1991 (5) TMI 118 - AT - Income Tax

Assessing Officer Violated Natural Justice: Tribunal Orders Reassessment

The Tribunal found that the Assessing Officer violated the principles of natural justice by not providing the assessee with an opportunity to be heard ... Assessing Officer, Being Heard, Natural Justice Issues Involved:1. Violation of principles of natural justice.2. Ownership of the business M/s. Century Plastics.3. Additions to income based on investments in factory building and house property.4. Procedural irregularities in assessment.Detailed Analysis:Violation of Principles of Natural Justice:The primary issue raised by the assessee was that the principles of natural justice were violated by the Assessing Officer (AO) while making additions to the total income. The assessee argued that they were not confronted with the materials justifying the impugned additions, rendering the entire additions null and void ab initio. The Tribunal agreed that the additional ground raised a legal issue and admitted it for consideration.The Tribunal found that the AO did not afford the assessee an opportunity to be heard regarding the additions made. This was confirmed by the absence of any evidence in the assessment records showing that the assessee was given a chance to explain why the income from M/s. Century Plastics should not be assessed in his hands. The Tribunal cited several precedents, including the Delhi High Court in Amritsar Sugar Mills Co. Ltd. and the Supreme Court in Swadeshi Cotton Mills, to support the contention that a decision rendered in violation of the audi alteram partem rule is null and void.Ownership of the Business M/s. Century Plastics:The Tribunal addressed the issue of who owned the business of M/s. Century Plastics and the income derived from it. The AO had assessed the income from this business in the hands of the assessee, Shri Shiv Charan Gupta, on a substantive basis and on a protective basis in the hands of his wife, Smt. Sheela Gupta. The Tribunal noted that the authorities below had concluded that Shri Shiv Charan Gupta was the actual owner of the business, with his wife acting as a benamidar.Additions to Income Based on Investments:The AO made various additions to the income of Shri Shiv Charan Gupta, including those related to investments in a factory building and the construction of a house property. The Tribunal found that these additions were made without affording the assessee an opportunity to be heard, violating the principles of natural justice.Procedural Irregularities in Assessment:The Tribunal considered whether the procedural irregularities rendered the assessments void or merely illegal. It concluded that the failure to provide an opportunity of hearing constituted a violation of the statutorily prescribed procedure under Section 142(3) of the Income-tax Act. The Tribunal distinguished between a breach of natural justice and a procedural violation, stating that the latter rendered the order illegal but not void. Consequently, the appropriate remedy was to set aside the assessments and direct the AO to reassess the income after following the prescribed procedure.The Tribunal cited the Supreme Court's decision in Guduthur Bros. v. ITO, which supported the view that an order passed in violation of statutory procedure is illegal and should be set aside, allowing the AO to recommence the proceedings from the stage at which the illegality occurred.Conclusion:The Tribunal set aside the assessment orders in the case of Shri Shiv Charan Gupta insofar as they related to the additions made without giving an opportunity of being heard to the assessee. The AO was directed to reassess the income after following the procedure prescribed under the statute.