2018 (9) TMI 1936 - SC - Income Tax

Supreme Court overturns tax assessment orders, emphasizes natural justice principles

The Supreme Court allowed the petitions challenging assessment orders under Section 143(3) of the Income-tax Act, 1961, citing a violation of natural ... Order without taking note of the relevant materials and the objections raised by the petitioners - HELD THAT:- It is an order based on the ipse dixit of the Assessing Officer without adverting to consider the relevant materials produced before him and if that is the factual position as it emerges on going through the detailed order, we have no hesitation in holding that it is an order without taking note of the relevant materials and the objections raised by the petitioners and this itself is sufficient to hold that the order has been passed in violation of the principles of natural justice. It is a cardinal principle of law that if relevant materials and objections are produced before a quasi judicial authority, the quasi judicial authority is duty bound, under law to advert to consider the same, discuss them and then reject it by recording reasons. In the said cases, this principle has not been followed. AO has proceeded to pass the assessment orders on the basis of legal principle, but while doing so, has not discussed the show cause filed by the petitioners and the relevant documents which they had brought on record in their defence, including the valuation report. We see no reason to reject the claim made by the petitioners, on the contrary, we are satisfied that the order passed is in gross violation of the principles of natural justice. Accordingly, we allow these petitions, quash the orders of assessment. The assessees in all these petitions, shall now appear before the Assessing Officer along with certified copy of this order and all other relevant documents that they may propose to file by 15th of February, 2018 and on the same being filed, the Assessing Officer shall proceed to decide the question in accordance with law at an earlier date Issues:Challenge to assessment order under Section 143(3) of the Income-tax Act, 1961 based on principles of natural justice.Analysis:The petitioners, individuals deriving income from various sources, filed returns for scrutiny under the CASS system. Show cause notices were issued under Section 143(2) of the Act, and the petitioners submitted detailed replies along with documents, including a valuation report. Despite filing overwhelming documents, the petitioners contended that the Assessing Officer passed the assessment order hastily without objectively considering the submissions and documents, leading to a violation of principles of natural justice. The petitioners argued that the order was arbitrary and unsustainable due to not considering relevant materials produced in support of the show cause.The Revenue's counsel argued that there was no error in the order, and each relevant consideration was made. However, upon examination, it was found that the Assessing Officer did not properly consider the objections raised by the petitioners, the contents of the show cause, the valuation report submitted, and why certain objections were dismissed. The order was based on legal principles without adequately discussing the petitioners' objections and the documents filed by them, leading to a violation of natural justice principles.The Supreme Court held that the order was passed without taking note of the relevant materials and objections raised by the petitioners, constituting a violation of natural justice principles. Citing the case of Anil Kumar v. Presiding Officer, the Court emphasized that a quasi-judicial authority must consider, discuss, and provide reasons for rejecting relevant materials and objections. Since the Assessing Officer failed to properly discuss the show cause and relevant documents submitted by the petitioners, the Court concluded that the order was passed in violation of natural justice.In light of the above, the Court allowed the petitions, quashed the assessment orders, and directed the assessees to appear before the Assessing Officer with relevant documents by a specified date for a fresh decision in accordance with the law.