Paradigm Shift In Appeal Proceedings Under Income Tax Act – Against The Principles of “Natural Justice – Audi Alteram Partem”

PRELUDE:

The faceless appeal scheme at first appellate stage introduced by the Government vide Finance Act, 2020 under section 250 of the Income-tax Act, 1961 brought a paradigm shift in the Appeal proceedings, in addition to it a provisions w.r.t. Income Tax Appellate Tribunal were amended vide Finance Act, 2021 for introducing faceless appeals scheme even at Appellate Tribunal (second Appellate forum).

In this regard it is pertinent to mention that in Appellate proceedings “letter & spirit” of Law relevant to/read with the facts of the case needs to adjudicated but in faceless appeal proceedings since hearing Appellant is not mandatory adjudication of spirit of Law relevant to the particular facts, as they may or may not be in written form, gets violated as long as it defeats the principle of Audi Alteram Partem.

Therefore, new scheme puts forth few fundamental questions, the foremost being in respect of mandatory hearing to be provided to an Appellant before rendering of the decision by an appellate authority.

FACELESS APPEALS SCHEME AT FIRST APPELALTE STAGE:

A bare perusal of the sub-section (6B) of Section 250 of the Act reveals that with a view to impart transparency, efficiency and accountability (TEA), the Central Government has been empowered to frame a scheme by a notification pertaining to the jurisdiction and the procedure for disposal of appeals by the Commissioner (Appeals). The said scheme has been introduced as is evidenced by the provisions itself with the following objects:

♦ Empowering Central Government to notify an faceless appeal scheme for disposal of appeal so as to impart greater transparency, efficiency and accountability(TEA).

♦ Eliminating the interface between the CIT(Appeals) and the appellant to the extent technologically feasible;

♦ Optimising utilisation of resources through economies of scale and functional specialisation; and

♦ Introducing an appellate system with dynamic jurisdiction in which appeal shall be disposed of by one or more Commissioner of Income-tax (Appeals).

However, what needs to be noticed is that provisions of sub-section (2) of Section 250 of the Act conferring the right to be heard at the time of hearing appeal at the instance of first appellate authority though not omitted completely made it subject to the scheme as per the provision of sub-section (6B) and (6C) of the Section 250 of the Act. The Central Government pursuant to the aforesaid incorporation of the provisions of sub-section (6B) to (6D) in Section 250 of the Act has issued ‘FACELESS APPEAL SCHEME, 2020 vide notification dated 25-9-2020.

The right of hearing, one of the facets of principles of natural justice – “AUDI ALTERAM PARTEM”, under the scheme has been subjected to the discretion of the appellate authorities namely, the Chief Commissioner or the Director General, in charge of the Regional Faceless Appeal Centre after a request in that behalf is made by the Appellant. The relevant provisions incorporating the right of hearing of the scheme reads as under:

“No personal appearance in the Centres or Units:

12. (1) A person shall not be required to appear either personally or through authorised representative in connection with any proceedings under this Scheme before the income-tax authority at the National Faceless Appeal Centre or Regional Faceless Appeal Centre or appeal unit set up under this Scheme.

(2) The appellant or his authorised representative, as the case may be, may request for personal hearing so as to make his oral submissions or present his case before the appeal unit under this Scheme.

(3) The Chief Commissioner or the Director General, in charge of the Regional Faceless Appeal Centre, under which the concerned appeal unit is set up, may approve the request for personal hearing referred to in sub-paragraph (2), if he is of the opinion that the request is covered by the circumstances referred to in clause (xi) of paragraph 13.

(4) Where the request for personal hearing has been approved by the Chief Commissioner or the Director General, in charge of the Regional Faceless Appeal Centre, such hearing shall be conducted exclusively through video conferencing or video telephony, including use of any telecommunication application software which supports video conferencing or video telephony, in accordance with the procedure laid down by the Board.

(5) Any examination or recording of the statement of the appellant or any other person shall be conducted by Commissioner (Appeals) in any appeal unit under this Scheme, exclusively through video conferencing or video telephony, including use of any telecommunication application software which supports video conferencing or video telephony in accordance with the procedure laid down by the Board.

(6) The Board shall establish suitable facilities for video conferencing or video telephony including telecommunication application software which supports video conferencing or video telephony at such locations as may be necessary, so as to ensure that the appellant, or his authorised representative, or any other person is not denied the benefit of this Scheme merely on the ground that such appellant or his authorised representative, or any other person does not have access to video conferencing or video telephony at his end.”

The right of personal hearing has been subjected to the discretion of the Chief Commissioner or the Director General, in charge of the Regional Faceless Appeal Centre without expressly providing necessary safeguards in the form of checks and balances on the exercise of such discretion while allowing or not allowing the right of personal hearing demanded by the Appellant, unlike the provisions of clause (1)(xiii)(d) of the notification/scheme which provides for recording of reasons in writing while admitting and/or not admitting the additional evidence at the hands of the appellate authority which is sought to be adduced by an Appellant. There is no express provision with respect to recording reasons either for granting or rejecting the opportunity of personal hearing which is either equally or in alternative more important than the admission of additional evidence.

The requirement of oral hearing must be insisted upon as a matter of public policy, namely, to prevent not only a perverse decision but also to secure a decision which is not vitiated by well-meaning ignorance or carelessness due to absence of oral hearing. Personal hearing, as held by the Apex Court in GN Rao vs. Andhra Pradesh State Road Transport Corporation, AIR 1959 SC 308, enables a party appearing at such hearing to persuade the authority concerned by reasoned arguments to accept his point of view by removing the authority’s doubt and by answering the authority’s question.

CONCEPT OF NATURAL JUSTICE:

The ‘basic tenets – Some concepts in legal jurisprudence are of perennial interest. Discussion about these is always refreshing. The rule about ‘natural justice’ is one such concept. It is an expression of English common law and relates to the sphere of procedural law. Its basic tenets are impartial adjudication and fair hearing. The above-mentioned two principles of natural justice, viz., audi alteram partem and nemo judex in causa sua potest are Latin maxims which have been used in common law from jus naturale.  This precludes bias of any kind. The rule has become so well known that it is being considered embodied without any definition, in almost all Acts of Parliament. So important is the concept of natural justice that even God is said to have followed the principles of this rule. In Cooper v. Wandsworth Board of Works [1861] 73 All E.R. Rep. Ext. 1554, Judge Byles has observed:

“The laws of God and man both give the party an opportunity to make his defence, if he has any. I remember to have heard it observed by a very learned man, upon such an occasion, that even God himself did not pass sentence upon Adam before he was called upon to make his defence. ‘Adam’ (said God), ‘where art thou? Hast thou not eaten of the tree whereof I commanded thee that thou shouldest not eat?’ And the same question was put to Eve also.”

PRINCIPLE OF AUDI ALTERAM PARTEM:

 In Ridge v. Baldwin 2 All ER 66 (HL) Lord Reid and Lord Hodson held that a decision rendered contrary to the principle of natural justice of audi alteram partem was void. Audi alteram partem relates to hearing of both sides. This aspect of natural justice enjoins that the deciding person (be he a Judge or a Tribunal) must come to a decision only after giving each party before him a chance to state his case. Not only this, it also contemplates that one party must not be heard in the absence of the other. Also, it includes a right to know the case which one is expected to meet at the hearing. The right to have a notice of the case and of the time and place of the hearing implies that the notice given must be reasonable.

The importance of audi alteram partem in a judicial system was reiterated by the Apex Court in P.N. Eswara Iyer vs. Registrar, Supreme Court of India, (1980) 4 SCC 680, by holding as under:

“We must make it perfectly plain, right at the outset, that audi alteram partem is a basic value of our judicial system. Hearing the party affected is too deeply embedded in the consciousness of our constitutional order.”

The various issues contacted with the principle of ‘audi alteram partern’ have been summed up by Venkatarama Ayyar, J. in the following words:

“Rules of natural justice require that a party should have the opportunity of adducing all relevant evidence on which he relies, that the evidence of the opponents should be taken in his presence and that he should be given the opportunity of cross-examining the witnesses examined by that party, and that no material should be relied on against him without his being given an opportunity of explaining them.”

MANDATORY REQUIREMENT OF ORAL/PERSONAL HEARING: 

The Income-tax Act, 1961 which is an on-going all India taxing statute involves complex and diverse issues pertaining to areas of civil and criminal law, for example Hindu Joint Family Law, partnership, sale of goods, contracts, Mohammedan Law, Company Law, Law relating to Trusts and Societies, Transfer of Property, Law relating to Intellectual Property, Interpretation of Statutes and sections dealing with prosecution for offences. The proceedings before the first appellate authority are quasi-judicial.

The principles of natural justice has been raised to the status of fundamental rights by an interpretative process being a part of the guarantee contained in article 14 of the Constitution because of the new and dynamic interpretation given by the Supreme Court to the concept of equality.

The principles of natural justice, however, apply not only to legislation and State action but also where any Tribunal, authority or body of men, not coming within the definition of ‘State’ in article 12, is charged with the duty of deciding a matter. In such a case, the principles of natural justice require that it must decide such matter fairly and impartially. Equally true it is that there cannot be a waiver of a fundamental right. Thus, the right of hearing is made subservient to discretion of an authority deciding the appeal would make such an exercise of power questionable on the alter of Article 14 of the Constitution of India.

The issue still further needs to be looked from another angle. It has been emphasized by the Hon’ble Supreme Court in the case of Automotive Tyre Mfgrs. Association v. Designated Authority, that even written arguments are no substitute for an oral hearing. A personal hearing enables the authority concerned to clear up his doubts during the course of arguments. Even where statutory provisions do not provide for personal hearing, such hearing has to be afforded by the authority if complicated and difficult questions are involved in the matter or technical problems are raised. The said principle stands affirmed by the Supreme Court in Travancore Rayons v. Union of India, where the question was whether the company was producing nitrocellulose lacquer falling under a particular tariff item. According to the company, the production did not fall within the said item and reliance was placed on the certificate issued by the Silk Mills Research Association, Bombay. Having failed before the Collector of Customs, the appellant preferred a revision application before the Central Government. Without affording personal hearing to the company, the Central Government dismissed the revision. The company approached the Supreme Court. It was contended that personal hearing ought to have been afforded to the company by the Central Government. Allowing the appeal and upholding the contention of the company, Shah J., (as his lordship then was) observed:

“It is true that rules do not require that personal hearing shall be given, but if in appropriate cases where complex and difficult questions requiring familiarity with technical problems are raised, personal hearing is given, it would conduce to better administration and more satisfactory disposal of the grievances of citizens” (emphasis supplied)

Significantly, echoing the same theme, the Supreme Court in the case of State of U.P. v. Maharaja Dharmander Prasad Singh, observed that in important matters, “where stakes are very heavy” and “where number of grounds require the determination of factual matters of some complexity”, the statutory authority should also afford personal hearing to the party likely to be affected. Thus, personal/oral hearing cannot be sacrificed under any circumstances at least in cases decided by the appellate authorities under the fiscal statutes like Income-tax Act, 1961, in a society governed by rule of law.

Concluding Lines:

The right of hearing as per the scheme is subject to the discretion of the appellate authority. The said scheme has been framed under the provisions of Section 250 of the Act. The provisions of the scheme making the right of hearing a subject matter of discretion at the hands of the appellate authority is in direct conflict with the provisions of Section 250(2) and 251(2) of the Act which latter provisions inter-alia, confer a right on the Appellant to be heard at the hearing of the appeal unconditionally and unfettered by any discretionary power with the result that the discretionary power conferred under the scheme would continue to be otiose as the scope of power granted to an authority whether exercising quasi-judicial power or administrative power would be subject to the governing provisions of the parent statute.

Notification pursuant to the amendments to Income-tax, Act, 1961 for introducing faceless appeals scheme at Appellate Tribunal stage is not notified, therefore, plausible outcome of the proposed scheme is not explained above, whatever it may be, as long as it eradicates the option of oral hearing it affects the substantial justice to be made to the Assessee/Appellant and will be treated as against the principles of Natural Justice more particularly Audit Alteram Partem.

Suggestions: The Hon’ble Minister of Finance would be serving the cause of justice by making the following amendments in the scheme:

1. Right of oral/personal hearing be made absolute at the hands of the appellate authority before rendering the decision in appeal by omitting the provisions in the scheme subjecting the right of hearing to discretion of the appellate authority ;

2. Right of oral/personal hearing or filling written arguments at the instance of the Appellant be made optional;

3. Provision regarding time limit for disposal of appeals preferably within six months and in any case, period not exceeding one year from the date of filling of the appeal should be incorporated;

4. Provision empowering the appellate authority to award costs against the Assessing Officer in case of frivolous and vexatious Orders be also made in the scheme.

The aforesaid amendments would go a long way to instill confidence in the assessee’s and in tune with the principle that justice should not only be done, but should manifestly and undoubtedly be seen to be done.

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