Department, it is not reflected that the Sub-Registrar's report was made part of the show cause notice or the contents of which were reflected in the show cause notice.
10. It was contended by the learned Senior Standing Counsel for Income Tax Department that the petitioners in fact had not raised this ground all along and therefore they are estoppeled from raising this ground at this belated stage. It was further contended that upon plain reading of the two show cause notices by itself would reveal that the basis for issuance of the said impugned orders was the Sub-Registrar's report; however, the petitioners did not seek for 5 the said report or its contents. Nor did they raise their objections on the same at any point of time.
11. Thus from the admitted factual matrix, it stands established that the Sub-Registrar's report was not attached to the show cause notices nor was the contents of the same made available to the petitioners. Another striking feature which is reflected is the fact that the impugned orders have been passed strictly based upon valuation report submitted by the Sub-Registrar.
12. Under the given factual matrix of the case, if we now look into the contents of the judgment of the Hon'ble Supreme Court in the case of T.Takano (supra), the Hon'ble Supreme Court has dealt with that issue elaborately where referring to past precedents in paragraph No.37 has held as under:
"37. During the course of the adjudication, the fundamental principle is that material which is used against a person must be brought to notice. As this Court observed: (Natwar Singh case 2, SCC p. 269, paras 30-31) "30. The right to fair hearing is a guaranteed right. Every person before an authority exercising the adjudicatory powers has a right to know the evidence to be used against him. This principle is firmly established and recognised by this Court in Dhakeswari Cotton Mills Ltd. v. CIT [AIR 1955 SC 65 : (1955) 1 SCR 941] . However, disclosure not necessarily involves supply of the material. A person may be allowed to inspect the file and take notes. Whatever mode is used, the fundamental principle remains that nothing should be used against the person which has not been brought to his notice. If 2 Natwar Singh v. Director of Enforcement, (2010) 13 SCC 255 6 relevant material is not disclosed to a party, there is prima facie unfairness irrespective of whether the material in question arose before, during or after the hearing. The law is fairly well settled if prejudicial allegations are to be made against a person, he must be given particulars of that before hearing so that he can prepare his defence. However, there are various exceptions to this general rule where disclosure of evidential material might inflict serious harm on the person directly concerned or other persons or where disclosure would be breach of confidence or might be injurious to the public interest because it would involve the revelation of official secrets, inhibit frankness of comment and the detection of crime, might make it impossible to obtain certain clauses of essential information at all in the future (see R. v. Secy. of State for Home Deptt., ex p H [1995 QB 43 :
(1994) 3 WLR 1110 : (1995) 1 All ER 479 (CA)] ).
31. The concept of fairness may require the adjudicating authority to furnish copies of those documents upon which reliance has been placed by him to issue show-cause notice requiring the noticee to explain as to why an inquiry under Section 16 of the Act should not be initiated. To this extent, the principles of natural justice and concept of fairness are required to be read into Rule 4(1) of the Rules. Fair procedure and the principles of natural justice are in-built into the Rules. A noticee is always entitled to satisfy the adjudicating authority that those very documents upon which reliance has been placed do not make out even a prima facie case requiring any further inquiry. In such view of the matter, we hold that all such documents relied on by the authority are required to be furnished to the noticee enabling him to show a proper cause as to why an inquiry should not be held against him though the Rules do not provide for the same. Such a fair reading of the provision would not amount to supplanting the procedure laid down and would in no manner frustrate the apparent purpose of the statute." (emphasis supplied)
13. Further, in paragraph Nos.50, 51, 53 and 54 of the above judgment, the Hon'ble Supreme Court has laid down the following principles which for ready reference are reproduced herein under: 7
"50. The following principles emerge from the above discussion:
50.1. A quasi-judicial authority has a duty to disclose the material that has been relied upon at the stage of adjudication.
50.2. An ipse dixit of the authority that it has not relied on certain material would not exempt it of its liability to disclose such material if it is relevant to and has a nexus to the action that is taken by the authority. In all reasonable probability, such material would have influenced the decision reached by the authority.
50.3. Thus, the actual test is whether the material that is required to be disclosed is relevant for purpose of adjudication. If it is, then the principles of natural justice require its due disclosure.
51. The investigation report forms the material considering which, the Board arrives at a satisfaction regarding whether there has been a violation of the regulations. If it is satisfied that there has been a violation of the regulations, after giving a reasonable opportunity to be heard, the Board is empowered to take action according to Regulations 11 and 12. It would not suffice for the first respondent to claim as it did before the High Court that it did not rely on the investigation report. The ipse dixit of the authority that it was not influenced by certain material would not suffice. If the material is relevant to and has a nexus to PART C the stage at which satisfaction is reached by an authority, such material would be deemed to be important for the purpose of adjudication. The written submissions of the Board clearly state that the findings of the investigation report are important for the authority to decide whether there are any prima facie grounds to initiate enforcement proceedings under Regulation 10. The relevant extract of the submissions is reproduced below:
"It is submitted that Regulation 9 of PFUTP Regulations require the Investigating Authority to submit the report after completion of the investigation to the appointing authority. However, the provision does not require furnishing of the report to the Noticee. Further, the investigation report is merely a culmination of documents which the investigating authority relies on/come across while conducting the investigation and is not a piece of evidence in itself. It is a report which is necessary for an authority, who orders an investigation, to decide as to whether there 8 are prima-facie grounds to initiate enforcement proceedings or not. Therefore, before the authority makes up his mind, he will either himself investigate or direct his subordinates to investigate in the matter. It is only after the authority receives the report of the investigation that he can decide as to whether action is called for or not. Therefore, the investigation report is in the nature of inter-departmental communications between officers investigating the matter and authority who can decide any enforcement action against the entity.
.....
The findings recorded in the investigation report against the Noticee are brought out in the SCN and the copies of all the documents that are relied upon by SEBI, while issuing the SCN are always shared with the concerned. The present case is no exception." (emphasis supplied)
53. In Khudiram Das 3, a four-Judge Bench of this Court laid down a two-prong test for the standard of 'relevancy'; firstly, the material must have nexus with the order and secondly, the material might have influenced the decision of the authority. A Constitution Bench of this Court in Karunakar 4 held that the non-disclosure of the relevant information is not in itself sufficient to warrant the setting aside of the order of punishment. It was held that in order to set aside the order of punishment, the aggrieved person must be able prove that prejudice has been caused to him due to non-disclosure. To prove prejudice, he must prove that had the material been disclosed to him the outcome or the punishment would have been different. The test for the extent of disclosure and the corresponding remedy for non-disclosure is dependent on the objective that the disclosure seeks to achieve. Therefore, the impact of non-disclosure on the reliability of the verdict must also be determined vis-à- vis, the overall fairness of the proceeding. While determining the reliability of the verdict and punishment, the court must also look into the possible uses of the undisclosed information for purposes ancillary to the outcome, but that which might have impacted the verdict.
3 Khudiram Das v. State of W.P., (1975) 2 SCC 81 : 1975 SCC (Cri) 435 4 ECIL v. B. Karunakar, (1993) 4SCC 727 : 1993 SCC (L&S) 1184 9
54. In Natwar Singh 5, it was held that material which is relevant to the subject-matter of the proceedings must be disclosed, unless the scheme of the statute indicates to the contrary. The non-disclosure of such material is prima facie arbitrary. A deviation from this general rule was made based on the stage of the proceedings. It was held that it is sufficient to disclose the materials relied on if it is for the purpose of issuing a show cause notice for initiating inquiry. However, in the present case, since the report of the investigating authority under PART C Regulation 9 enters into the calculus of circumstances borne in mind by the Board in arriving at its satisfaction under Regulation 10 for taking actions as specified in Regulations 11 and 12, it would be contrary to the Regulations to assert that the investigation report is merely an internal document of which a disclosure is not warranted. In any event, the language of Regulation 10 makes it clear that the Board forms an opinion regarding the violation of Regulations after considering the investigation report prepared under Regulation 9. Thus, the investigation report has to be duly disclosed to the noticee. However, the right to disclosure is not absolute. It needs to be determined if the non-disclosure of the investigative report is protected by any of the exceptions to the rule."
14. From the aforesaid facts and circumstances, admittedly the Sub-Registrar's report was not made available to the petitioners along with the show cause notices or at a subsequent stage at all. If we look into the principles laid down in the aforesaid judgment by the Hon'ble Supreme Court and the facts of the instant writ petitions, admittedly two show cause notices were issued to the petitioners but in either of the two, a copy of the Sub-Registrar's report was not enclosed. In Writ Petition No.20920 of 2022 where the assessee is the father, neither was the report of the Sub- Registrar made available nor was the contents of which reflected in 5 Natwar Singh v. Director of Enforcement, (2010) 13 SCC 255 10 the show cause notice and to make things bad when the impugned assessment order had been passed, heavy reliance has been placed upon the Sub-Registrar's report. Thus, from the ratio laid down by the Hon'ble Supreme Court in the case of T.Takano (supra), we do not have any hesitation in reaching to the conclusion that the impugned orders smacks arbitrariness on the part of the respondent authorities in passing the same.
15. Another striking feature what is reflected from the proceedings is the fact that the show cause notices issued and the final assessment orders passed at a very short period of time gap. This also compels this Bench to draw an interference against the respondent authorities in showing undue haste in passing of the assessment orders. In Writ Petition No.21054 of 2022, the show cause notice was issued on 14.12.2019 and the assessment order was passed on 20.12.2019 i.e. in less than a period of six (06) days. Likewise, in Writ Petition No.20920 of 2022, the show cause notice was issued on 21.12.2019, the date of appearance for personal hearing was given on 23.12.2019 and the final assessment order has been passed on 26.12.2019 which itself establishes that in less than around five (05) days, the entire proceedings had been initiated and concluded which therefore vitiates the whole order. 11
16. In the given factual matrix, the impugned orders to the aforesaid extent of having passed without providing a copy on the basis of which the proceedings were initiated, deserves to be and are accordingly set aside/quashed. Since we are interdicting the impugned orders only on the ground of the same being violative of the principles of natural justice, it would be left open for the respondent authorities to take appropriate decision in accordance with the law.
17. With the above observations, the two writ petitions are allowed. There shall be no order as to costs. Consequently, miscellaneous petitions pending if any, shall stand closed.
___________________ P.SAM KOSHY, J ___________________ N.TUKARAMJI, J Date: 11.03.2024 GSD