Natural Justice

Natural Justice is a concept which ensures & implies fairness & equality for all. The principles of natural justice are guided and firmly embedded in Article 14 & Article 21 of the Constitution. Article 14 of the Constitution ensures equality before law & equal protection of law. With the introduction of concept of substantive & procedural due process in Article 21, all that fairness which is included in principles of natural justice can be read into Article 21.

With a rapid change in the Indian economy which is constantly evolving due to the liberal policies which are being introduced by the Government of India to facilitate the growth of trade & commerce, it becomes increasingly necessary to adhere to the principles of natural justice as these form the very basis of the administration of justice.

The rules of natural justice are not embodied or imprisoned in a particular statute or law. There is no strict procedural application of the law of natural justice. These need to be applied keeping in mind the extent of the facts & circumstances of the case. The principle of natural justice encompasses the following two rules :

1. Nemo judex in causa sua : No one should be made a judge in his own cause or the rule against bias

2. Audi alteram partem : Hear the other party or the rule of fair hearing or the rule that no one should be condemned or unheard i.e no decision should be given against a party without affording a reasonable opportunity of being heard. It is a well settled proposition that Income Tax Authorities play a pivotal role in the tax administration of any country. It is a universal fact that these authorities are required to adhere to the principles of natural justice while taking any decision which may adversely the rights of any individual. If the instrumentalities of the tax administration are not charged with the duty of discharging these functions in a fair & just manner, the very purpose of the principle of natural justice are violated.

The various judicial authorities from time to time have consistently held that the principles of natural justice form an integral part of any proceeding under the Income Tax Act. It is a well settled principle that the Rules of Natural Justice should be applied before concluding any assessment proceedings. There are certain essentials to an assessment proceeding to ensure that the principles of natural justice adhered to -

1. Issue & service of a notice is one of the pre requisites to any assessment proceeding. The authorities should issue a notice to the party/assessee to show cause and explain the facts of the case & produce evidences before drawing any adverse inferences against him.

An order u/s 143(3) can be passed only in pursuance to notice u/s 143(2) of the Income Tax Act 1961. Non – issuance and non – service of a notice on the assessee is a violation of principles of natural justice. The Hon’be Delhi ITAT (2017) in the case of Zaika Begum V/s ITO held that in absence of issue of notice u/s 143(2) of the Income Tax Act 1961, the assessment order in dispute is invalid, void abinitio and against the provisions of law and therefore the impugned order is not sustainable in the eyes of law and hence the appeal filed by the assessee is allowed.

2. An assessment order should be passed onlyafter the assessee is presented with an opportunity of being heard and producing documents/ evidence to substantiate his claim. Any assessment order which is passed before the assessee is given an opportunity of being heard violates the audi alteram parted principle.

In a landmark decision in the case of Maneka Gandhi V/s Union of India, the Apex Court observed that the person concerned must be heard before any decision is taken. These are an integral part of the guarantee of equality assured by Art. 14. Any order passed without living the assessee an opportunity of being heard suffers from violation of this principle of natural justice.

3. Incase of a third party enquiry which is being conducted and the Income Tax Authority proposes to use the material so gathered against the assessee, the incriminating material so collected which is intended to be used while passing the assessment order should be disclosed to the assessee. This rule has been rightly upheld in the case of Kishinchand Chellaram 125 ITR 713 SC where it was held that any material not confronted to the assessee would not constitute as ‘admissible evidence’ and consequently addition made on the basis of such evidence deserves to be quashed.

Further, in case of an enquiry which is being conducted, reports or the enquiry should be given to the assess for inspection if the same intended to be used against the assessee. Transparency in assessment proceedings makes the assessment less prone to errors and also helps sustain the taxpayers/assessee’s faith in the judicial system.

4. A reasoned order is one of the most essential element of natural justice. The necessity of passing a reasoned order fiows from the concept of Rule of Law which constitutes one of the cornerstones of a constitutional set up. An assessment order passed should reveal a rational nexus between the facts of the case, the evidence collected by the income tax authorities during the course of the assessment proceedings and the conclusion The assessment order should be objective and should communicate the mind of the decision maker. Well reasoned judgements form an indispensable part of any judicial system and act as a precedent for any future decisions.

The Apex Court in Mangalore Ganesh Beedi Works V/s CIT & Annr. observed that failure to give reasons amounts to denial of justice. Similarly, the Hon’ble Punjab & Haryana High Court in the case of CIT(A) - Amritsar V/s Indra Sen Aggarwal set aside the order of the ITAT as the order was not a reasoned order. The Punjab & Haryana High Court followed the principles laid down by the Hon’ble Supreme Court in the case of M/s Kranti Associates Pvt. Ltd and another V/s Sh. Masood Ahmed Khan and others.

In several decisions, the Supreme Court has held that tax authorities are bound to observe and discharge their responsibility of concluding any assessment in all fairness. The application of tax laws must be just and reasonable. The right to impose tax is a legislative power which has been entrusted to the tax authorities & these powers have to be exercised imbibing the principles of natural justice and on judicial grounds.

By UJA Research Team