2010 (7) TMI 1097 - HC - Income Tax

Court quashes order due to delay, emphasizes fair hearing & natural justice

Gujarat Gas Trading Co. Ltd. Versus Commissioner of Income Tax

The Court quashed the order rejecting the revision application under section 264 of the Income Tax Act due to a perceived delay of six years, ruling that ... - ISSUES PRESENTED AND CONSIDERED 1. Whether the Commissioner was justified in rejecting an application under section 264 of the Income-tax Act on the ground that it was barred by delay, without affording the applicant an opportunity of hearing on the preliminary question of delay. 2. Whether an application under section 264 filed after an earlier application was withdrawn in response to a departmental show cause notice (which stated the intimation under section 143(1) had been served on a later date) was premature or time-barred. 3. Whether the impugned order rejecting the section 264 application on the asserted ground of a six-year delay suffers from a breach of principles of natural justice and warrants quashing and remand for fresh decision. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Procedural fairness: requirement to afford opportunity of hearing on delay as a preliminary issue Legal framework: The Commissioner, when rejecting a revision application under section 264 on the ground of delay, must treat delay as a preliminary question of admissibility and, if so, afford the applicant an opportunity of hearing before dismissing the application. Precedent Treatment: The judgment does not cite or rely upon prior authorities; no precedent was expressly followed, distinguished or overruled. Interpretation and reasoning: The impugned order records that the application was filed 'after lapse of about 6 years' but the record also contained a show cause notice prepared by the department indicating that the intimation under section 143(1) was served on 27.3.2009. In those circumstances the applicant withdrew an earlier application and filed a fresh application dated 13.4.2009. Because the departmental materials themselves suggested the intimation was recent, the Commissioner should not have concluded that the application was time-barred without putting the applicant to notice and affording an opportunity to explain or seek condonation of delay. Delay, treated as a threshold issue, required an opportunity of hearing; failure to provide that opportunity is a breach of the principles of natural justice. Ratio vs. Obiter: Ratio - where delay is relied upon by the decision-maker as a ground to reject a revision application, the decision-maker must decide that issue as a preliminary matter only after giving the applicant notice and an opportunity of hearing. The specific finding that the Commissioner failed to afford such opportunity is central to the Court's decision. Conclusions: The impugned order cannot be sustained because it rejected the section 264 application on delay without affording an opportunity to the applicant to explain or seek condonation; this procedural defect vitiates the order. Issue 2 - Prematurity and timing of the section 264 application in light of departmental records of intimation under section 143(1) Legal framework: Section 264 permits revision by the Commissioner in respect of orders passed by subordinate authorities; timing and admissibility can be affected by intimation under section 143(1), and an application under section 264 may be premature if made before requisite events (per the department's internal view). Precedent Treatment: No prior case law cited or treated on this question within the judgment. Interpretation and reasoning: The facts disclose that an initial section 264 application was filed and the department, by show cause notice, stated that intimation under section 143(1) had been served on 27.3.2009, thereby rendering the earlier application premature according to the department. The applicant withdrew the earlier application and filed a fresh application on 13.4.2009, asserting the intimation was received only on 27.3.2009 and therefore the fresh application was within time. The Commissioner, however, in the impugned order treated the application as filed after six years, a conclusion inconsistent with the departmental show cause notice and the applicant's conduct. Given this factual background, the Commissioner should have treated prematurity/timing as contested and afforded an opportunity to the applicant to be heard rather than summarily rejecting the application on a finding of delay. Ratio vs. Obiter: Ratio - where internal departmental records and communications indicate a later date of service of intimation, the applicant's withdrawal and refiling of a section 264 application in response to a show cause notice must be considered; the decision-maker cannot summarily treat the application as barred by delay inconsistent with those records without hearing the applicant. Conclusions: The record (including the show cause notice) supported the applicant's position that the fresh section 264 application was timely; the Commissioner's contrary conclusion was procedurally defective because it ignored the department's own notation of the intimation date and denied the applicant an opportunity to explain. Issue 3 - Appropriate remedy where procedural infirmity is shown Legal framework: Where a statutory decision is vitiated by denial of opportunity to be heard or other breach of natural justice, the appropriate relief is quashing of the defective order and remand for fresh decision in accordance with law and fair procedure. Precedent Treatment: No precedents cited; the Court applied ordinary principles of administrative law and natural justice. Interpretation and reasoning: Because the impugned order rejected the section 264 application on a threshold ground of delay without giving notice and a hearing on that issue, the order suffers from a vice of natural justice. The equitable and proper course is to quash the impugned order and restore the revision application to the Commissioner's file so that the Commissioner may decide the application afresh after affording the parties an opportunity of hearing. The Court expressly directed that if the Commissioner considers delay to be a bar, that question shall be dealt with as a preliminary issue only after giving notice and an opportunity to the applicant. Ratio vs. Obiter: Ratio - quashing of the impugned order and remand for fresh consideration with specific direction to treat delay as a preliminary issue and to afford opportunity to be heard is the operative remedy ordered by the Court. Conclusions: The impugned order is quashed and set aside. The section 264 revision application is restored to the Commissioner's file for fresh decision in accordance with law after affording the applicant an opportunity of hearing; if delay is raised, it must be decided as a preliminary issue following notice and hearing.