Wp(C)/19218/2021 Of Bhima Jewels v. Principal Commissioner Of Income Tax

IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR. JUSTICE BECHU KURIAN THOMAS THURSDAY, THE 23 DAY OF DECEMBER 2021 / 2ND POUSHA, 1943 WP(C) NO. 19218 OF 2021 PETITIONER: BHIMA JEWELS, 40/ 586, BHIMA TOWER, MAHATMA GANDHI ROAD, ERNAKULAM, 682 011, REPRESENTED BY ITS MANAGING PARTNER. BY ADVS.SRI.A.KUMARSRI.P.J.ANILKUMARSMT.G.MINI(1748)SRI.P.S.SREE PRASADSRI.JOB ABRAHAMSRI.AJAY V.ANAND RESPONDENTS: NATIONAL E.- ASSESSMENT CENTRE, BY ADV. CHRISTOPHER ABRAHAM, SC THIS WRIT PETITION (CIVIL) HAVING COME UP FORADMISSION ON 24.11.2021, THE COURT ON 23.12.2021 DELIVEREDTHE FOLLOWING: W.P.(C) No.19218/21 “C.R.” BECHU KURIAN THOMAS, J. ----------------------------------------- W.P.(C) No.19218 of 2021 ---------------------------------------- Dated this the 23[rd] day of December, 2021 JUDGMENT When an existing system is undergoing a radical change, theremay be times - transition times, when inadequacies to cope with thechange, may result in hardship and immeasurable prejudice to oneparty. One such instance seemingly arises in the instant case. 2. An order of assessment issued for the assessment year2017-18, under the Income Tax Act, 1961 (for short, 'the Act') is thebasis for the challenge under Article 226 of the Constitution.Violation of the principles of natural justice is the premise on whichthe challenge is built upon. 3. Petitioner is involved in the business of gold and diamondjewellery and is an assessee under the Act. For the assessment year2017-18, a return was filed by the petitioner, which was subsequentlyrevised, declaring a total income of Rs.20,26,65,360/-. The returnwas taken up for scrutiny assessment and an intimation under W.P.(C) No.19218/21 -:3:- section 143(2) of the Act was also given. Thereafter, petitioner wascalled upon to furnish the data and documents under section 142(1)of the Act, by notice dated 02.12.2019. A detailed reply was givenby the petitioner on 06.12.2019 and again on 11.12.2019. Sincenothing was heard from the assessing officer, petitioner alleges that,based upon the replies submitted, it assumed that the assessingofficer was satisfied and the assessment was concluded. The beliefwas fortified by the fact that in the meantime, the assessing officerhad issued an order under section 92CA of the Act to the extent ofholding that for the year 2017-18, no transfer pricing adjustment waseven considered necessary. 4. In the meantime, petitioner was issued with notices for thesubsequent assessment year 2018-19 also. Since nothing washeard as regards the assessment year 2017-18, petitioner allegesthat it bonafide believed that the proceedings of the year 2017-18,had been concluded. 5. Much later, to the chagrin of the petitioner, it realised thatthe proceedings for the assessment years 2017-18 and 2018-19progressed simultaneously under the Faceless Assessment Scheme.Though for the assessment year 2018-19, petitioner received a letter W.P.(C) No.19218/21 4. In the meantime, petitioner was issued with notices for thesubsequent assessment year 2018-19 also. Since nothing washeard as regards the assessment year 2017-18, petitioner allegesthat it bonafide believed that the proceedings of the year 2017-18,had been concluded. 5. Much later, to the chagrin of the petitioner, it realised thatthe proceedings for the assessment years 2017-18 and 2018-19progressed simultaneously under the Faceless Assessment Scheme.Though for the assessment year 2018-19, petitioner received a letter W.P.(C) No.19218/21 from the jurisdictional authority that the case was transferred to thefaceless assessment scheme, such an intimation was absent for theassessment year 2017-18. Therefore, the petitioner contended that itwas unaware of the completion of the proceedings relating to theassessment year 2017-18 under the faceless scheme. According tothe petitioner, it realized about the order of assessment for 2017-18only when the department enquired with the petitioner's consultant,about non-compliance of the demand. Subsequently, when petitioneraccessed the web portal of the income tax department, it realized toits horror that show-cause notice was issued to the petitioner on03.04.2021 which culminated in an assessment order dated22.04.2021. Petitioner alleges that it was completely oblivious of thenotices issued and even the assessment order. Petitioner complainsthat the notices issued to it were never seen reflected in the portaland hence the petitioner was under the bonafide belief that theassessment proceedings for the year 2017-18 would have beencompleted by 31.03.2020 based on the orders of the transfer pricingofficer. 6. Petitioner further contends that, one of the e-mail id'sregistered with the income tax department was that of one W.P.(C) No.19218/21 -:5:- Mr.Sreeram, who was the finance head of the petitioner, while thesecondary e-mail id furnished was that of the Chartered Accountant.Petitioner alleges that unfortunately, Mr.Sreeram left the employmentwith the petitioner on 19.09.2020 and hence petitioner was unawareof the notices issued. Petitioner asserts that no mail orcommunication was ever sent to the secondary mail id for theassessment year 2017-18. Petitioner claims to have been in the darkabout the various notices issued for assessment year 2017-18. It isthe petitioner’s specific case that, notice was issued to a defunct e-mail id, that too, to an employee who had quit the service and hencethere was no proper service of notice. 7. In the absence of any mail sent to the secondary e-mail id,which according to the petitioner, was mandatory, the notice ofassessment could not be said to have been properly served. Evenotherwise, petitioner alleges that, due to the various glitches in theportal of the income tax department as well as the transition phase ofswitching into the electronic assessment, bonafide omissions incomprehending the notices resulted in the petitioner being deprivedof an opportunity to participate in the proceedings relating to theassessment year 2017-18. W.P.(C) No.19218/21 -:6:- 7. In the absence of any mail sent to the secondary e-mail id,which according to the petitioner, was mandatory, the notice ofassessment could not be said to have been properly served. Evenotherwise, petitioner alleges that, due to the various glitches in theportal of the income tax department as well as the transition phase ofswitching into the electronic assessment, bonafide omissions incomprehending the notices resulted in the petitioner being deprivedof an opportunity to participate in the proceedings relating to theassessment year 2017-18. W.P.(C) No.19218/21 -:6:- 8. Sri..A.Kumar, learned counsel for the petitioner submittedthat there was a clear failure of an opportunity to contest theassessment proceedings. According to the learned counsel, theaforesaid is evident from the circumstance that during the very sameperiod while petitioner had been participating in the assessmentproceedings for another period, i.e., assessment year 2018-19,petitioner was not responding for the assessment year 2017-18.Thus, while the two proceedings were going on simultaneously,petitioner was participating in one assessment year while notresponding to the other. The learned counsel asserts that, theabsence of participation in one assessment proceeding indicatesabsence of knowledge of the proceedings. The learned counselfurther submitted that, the quantum involved in the presentassessment year is also significant that, petitioner would never havepurposefully avoided an opportunity to object to the same. It wasalso submitted that the technical issues with the web portal of theIncome Tax Department were not alien and that contributed to thedifficulty to various assessees. Apart from that, the technicalchallenges of online system faced by the professionals who deal withassessees accounts also contributed to the same, contends the W.P.(C) No.19218/21 learned counsel. 9. Sri. Christopher Abraham, learned Standing Counsel for the respondents filed a statement contending that the reasoning of theassessee is least convincing and even defies logic. Respondentsfurther pleaded that it was obligatory upon the petitioner to bring tothe notice of the Assessing Officer the change of e-mail id byupdating the same in the web portal. The necessity of sendingcommunication to the secondary mail id would arise only in situationswhen communications sent to the principal mail id bounces back orreturned unserved. Since none of those circumstances occurred inthe instant case, this was not a fit case for interference under Article226 of the Constitution of India. 10. Respondents further stated that completing assessments through e-proceedings is a participative process where allnotices/communications to the assessee, concerning anyproceedings under the Income Tax Act are shared to e-proceedingsthrough e-filing portal. In other words, the assessee can access allnotices, communications or the orders issued, by logging into the e-filing portal by using his login id and password and had the petitionershown reasonable care, he could have avoided the present W.P.(C) No.19218/21 -:8:- predicament it finds itself in. Respondents also stated that therejection of books of accounts of the assessee on the presumptionthat no proper books of accounts are maintained, could not befaulted since the assessing officer had no other option. It was pointedout that the matter has to be contested on merits through thestatutory remedy of an appeal. 11. I have heard the arguments of Sri.A.Kumar, learnedcounsel for the petitioner as well as Sri.Christopher Abraham,learned Standing Counsel for the respondents. 12. A perusal of the impugned order of assessment shows that W.P.(C) No.19218/21 -:8:- predicament it finds itself in. Respondents also stated that therejection of books of accounts of the assessee on the presumptionthat no proper books of accounts are maintained, could not befaulted since the assessing officer had no other option. It was pointedout that the matter has to be contested on merits through thestatutory remedy of an appeal. 11. I have heard the arguments of Sri.A.Kumar, learnedcounsel for the petitioner as well as Sri.Christopher Abraham,learned Standing Counsel for the respondents. 12. A perusal of the impugned order of assessment shows that there was no response from the side of the assessee to any of thenotices issued after the response to section 142(1) notice. A perusalof the assessment order reveals that, by notice dated 05.03.2021,the assessee was called upon to submit the details for theassessment year 2017-18. Since there was no reply from theassessee, a reminder was issued on 17.03.2021, granting thepetitioner a final opportunity to reply by 18.03.2021. Even thereafter,when there was no response, a final show-cause notice was issuedon 22.03.2021. In the said notice, it was mentioned that if aresponse is not coming by 25.03.2021, the assessment will be W.P.(C) No.19218/21 -:9:- finalised on the basis of the show-cause notice. However, even thatnotice failed to elicit any reply. Yet again, one more opportunity wasgranted to the petitioner, after obtaining permission from the superiorofficers under section 144A of the Act and a final opportunity wasgranted by issuing another notice on 03.04.2021. Even then, therewas no response from the petitioner. 13. The assessing officer again adjourned the case for furtherconsideration to 07.04.2021. Since even by 12.04.2021 there wasno response from the petitioner, the provisions of section 145(3) ofthe Act was invoked and the assessing officer rejected the books ofaccounts of the assessee, and computed the profits at 8% of the totalturnover and calculated the profit at Rs.1,32,19,88,372/-. A furtheraddition of Rs.92,89,62,279/- was also determined and the totalincome was rounded off to Rs.223,41,88,410/-. Thereafter separatepenalty proceedings have also been initiated under section 270A ofthe Act. 14. A perusal of the aforesaid details mentioned in the order ofassessment reveals that the assessing officer tried his level best toelicit a response from the petitioner. However, for reasons bestknown to the assessee, there was no response. W.P.(C) No.19218/21 -:10:- 15. While appreciating the contentions of the petitionerregarding the absence of knowledge about the notices issued to thepetitioner, a significant circumstance is the participation of thepetitioner in the assessment proceedings for 2018-19, at the sametime. While participating in the said assessment proceedings,petitioner was not even responding to any notice issued for the year2017-18. The aforesaid circumstance finds credence in theobservations in the impugned order itself. The assessing officer hasobserved that, at the same time, assessment proceedings for theyears 2018-19 were continuing simultaneously and the assesseewas participating in those proceedings. Thus, for the assessmentproceedings for the year 2017-18, petitioner was not responding,while for the assessment year 2018-19, the petitioner wasparticipating and responding to the notices. 16. Participating in the assessment proceedings for 2018-19,while at the same time total non-response to any notices for the year2017-18, compels this Court to conclude that petitioner was unawareof the proceedings being carried on against the petitioner for theassessment year 2017-18. The repeated notices issued to thepetitioner had the same fate of no response. The contention of the W.P.(C) No.19218/21 -:11:- 16. Participating in the assessment proceedings for 2018-19,while at the same time total non-response to any notices for the year2017-18, compels this Court to conclude that petitioner was unawareof the proceedings being carried on against the petitioner for theassessment year 2017-18. The repeated notices issued to thepetitioner had the same fate of no response. The contention of the W.P.(C) No.19218/21 -:11:- petitioner that the person whose e-mail id was furnished as theprimary e-mail id had left petitioner's employment, when juxtaposedwith the circumstances of lack of response to any notice for the year2017-18, while at the same time, participating in the proceedings for2018-19, indicate absence of knowledge of the proceedings againstthe petitioner for the year 2017-18. Though it is not mandatory thatevery communication should be addressed to the secondary e-mailid also, this Court is of the opinion that in the peculiar circumstancesof the case, where repeated notices sent to the petitioner was noteliciting any response, it would have been ideal to have issued noticeto the secondary e-mail id also. 17. The technical glitches that surrounded the income taxportal during the said period is also a factor that ought to haveweighed with the assessing officer in contemplating issuance of anotice to the secondary e-mail id, especially since, as rightlycontended by the learned counsel for the petitioner that, this is a highpitched assessment. 18. Viewed in the entire conspectus of the circumstances thatsurround the order of assessment, this Court is of the opinion that,though the assessing officer cannot be faulted, petitioner did not get W.P.(C) No.19218/21 -:12:- an effective opportunity to put forth his response for the year 2017-18. Since the assessment order is the platform from which the rightsand obligations of not only the assessee but also of the departmentarise, it is essential that such a platform is built upon strongfoundations, especially when the amount involved is large. Theburden of an assessment order issued without hearing the assesseewill fall, not only upon the petitioner alone but even upon the systemitself and may create further waste of resources. 19. It is relevant to bear in mind that the principles of naturaljustice cannot be cribbed or cabined in a straitjacket formula. Theconcept of natural justice depends on the context and thecircumstances of each case. The principle of natural justice must beflexible enough to adapt to the myriad of circumstances where aperson is subjected to prejudice due to lack of knowledge, whichstems from bonafide or genuine reasons. The right of a man to havea fair opportunity of hearing is fundamental to any civilised legalsystem as Lord Diplock observed in O'Reilly v. Mackman (1983 2AC 237 at Pg.276). 20. The rules of natural justice must depend on thecircumstances of each case, the set of facts that surround each W.P.(C) No.19218/21 -:13:- 19. It is relevant to bear in mind that the principles of naturaljustice cannot be cribbed or cabined in a straitjacket formula. Theconcept of natural justice depends on the context and thecircumstances of each case. The principle of natural justice must beflexible enough to adapt to the myriad of circumstances where aperson is subjected to prejudice due to lack of knowledge, whichstems from bonafide or genuine reasons. The right of a man to havea fair opportunity of hearing is fundamental to any civilised legalsystem as Lord Diplock observed in O'Reilly v. Mackman (1983 2AC 237 at Pg.276). 20. The rules of natural justice must depend on thecircumstances of each case, the set of facts that surround each W.P.(C) No.19218/21 -:13:- situation, the nature of the inquiry, the rules that govern theprocedure and even the subject matter dealt with, apart fromprejudice that could be caused to either side. The principles ofnatural justice are, as observed by the House of Lords in Lloyd v.McMahon [1987] AC 625], “not engraved on tablets of stone” and thecourts will ensure so much and not more, to be introduced by way ofadditional procedural safeguards, as will ensure the attainment offairness. The rules of natural justice are flexible to adapt to situationsand circumstances to advance the cause of justice. In the decision inUnion of India and Another v. Jesus Sales Corporation (1996 4SCC 69), it was held that “under different situations and conditionsthe requirement of compliance of the principle of natural justice vary”.21. When the tax department of the Country is in a transitionphase, with conventional and traditional notices being replaced by e-notices or intimations in the web portal, the technologicalinadequacies and incompetence of the litigants cannot be brushedaside lightly, especially when the prejudice to the litigant isenormous. As the tax department and the assessees are bothpassing through the transition phase and shifting to electronicmodes, a rigid consideration and application of rules of natural justice W.P.(C) No.19218/21 -:14:- do not augur well for the system. The principles of natural justice areflexible enough to adapt to situations like the present, to insist for aneffective opportunity for the assessee. 22. Considering the circumstances, this Court is of the opinion that an effective opportunity of hearing could not be availed of by thepetitioner in its full sense and therefore there has been a violation ofthe principles of natural justice while issuing Ext.P6 order ofassessment. 23. In this context, the fact that if a fresh opportunity isgranted to the petitioner to reply to the notices issued and also toconsider same in a time bound manner would not cause anyprejudice to the department. On the contrary, it will cater to theadvancement of the cause of justice for both sides. 24. Having regard to the circumstances of the case, I am ofthe opinion that Ext.P6 is liable to be set aside and a freshopportunity of hearing be granted to the petitioner. While settingaside Ext.P6 order of assessment dated 22.04.2021, the petitioner isgiven an opportunity to respond to all the notices issued to thepetitioner on or before 14.01.2022 and the assessing officer shallconsider the objections of the petitioner and pass fresh orders W.P.(C) No.19218/21 -:15:- thereon, after hearing the petitioner on or before 31.01.2022. The writ petition is allowed as above. Sd/- vps BECHU KURIAN THOMAS JUDGE -:16:- APPENDIX OF WP(C) 19218/2021 PETITIONER'S/S' EXHIBITS EXHIBIT P1 TRUE COPY OF THE NOTICE DATED02/12/2019. EXHIBIT P2 TRUE COPY OF THE REPLY OF THE PETITIONERDATED 06/12/2019. EXHIBIT P3 TRUE COPY OF THE REPLY DATED 11/12/2019.TRUE COPY OF THE ORDER DATED 04/03/2020.TRUE COPY OF THE SCN DATED 03/04/2021. EXHIBIT P4EXHIBIT P5 EXHIBIT P6 TRUE COPY OF THE ASSESSMENT ORDER DATED22/04/2021. EXHIBIT P7 W.P.(C) No.19218/21 -:15:- thereon, after hearing the petitioner on or before 31.01.2022. The writ petition is allowed as above. Sd/- vps BECHU KURIAN THOMAS JUDGE -:16:- APPENDIX OF WP(C) 19218/2021 PETITIONER'S/S' EXHIBITS EXHIBIT P1 TRUE COPY OF THE NOTICE DATED02/12/2019. EXHIBIT P2 TRUE COPY OF THE REPLY OF THE PETITIONERDATED 06/12/2019. EXHIBIT P3 TRUE COPY OF THE REPLY DATED 11/12/2019.TRUE COPY OF THE ORDER DATED 04/03/2020.TRUE COPY OF THE SCN DATED 03/04/2021. EXHIBIT P4EXHIBIT P5 EXHIBIT P6 TRUE COPY OF THE ASSESSMENT ORDER DATED22/04/2021. EXHIBIT P7 TRUE COPY OF THE REPLY ACKNOWLEDGEMENTFOR THE ASSESSMENT YEAR 2018-19 DATED15.04.2021. EXHIBIT P8 TRUE COPY OF THE ORDER DATED 13/08/2021IN WRIT PETITION (C) NO. 16891/2021.