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Pre-Budget 2021 Wish: ‘Audi Alteram Partem’

This Article penned down by Sh. Mayank Mohanka, FCA, Founder Director in M/s TaxAaram India Pvt Ltd has been published in the renowned website Taxmann.com with citation (2021) 123 taxmann.com 351 (Article). Knowledge is meant for sharing so this Article is shared herewith with our Readers as under: 

Audi alteram partem (or audiatur et altera pars) is a Latin maxim or phrase meaning "no man should be condemned unheard” or “hear the other side”, and is an inherent constituent of the ‘Principle of Natural Justice.’

Natural justice is the concept of common law which implies fairness, reasonableness, equality and equity. In India, the ‘Principle of Natural Justice’ has been given the Constitutional backing by Article 14 and Article 21 of the Constitution of India. Article 14 enshrines that every person should be treated equally. Article 21 provides that the law and procedure must be of a fair, just and reasonable kind. (Maneka Gandhi vs. The Union of India (SC).

In Indian Income Tax Laws, this Latin maxim ‘Audi alteram partem’ has been given an absolute recognition and our Indian counterpart to this Latin phrase is “Suitable or Reasonable Opportunity of Being Heard”.

The Hon’ble Supreme Court in the case of ‘Manohar s/o Manikrao Anchule vs State of Maharashtra & Ors’, has held that adjudicatory process has to be in consonance with the doctrine of audi alteram partem, i.e., no one should be condemned unheard and nemo debet esse judex in propriacausa sua, i.e. no one should be judge in his own case.

Likewise, the Apex Court in the case of Mohinder Singh Gill vs. Chief Election Commissioner has observed, “Indeed from the legendary days of Adam-and of Kautilya’s Arthashashtra- the rule of law has had this stamp of natural justice, which makes it social justice. Today its application must be sustained by current legislation, case law or other Extant principle….” 

The two essential ingredients of the Rule of ‘Audi Alteram Partem’ are (i) Notice and (ii) Hearing.

(i) Notice: In any adjudicatory proceedings including the income-tax proceedings, before drawing any adverse inference or conclusion, the affected party must be given a notice to show cause against the proposed inference or conclusion and seek his/her explanation. It is a sine qua non of the right of fair hearing. Any order passed without giving notice is against the principles of natural justice and is void ab initio.

(ii) Hearing: The second ingredient of audi alteram partam (hear the other side) rule is the rule of hearing. Any order passed by the adjudicating authority without providing the reasonable opportunity of being heard to the person affected by it adversely, shall be invalid and must be set aside as has been consistently held by the Apex Court in the cases of ‘Harbans Lal v. Commissioner’, ‘National Central Co-operative Bank v. Ajay Kumar’ and ‘Fateh Singh v. State of Rajasthan’.

Faceless Tax Administration Regime & ‘Audi Alteram Partem’

Currently, in the Direct Tax Administration, the Faceless Adjudication Regime has been enforced on PAN India basis in all the three limbs viz, Assessments, Appeals and Penalty. The Faceless Assessments Scheme, 2019 has been implemented w.e.f. 13.8.2020, the Faceless Appeals Scheme, 2020 w.e.f. 25.9.2020 and the Faceless Penalty Scheme, 2021 w.e.f. 12.1.2021.

In all the three limbs of faceless tax administration regime, i.e. faceless assessments, faceless appeals and the faceless penalty, the assessees or their authorised representatives are not able to personally meet the concerned income tax adjudicating authority and make verbal or oral face to face representations. The only via media of interface is in electronic manner only i.e. uploading of written replies and submissions and supporting documents and records through the e-Proccedings utility in the registered account in the e-filing portal of the income-tax department’s website.  

“In such a faceless regime, can restricting and confining the manner and mode of filing responses by the assessees in their tax assessments, appeals and penalty proceedings, via electronic mode only and not through personal interface, be challenged in the appropriate legal forums and considered as against the principle of natural justice of granting of suitable and reasonable opportunity of being heard to the assessees in income-tax proceedings?”

In order to understand this dicey issue, it is quintessential for us to first know the prescribed statutory procedure of the adjudicatory proceedings in the faceless assessments, appeals and penalty proceedings in the respective Legislative Schemes.

For brevity and clear understanding sake, I have reduced the voluminous and lengthy prescribed statutory procedure in these three faceless legislative schemes into simple and easy to understand infographics, though doing so has entailed a lot of thought process, time, energy and efforts.

Let us understand the prescribed statutory procedure of the conduct of the adjudicatory proceedings in these three faceless legislative schemes as under:

(I) Infographic explaining the Procedure of Faceless Assessments:

Making ‘Audi Alteram Partem’ more meaningful and inclusive in Faceless Assessments 

As can be observed from the above infographic, in the new Faceless Assessment Scheme, 2019, the Show Cause Notice (SCN) is being issued to the assessee only after passing of the Draft Assessment Order by the Assessment Unit in the Regional Faceless Assessment Centre. Further the assessee is not having any ‘by-default’ right of personal hearing and the assessee may only request for a personal hearing by way of video conferencing/telephony, in case of disagreement with the additions/disallowances proposed in the draft assessment order. The Chief Commissioner or the Director General, ReAC, may approve such request for personal hearing, if he is of the opinion that the case falls in the list of specified circumstances as notified by CBDT.

The circumstances where the request of the assessee for personal hearing via video conferencing may be approved are yet to be notified by CBDT and in order to do away with the ambiguity, a suitable clarification by the CBDT concerning the specified circumstances wherein the request of personal hearing of the assessee may be approved by the CCIT ReAC is desirable.

In the old E-Assessment Scheme, 2019, by virtue of a right vested in the scheme, the assessee was entitled to personal hearing, by way of video conferencing/telephony, in case of disagreement with the additions/disallowances proposed in the draft assessment order, in all assessment cases.

It is pertinent to note here that the Hon’ble Madras High Court in a recent order in the case of ‘Salem Sree Ramavilas Chit Company vs DCIT [2020]’, have observed and stated that the faceless tax-assessment system can lead to erroneous assessment, if officers are not able to understand the transactions and statement of accounts of an assessee without a personal hearing.

Thus, in order to reduce litigations and tussles, the CBDT may reconsider and review the amended provision of conditional grant of opportunity of personal hearing via video telephony to the assessee, only in certain specified circumstances, and may restore the earlier provision of grant of such opportunity of personal hearing via video telephony to the assessee, in all cases, wherein the assessee asks for it in writing.

Further, in the current framework, the opportunity of personal hearing may be granted to the assessee only after passing of the draft assessment order by the assessment unit in the ReAC and not before that. In order to make this right of personal hearing more effective and meaningful, such an opportunity should be granted to the assessee before passing of the draft assessment order.

(II) Infographic explaining the Procedure of Faceless Appeals:

Making ‘Audi Alteram Partem’ more meaningful and inclusive in Faceless Appeals 

As can be seen in the above infographic, in the new Faceless Appeal Scheme, 2020, the appellant is not having any 'by-default' right of personal hearing and the appellant may only request for a personal hearing by way of videoconferencing/telephony, so as to make his oral submissions or present his case before the appeal unit under this Scheme. The Chief Commissioner or the Director General, in charge of the Regional Faceless Appeal Centre (RFAC), under which the concerned appeal unit is set up, may approve the request for personal hearing, if he is of the opinion that the request is covered by the circumstances as maybe notified by CBDT. The circumstances where the request of the appellant for personal hearing via video conferencing may be approved are yet to be notified by CBDT. Thus, a suitable clarification concerning the specified circumstances wherein the request of personal hearing of the assessee may be approved by the CCIT RFAC is desirable.

This burning and litigative issue of lack of suitable opportunity of being heard in the new faceless appeal scheme resulting in violation of Principle of Natural Justice and Article 14 of the Constitution of India, has become more critical in view of the admission of the writ petition of the taxpayer by the Hon'ble Delhi High Court in the case of Lakshya Buddhiraja on 16-10-2020, on this very issue.

Thus, in order to reduce litigations and tussles, the CBDT may reconsider and review the provision of conditional grant of opportunity of personal hearing via video telephony to the appellant, only in certain specified circumstances, and may consider the grant of such opportunity of personal hearing via video telephony to the appellant, in all cases, wherein the appellant asks for it in writing.

Further the Right of Filing Rebuttal to the objections of NeAC/AO against the admission of additional ground of appeal & additional evidence by the appellant should be provided in Faceless Appeal Scheme, 2020.

(III) Infographic explaining the Procedure of Faceless Penalty Proceedings:

As is evident from the above infographic, like the faceless assessments and appeals, in the faceless penalty scheme also, the assessee is not having any ‘by-default’ right of personal hearing and the assessee may only request for a personal hearing by way of video conferencing/telephony. In order to reduce litigations, the CBDT may consider the grant of such opportunity of personal hearing via video telephony to the appellant, in all cases, wherein the appellant asks for it in writing.

Concluding Remarks

The rule of ‘audi alteram partem’ or the grant of suitable/reasonable opportunity of being heard’ is an essential and necessary ingredient of the ‘Principle of Natural Justice’.

My learned and respected friends from the Revenue side may counter my above discussed propositions by asserting that unlike in U.S.A. and England, the Courts in India do not consider the right to oral or personal hearing as part of the principle of audi alteram partem unless the statue under which the action is taken by the authority, expressly provides for the oral or personal hearing and the legislative requirement of grant of suitable opportunity of being heard may also be achieved by providing opportunity to the affected person by making 'written representation' instead of oral or personal hearing as has been provided in the case of ‘Union of India v. J.P. Mitter’ (SC).

However, the question here is not about winning an argument or scoring a brownie point. The issue here is about winning the trust and confidence of the major stakeholders to whom our beloved and honourable PM Sh. Narendra Modi often refer to as ‘the wealth creators’ i.e. the taxpayers and the assessees.

No doubt the primary objective of the faceless tax administration is the elimination of physical interface and as such physical visits and meetings between the assessee and the assessing authority can’t be allowed,  and infact no-body should ask for it, but nonetheless that objective can still be achieved by inserting an enabling legislative provision of the grant of by-default right of personal hearing via video conferencing or telephony to the assessee, if he/she asks for it, in the faceless assessment, appeal and penalty schemes.

Believe me, grant of half an hour opportunity of personal hearing via video conferencing to the assessee or his/her authorised representative to enable him/her to represent his/her case, is far more effective, meaningful and productive than the electronic uploading of 1000 pages written submission paper book, which the adjudicating authority may choose to read or not.

I would like to sum up the entire discussion with just one line, “Even murderers are given an opportunity of personal hearing, I am just an assessee.”

Our Dear & Beloved FM, Are You Listening?