Principles of natural justice are soul
of an administration of justice and need to be adhered to in order to make the
order as a just and fair order. The concept of speaking order is the essential
part of the principles of natural justice. The principles of natural justice
have come to be known as being part of the guarantee contained in Article 14 of
our Constitution i.e. “The concept of equality”. Violation of a rule of natural
justice results in arbitrariness and hence is equivalent to that of
discrimination. Therefore, violation of principle of natural justice by a State
results into violation of Article 14.
'Natural Justice' is an expression of
English common law. In one of the English decisions, reported In (1915) AC 120
(138) HL, Local Government Board v. Arlidge, Viscount Haldane observed,
"...those whose duty it Is to decide must act Judicially. They must deal
with the question referred to them without bias and they must give to each of
the parties the opportunity of adequately presenting the case made. The
decision must come to the spirit and with the sense of responsibility of a
tribunal whose duty it is to meet out justice."
Natural justice is a concept of common
law and represents higher procedural principles developed by the courts, which
every judicial, quasi-judicial and administrative agency must follow while
taking any decision adversely affecting the rights of a private individual. In
short, Natural justice implies fairness, equity and equality. The concept of
Rule of Law would lose its validity if the instrumentalities of the State are
not charged with the duty of discharging these functions in a fair and just
manner.
It is now
well settled proposition that an Income Tax Officer, when he conducts enquiry
and makes assessments under section 143 of the Income-tax Act, 1961 is not a
court nor the proceedings before him are judicial proceedings in the strict
sense of the term. The proceedings are deemed to be judicial proceedings only
to the extent and for the purposes indicated in section 136 of the Act.
In fact the
proceedings before the Income Tax Officers are quasi-judicial in nature. A
quasi-judicial function comes in between administrative and judicial function.
In other words, a quasi-judicial decision is one where there is a dispute and
process involving the ascertainment possibly also legal argument, but where
administrative action takes the place of the normal determination based on the
evidence adduced under the relevant legal rules.
Basic principles of natural justice
The principle of natural justice
demands that there should be fair determination of a question by quasi-judicial
authority. The natural justice further demands that the Assessing Officer
should draw the assessee’s attention to the proposed additions and give the
assessee an opportunity to produce evidence in rebuttal of the material on
which he proposes to base his judgement.
The basis of rule of natural justice
requires recording of reasons in support of the order. The order has to be
self-explanatory and should not keep the higher court guessing for reasons.
Reasons provide live link between conclusion and evidence, that vital link is a
safeguard against arbitrariness, passion and prejudice. Reason is a
manifestation of mind of adjudicator. It is a tool for judging the validity of
the order under challenge. It gives opportunity to the higher court to see
whether or not the adjudicator has proceeded on the relevant consideration,
material and evidence.—[Shivsagar Veg. Restaurant v. ACIT and another (2009)
317 ITR 433 (Bom.)]
Adjournments
Courts grant
adjournment liberally. More so, if the cause is sufficient. However, a party
who has been allowed sufficiently long time to reply may not be entitled to
adjournment. But the necessity to furnish an effective reply against a show
cause notice cannot be overstated. Therefore, to demonstrate that justice is
done, the authority has to grant adjournment where the request is for a valid
reason. In such cases, granting adjournment too, therefore, could be a part of
the principles of natural justice.
Situations of violation of principles of natural justice
in taxation laws
The following situations warrant the
assessees to seek the intervention and direction of the High Courts:—
(a) When Notice itself is not served.
(b) When arbitrary orders are passed by the department
without granting opportunity of personal hearing.
(c) When relied upon documents or copies of seized
documents are not provided by the department despite request letter submitted
by the assessee.
(d) When cross-examination is denied.
(e) When the written submission for the Notice or for
Personal Hearing is not considered.
(f) When the request of modification stay application is
not considered.
(g) When fundamental rights of the petitioner guaranteed
under Articles 14 & 21 of the Constitution of India are not protected.
(h) When reasonable time for reply or for adjournment is
denied without notice.
(i) When the order is passed for new additional demand
without issuing revised notice.
(j) And among other reasons, when speaking order is not
passed. In Ashok Kumar Yadav v. State of Haryana 1985 SCR Supl (1) 657,
the Apex Court held—
“It is one of the fundamental
principles of jurisprudence that no man can be a judge in his own cause and
that if there is a reasonable likelihood of bias it is in accordance with
natural justice and common sense that the justice likely to be so biased should
be incapacitated from sitting.”
The essential characteristic of ‘Natural Justice’ is
known by two maxims, namely,—
(a) Nemo judex in causa sua (i.e. no man can
be judge in his own cause or rule against bias)
Nemo judex in causa sua maxim
means that no-one should be a judge in their own cause. It is a principle of
natural justice that no person can judge a case in which they have an interest.
The rule is very strictly applied to any appearance of a possible bias, even if
there is actually none.
The Supreme Court in the case of Ashok
Kumar Yadav and Ors. v. State of Haryana & Ors. 1985 (4) SCC 417 observed
that “It is one of the fundamental principles of our jurisprudence that no
man can be a judge in his own cause and that if there is a reasonable
likelihood of bias it is in accordance with natural justice and commonsense
that the justice likely to be so biased should be incapacitated from sitting.
The question is not whether the judge is actually biased or in fact decides
partially, but whether there is real likelihood of bias. What is objectionable
in such a case is not that the decision is actually tainted with bias but that
the circumstances are such as to create a reasonable apprehension in the mind
of others that there is a likelihood of bias affecting the decision.”
This is extended to all cases where an
independent mind has to be applied in order to arrive at a fair &
reasonable decision between the rival claims of two parties. The quasi judicial
authorities must not forget that, Justice is not the function of the courts
alone, but it is also the duty of all those who are expected to reasonably and
fairly decide between two contending parties.
Rule against bias
v Bias-operative
prejudice in relation to a party or issue.
v Requirement
of this principle is that
o
the judge must be impartial and
o
must decide the case objectively on the
basis of evidence.
v Bias
manifests variously and may affect the decision in a variety of ways.
v It
could be personal bias, pecuniary bias and subject-matter bias.
(b) Audi alteram partem (i.e. hear the other
party or no man shall be condemned unheard or Rule of fair hearing)
Audi alteram partem maxim means
that a reasonable opportunity of hearing which is sine qua non and
imperative for the statutory authority to afford before passing the order or
decision. Hear the other party or the rule of fair hearing or the rule that no
one should be condemned unheard. This principle is the basic concept of
principle of natural justice. This expression implies that a person must be
given opportunity to defend himself. This principle is sine qua non of
every civilized society.
In other words, it can be referred to
‘Impartiality’ and ‘Fairness’ in order to meet justice. The elementary
Principle of Natural Justice in Law of Taxation is that, the assessee should
have knowledge of the material which is going to be used against him so that he
may be able to meet it.
The principles of natural justice are
enshrined in Articles 14 & 21 of the Constitution of India. With the
introduction of concept of substantive and procedural due process in Article
21, all that fairness which is included in the principles of natural justice
can be read into Article 21. The violation of principles of natural justice
result in arbitrariness and therefore violation of natural justice is a
violation of Equality clause of Article 14.
“Justice must not only be done, but must be seen to be
done”
The basic principle underlying this
rule is that justice must not only be done but must also appear to be done and
this rule has received wide recognition in several decisions of the Supreme
Court. D.P. Mahesh v. Assistant Commissioner (CT) (Addl.), Thiruvanmiyur
Assessment Circle, Chennai (2013) 58 VST 434 (Mad). The respondent has
passed the impugned assessment order, which amounts to violation of the
principles of natural justice. Considering the facts and circumstances of the
case and in the interest of justice, the impugned assessment order dated May
18, 2012 is quashed with a direction to the respondent to consider the matter
afresh after giving opportunity to the petitioner. Reasonable opportunity was
not given to the petitioner since notice itself had not been served on the
petitioner. The order in question was liable to be set aside and the assessing
authority was to proceed and finalize the assessment in accordance with law
after giving the petitioner reasonable opportunity of being heard [Palaniappa
Sago Factory v. DCTO Attur Assessment Circle (2009) 24 VST 248]. Hon’ble
Supreme Court in the case of Mohinder
Singh Gill v. Chief Election Commissioner AIR 1978 (SC) 851, quoted
the following:—
“Natural justice is a pervasive facet
of secular law where a spiritual touch enlivens legislation, administration and
adjudication, to make fairness a creed of life. It has many colours and shades,
many forms and shapes and, save where valid law excludes, it applies when
people are affected by acts of authority. It is the bone of healthy government,
recognized from earliest times and not a mystic testament of judge-made law.
Indeed from the legendary days of Adam – and of Kautilya’s Arthashastra – the
rule of law has had this stamp of natural justice, which makes it social
justice. We need not go into these deep for the present except to indicate that the roots of natural
justice and its foliage are noble and not new-fangled. Today its application
must be sustained by current legislation, case law or other extant principle,
not the hoary chords of legend and history. Our jurisprudence has sanctioned
its prevalence even like the Anglo-American system.”
When justice is not meted out for the
assessees, they approach the High Court without exhausting the remedy of
appeal. It is trite law that if the order passed by the original authority is
in violation of the fundamental rights guaranteed under the Constitution of
India; violation of the principles of natural justice; ultra-vires the
provisions of the relevant law; grave error in the order and miscarriage of
justice, then the question of waiving the appellate remedy will arise and the
Court, under Articles 226 and 227 of the Constitution of India, can invoke the
Writ jurisdiction and interfere with such order passed by the original
authority.
Right to fair hearing
In M. Chockalingam and M.
Meyyappan v. CIT, Madras, (1963) 48 ITR 34 (SC), Hidayatullah, J, speaking
for the court observed that the authorities acting under the Income-tax Act
have to act judicially and one of the requirements of judicial action is to
give a fair hearing to a person before deciding against him.
Right to fair hearing includes:—
(i) Right to notice
Derived from
the Latin word notitia, which means being known, notice is the
starting of any hearing. Unless a person knows the issues of the case in which
he is involved, he cannot defend himself. For a notice to be adequate it must
contain-
(a)Time,
place and nature of hearing
(b)Legal
authority under which hearing has to be held
(c)The
specific charges, grounds and proposed actions the accused has to meet.
This is the very edifice of the
principle of natural justice. There is mandatory requirement of reasonable
opportunity of being heard. This pre-requires issuance of a proper notice. The
authority has to issue Show Cause to the party/assessee to explain and produce
evidence before an adverse inference may be drawn against him. The notice
should be specific and unambiguous so that proper compliance can be made by the
assessee. Any order passed by the assessing authorities without giving notice
is violative of the principles of natural justice.
In
the case of Maruti Suzuki India Ltd. v. Addl. CIT (2010) 192 Taxman 317
(Delhi), it was held that a cryptic order sheet noting would not amount to a
proper show cause notice to a party to defend his case. It would amount to
failure to adhere to the principles of natural justice.
The
importance of a show cause notice has been reiterated by Supreme Court in the
case of Umanath Pandey v. State of UP (2009) 12 SCC 40-43 as under:
“Notice
is the first limb of this principle. It must be precise and unambiguous. It
should appraise the party determinatively the case he has to meet. Time given
for the purpose should be adequate so as to enable him to make his
representation. In the absence of a notice of the kind and such reasonable
opportunity, the order passed becomes wholly vitiated. Thus, it is but
essential that a party should be put on notice of the case before any adverse
order is passed against him.”
In
the case of Biecco Lawrie Ltd v. State of West Bengal (2009) 10 SCC 32, the
Supreme Court observed as under:
“One
of the essential ingredients of fair hearing is that a person should be served
with a proper notice, i.e. a person has a right to notice. Notice should be
clear and precise so as to meet and make an effective defence. Denial of notice
and opportunity to respond result in making the administrative decision as
vitiated. The adequacy of notice is a relative term and must be decided with
reference to each case. But generally a notice to be adequate must contain the
following: (a) time, place and nature of hearing; (b) legal authority under
which hearing is to be held; (c) statement of specific charges which a person
has to meet.”
In
CCE v. ITC Ltd. (1995) 2 SCC 38 (SC), it has been held that an assessee should
be asked to show cause as to why he should not be visited with higher tax
before such levy. He must be given an opportunity of meeting those grounds. This
is a requirement of the principles of natural justice.
The test of adequacy ensures that the person concerned has
sufficient information to prepare an effective defence. It is not a mere
technical formality but a mandatory requirement for a free and fair
trial. In Maharashtra State
Financial Corporation v Suvarna Board Mill
1994 AIR 2657, the court held that a notice calling upon the party to repay
dues within 15 days failing which factory would be taken over is sufficient for
taking over the factory and no fresh notice is required for pulling down an
unauthorised structure when notice for removing such structure has already been
given. Where a statute expressly provides that a notice must be given, failure
to give notice makes the act void.
NEED
FOR SHOW CAUSE NOTICE
The
person proceeded against is required to be informed about the exact nature of
charges leveled against him. The authority taking a decision must apply his
mind to the explanation furnished. Application of mind must be apparent from
the order as held by the Supreme Court in the case of Tar Lochan Dev Sharma v.
State of Punjab (2001) 6 SCC 260.
Hon’ble Supreme Court in C.B. Gautam
v. Union of India and others (1993) 1 SCC 78, invoked the same principle
and held that even though it was not statutorily required, yet the authority
was liable to give notice to the affected parties while purchasing their
properties under Section 269-UD of the Income Tax Act, namely, the compulsory
purchase of the property. It was observed that though the time frame within
which an order for compulsory purchase has to be made is fairly tight one but
urgency is not such that it would preclude a reasonable opportunity of being
heard. A presumption of an attempt to evade tax may be raised in case of
significant under-valuation of the property but it would be rebuttable
presumption, which necessarily implies that a party must have an opportunity to
show cause and rebut the presumption.
(ii) Right to present case and evidence
An opportunity of being heard is the
most important component of the Principle of Natural Justice. It implies a
proper opportunity of hearing. The Courts have consistently held that where a
Show Cause Notice has been issued requiring the assessee to reply within a
short period (say 1-3 days), such a notice is against the principles of natural
justice, equity & good conscience. Undue haste is against the principle of
fairness and such a conduct of the assessing officer deserves to be deprecated.
Adequate & proper opportunity of
hearing should be provided to ensure fair hearing and fair deal to the
assessee.—[Rameshwaram Paper Mills (P) Ltd. v. State of U.P. & others
(2009) 11 VLJ 33 (All); Padam Traders & others v. State of U.P.
& others (2009) 47 STJ 392 (All)]
In Union of
India v. J. P. Mitter 1971 AIR 1093 the court refused to
quash the order of the President of India in a dispute relating to the age of
high Court judge on the ground that the President didn’t allow an oral hearing.
The court was of the view that when the person has been given an opportunity to
provide his submissions in writing, there is no abrogation of the principles of
natural justice even when an oral hearing is not granted. The administrative
authority too must provide full opportunity to testimonial or documentary
evidence.
In Dwarkeshwari
Cotton Mills Ltd. v. CIT (1955) 27 ITR 126, the SC quashed the decision of the
administrative authority on the ground that not allowing the assessee to
produce material evidence violates the rule of fair hearing.
(iii) Right to rebut adverse evidence
(a)
Right to cross-examination- It is the most powerful
weapon to elicit and establish truth. The right to call and
cross-examine witness is an integral part of the principles of natural justice.
(b)
Right to Legal Representation- Normally representation
through a lawyer in any administrative proceeding is not considered an
indispensable part of the rule of natural justice as oral hearing is not
included in the minima of fair hearing.
(iv) Disclosure of evidence/material to assessee
The elementary Principle of Natural
Justice in the Law of Taxation is that the assessee should have knowledge of
the material which is being used against him by the assessing officer so that
he may be able to meet it. In an Income-tax case of Ram Chander, the Income Tax
Tribunal relied on certain data supplied by the Income Tax Department behind
the back of the assessee and without giving an opportunity to the assessee to
rebut the same.
It was held that in principle, there
ought to be an observance of natural justice called equally at both
stages......If natural justice is violated at the first stage, the right to
appeal is not so much a true right of appeal as a corrected initial hearing,
instead of fair trial followed by appeal, the procedure is reduced to unfair
trial followed by fair trial.—[Ram Chander v. Union of India & Ors. 1986
SCC (4) 12 (SC)]
In the case of Dhakeswari Cotton Mills Ltd. v. CIT
AIR 1955 (SC) 65 : 27 ITR 126 (SC), the Apex Court emphasizing the requirement
of application of principles of natural justice, observed thus:
“It is surprising that the
Tribunal took from the representative of the department statement of gross
profit rates of other cotton mills without showing the statement to the
assessee and without giving him an opportunity to show that the statement had
no relevancy whatsoever to the case of the mill in question.”
Every person has the right to know the
evidence to be used against him. The appellant income tax tribunal didn’t
disclose the information supplied to it by the department. In
the case of Dhakeswari Cotton Mills Ltd. v. CIT AIR 1955 (SC) 65 : 27 ITR
126 (SC), the Apex Court held that the
assessee was not given a fair trial. A person may be allowed to take notes,
inspect files, etc. Whatever the method be the fundamental principle remains
the same, i.e. nothing should be used against a person that has not been
brought to his notice.
(v) Records/Report of enquiry to be shown to the
assessee
The assessee has a legal right to inspect and take
copies of all relevant documents before he is called upon to lead evidence in
rebuttal. Similarly, the report of enquiry has to be shown to the assessee so
that he can adduce evidence against it.
(vi) Reasoned decisions or speaking orders
The concept of speaking order is the
essential part of the principles of natural justice. Reasons are the link
between the order and mind of the maker. Any decision of the authority
affecting the rights of the people without assigning any reasons tantamount to
violation of principles of natural justice. The requirement of stating the
reasons cannot be under-emphasized as it serves the following purpose:—
(a) It ensures that the administrative authority will
apply its mind and objectively look at the facts and evidence of the case.
(b) It ensures that all the relevant factors have been
considered and that the irrelevant factors have been left out.
(c) It satisfies the aggrieved party in the sense that
his view points have been examined and considered prior to reaching a
conclusion.
(d) The appellate authorities and
courts are in a better position to consider the appeals on the question of law.
In other words, reasons reveal the
rational nexus between the facts considered and the conclusions reached.
However, mere recording of reasons serves no purpose unless the same are
communicated either orally or in writing to the parties.
The Apex Court in the case of Kranti
Associates (P) Ltd. v. Masood Ahmed Khan (2010) 9 SCC 496 wherein the Court
while dealing with the requirement of passing reasoned order by an authority
whether administrative, quasijudicial or judicial, has after applying the
earlier declarations of law in this regard, summarized as under:—
Summarizing the above discussion, this Court holds:
“(a) In India the judicial trend has always been to
record reasons, even in administrative decisions, if such decisions affect
anyone prejudicially. (b) A quasi-judicial authority must record reasons in
support of its conclusions.
(c) Insistence on recording of reasons is meant to serve
the wider principle of justice that justice must not only be done it must also
appear to be done as well.
(d) Recording of reasons also operates as a valid
restraint on any possible arbitrary exercise of judicial and quasi-judicial or
even administrative power.
(e) Reasons reassure that
discretion has been exercised by the decision maker on relevant grounds and by
disregarding extraneous considerations.
(f) Reasons have virtually
become as indispensable a component of a decision making process as observing
principles of natural justice by judicial, quasijudicial and even by administrative
bodies.
(g) Reasons facilitate the process of judicial review by
superior Courts.
(h) The ongoing judicial trend in all countries
committed to rule of law and constitutional governance is in favour of reasoned
decisions based on relevant facts. This is virtually the life blood of judicial
decision making justifying the principle that reason is the soul of justice.
(i) Judicial or even quasi-judicial opinions these days
can be as different as the judges and authorities who deliver them. All these
decisions serve one common purpose which is to demonstrate by reason that the
relevant factors have been objectively considered. This is important for
sustaining the litigants’ faith in the justice delivery system.
(j) Insistence on reason is a requirement for both
judicial accountability and transparency.
(k) If a Judge or a
quasi-judicial authority is not candid enough about his/ her decision making
process then it is impossible to know whether the person deciding is faithful
to the doctrine of precedent or to principles of incrementalism.
(l) Reasons in support of decisions must be cogent,
clear and succinct. A pretence of reasons or ‘rubber-stamp reasons’ is not to
be equated with a valid decision-making process.
(m) It cannot be doubted
that transparency is the sine qua non of restraint on abuse of judicial powers.
Transparency in decision making not only makes the judges and decision makers
less prone to errors but also makes them subject to broader scrutiny. (See
David Shapiro in Defence of Judicial Candor (1987) 100 Harward Law Review
731-737).
(n) Since the requirement
to record reasons emanates from the broad doctrine of fairness in decision
making, the said requirement is now virtually a component of human rights and
was considered part of Strasbourg Jurisprudence. See (1994) 19 EHRR 553, at 562
para 29 and Anya v. University of Oxford, 2001 EWCA Civ 405, wherein the Court
referred to Article 6 of European Convention of Human Rights which requires,
adequate and intelligent reasons must be given for judicial decisions.
(o) In all common law
jurisdictions judgments play a vital role in setting up precedents for the
future. Therefore, for development of law, requirement of giving reasons for
the decision is of the essence and is virtually a part of Due Process.“
The Rajasthan High Court in Income Tax Appeal No.
117/2004 decided on 21-01-2014 in the case of CIT v. Ram Singh, the
Court laid the importance of giving reasons in the orders and held as under:—
“Recording of reasons is
part of fair procedure and reasons are harbinger between the mind of the maker
of the decision in the controversy and the decision or conclusion arrived at
and they always substitute subjectivity with objectivity and as observed in
Alexander Machinery (Dudley) Ltd. Crabtree, 1974 L.C.R. 120, failure to give
reasons amounts to denial of justice and this is what was also observed by the
Apex Court in 2005 (2) SC 329 Mangalore Ganesh Beedi Works v. CIT & Anr.”
The approach of the income-tax authorities shall not be
unreasonable
In administering a tax law irritation
to the assessee is inevitable; an officer is bound to do his duty irrespective
of the susceptibilities of the assessees or even at the risk of hurting their amour
propre. However, it would not justify the officers functioning under the
Act doing things in an unreasonable way. This was observed by Hon’ble High
Court of Andhra Pradesh in the case of K. Rudra Rao v. ITO (1951) 34 ITR 216
(AP).
Maxwell on the Interpretation of Statutes, Tenth
Edition, page 123 points out
“Where, as in a multitude
of Acts, something is left to be done according to the discretion of the
authority on whom the power of doing it is conferred, the discretion must be
exercised honestly and in the spirit of the statute, otherwise the act done
would not fall within the statute.’According to his discretion’ means, it has been said, according to the rules of
reason and justice, not private opinion:
according to law and not humour; it is to be, not arbitrary, vague and
fanciful, but legal and regular; to be exercised, not capriciously, but on
judicial grounds and for substantial reasons.”
In other words, all public officers in
whom powers are vested by statutes must exercise those powers “within the
limits to which an honest man competent to discharge of his office ought to
confine himself, that is, within the limits and for the objects intended by the
legislature.”
Proper service of notice
Proper service of notice within due
time is one of the mandatory principles of Natural Justice. For effective
compliance by an assessee, notice of hearing must be served on time, providing
reasonable opportunity to the assessee.
Hence, before any action is taken, the
assessee should be given a show cause notice against any proposed action and
seek his explanation towards the same. Therefore, any order passed without
giving notice is against the principles of natural justice. Further, the
affected party shall be served with specific and unambiguous notice as the very
objective of serving notice is to provide a
reasonable opportunity for compliance.
The Apex Court in Pannalal
Binjraj v. Union of India, (1957) SCR 223 mandating the observance of the rules
of natural justice in income tax proceedings held that the Income Tax
authorities should follow the rules of natural justice and, where feasible,
give notice of the intended transfer to the assessee concerned in order that he
may represent his view of the matter and record the reasons of the transfer,
however briefly, to enable the court to judge whether such transfer was mala fide
or discriminatory, if and when challenged.
Opportunity of being heard
An opportunity of being heard is one of
the most important component of “principle of Natural Justice”. The right to
call and cross-examine witnesses is a part of natural justice. In the matter of
practice of Tax Law, giving an opportunity to a person of being heard must
necessarily depend on the facts and circumstances of each case. Hon’ble Supreme
Court in the case of Ram Chandran v. Union of India has observed the
following:—
“In principle, there ought
to be an observance of natural justice called equally at both stages ..... If
natural justice is violated at the first stage, the right of appeal is not so
much a true right of appeal as a corrected initial hearing, instead of fair
trial followed by appeal, the procedure is reduced to unfair trial followed by
fair trial.”
It was further said that the Tribunal
acted without jurisdiction in relying on the data supplied by the Income-tax
Department behind the back of the appellant-company, and without giving it an
opportunity to rebut or explain the same.
In Smt. Ritu Devi v. CIT (2004) 141 Taxman 559 (Mad.),
time of just one day was given to the assessee to furnish reply. This was held
as denial of opportunity.
As held in E. Vittal v. Appropriate Authority (1996) 221
ITR 760 (AP), where a decision is based upon a document in a proceeding, copy
of the same should be provided to the affected party. Otherwise, it would
violate the principles of natural justice as the opportunity of being heard
should be an effective opportunity and not an empty formality. Denial of
opportunity may make an order void. Limitation of time cannot stand in the way
of not giving adequate opportunity. The principle is inviolable.
The opportunity of being heard should be real,
reasonable and effective. The same should not be for name sake. It should not
be a paper opportunity. This was so held in CIT v. Panna Devi Saraogi (1970) 78
ITR 728 (Cal.).
In Mahadayal Premchandran v.
Commercial Tax Officer, Calcutta, (1959) SCR 551, the procedure adopted by the
Sales Tax Authorities was pronounced to be unfair and contrary to the principles
of natural justice in that it had failed to afford to the appellant an
opportunity of being heard. On these very principles the Income Tax Authorities
were held to be judicial or quasi-judicial bodies in Suraj Mall Mohta & Co.
v. A. V. Visvanath Sastry, (1954) 26 ITR 2 (SC) and it was observed by the
Supreme Court that under the provision of Section 37 (corresponding to section
131 of the Income-tax Act, 1961) the proceedings before the Income Tax Officer
are judicial proceedings and all the incidents of such judicial proceedings
have to be observed before the result is arrived at. In other words, assessee
would have a right to inspect the records and all relevant documents before he
is called upon to lead evidence in rebuttal. This right has not been taken away
by any express provision of the Income-tax Act.
Opportunity not a
rigid doctrine
Where nothing unfair can be discerned from the act of
not giving opportunity, the rule may not be attracted. It is not a rigid
doctrine. In the case of Union of India v. W. N. Chadha AIR 1993 SC 1082, the
Supreme Court observed as overleaf:
“The rule of audi alteram partem is not attracted unless
the impugned order is shown to have deprived a person of his liberty or his
property. The rule of audi alteram partem is a rule of justice and its
application is excluded where the rule will itself lead to injustice. There is
exclusion of the application of audi alteram partem rule to cases where nothing
unfair can be inferred by not affording an opportunity to present and meet a
case. This rule cannot be applied to defeat the ends of justice or to make the
law ‘lifeless, absurd, stultifying and self-defeating or plainly contrary to
the common sense of the situation’ and this rule may be jettisoned in very
exceptional circumstances where compulsive necessity so demands.” (paras 80 to
88)
In Chairman Mining Board v. Ramjee 1977 AIR 965 SC, the
Supreme Court observed as under:
“Natural justice is no unruly horse, no lurking
landmine, nor a judicial cure-all. If fairness is shown by the decision-maker
to the man proceeded against, the form, features and the fundamentals of such
essential procedural propriety being conditioned by the facts and circumstances
of each situation, no breach of natural justice can be complained of. Unnatural
expansion of natural justice without reference to the administrative realities and
other factors of a given case can be exasperating. Courts cannot look at law in
the abstract or natural justice as a mere artefact… If the totality of
circumstances satisfies the Court that the party visited with adverse order has
not suffered from denial of reasonable opportunity the Court will decline to be
punctilious or fanatical as if the rules of natural justice were sacred
scriptures.”
In the case of S. N. Mukherjee v. Union of India, the
Supreme Court has observed as follows:
“Keeping in view the expanding horizon of the principles
of natural justice, we are of the opinion, that the requirement to record
reason can be regarded as one of the principles of natural justice which govern
exercise of power by administrative authorities. The rules of natural justice
are not embodied rules. The extent of their application depends upon the
particular statutory framework where under jurisdiction has been conferred on
the administrative authority. With regard to the exercise of a particular power
by an administrative authority including exercise of judicial or quasi-judicial
functions the legislature, while conferring the said power, may feel that it
would not be in the larger public interest that the reasons for the order
passed by the administrative authority be recorded in the order and be
communicated to the aggrieved party and it may dispense with such a
requirement…. it must be concluded that except in cases where the requirement
has been dispensed with expressly or by necessary implication, an
administrative authority exercising judicial or quasi-judicial functions is
required to record the reasons for its decision.” – [S. N. Mukherjee v. Union of India AIR 1990 SC 1984 (SC)]
Right to inspection of records
The Apex Court in the case of Suraj
Mall Mohta & Co. v. A.V. Vishwanatha Sastry AIR 1954 545, 1955 SCR 448 that,
assessment proceedings conducted by the Income-tax Officers are quasi-judicial
proceedings and all the incidents of such quasi-judicial proceedings have to be
observed before the result is arrived at. The assessee has a right to inspect
the record and all relevant documents before he is called upon to lead evidence
in rebuttal. That, the said right has not been taken away by any express
provision of the Income-tax Act.
KEY NOTE
While passing an assessment order, provisions of the
Income Tax Act should be applied in a considerate manner.
The government authorities must act in a fair and not
partisan manner
It is a fact that, the taxing
authorities exercise quasi-judicial powers and in doing so they must act in a
fair and partisan manner. It may be that, their part of the duty is to ensure
that no tax which is legitimately due from an assessee should remain uncovered,
however, at the same time they must not act which may indicate that the scales
are weighted against the assessee. They should be deemed to have exercised in a
proper and judicious manner.
The assessing authority shall not be biased
Quasi-judicial enquiries must be held
in good faith, without bias and not arbitrarily or unreasonably while arriving
at a reasonable conclusion in a case. The word ‘Bias’ means prejudice, show of
favour or disfavour, antagonism, spite, hostility, that sways the mind. The
basic principle underlying this rule is that, justice must not only be done but
must also appear to be done.
It was held that natural justice
demands that the decision should be based on some evidence of probative
value.—[R v. Dy. Industrial Injuries Commr. Exp. Moore; Mahon v. New Zealand
Ltd.]
An Order shall be a speaking order
A speaking order ensures that the
principles of natural justice are followed. To give reasons for the decision is
a requirement of the principles of natural justice. The order would show which
particular circumstance received due consideration while arriving at the
decision. As held in Kishan Lal v. UOI (1998) 97 Taxman 556 (SC), a speaking
order reduces arbitrariness. A reasoned order speaks for itself. It embodies in
itself the principles of natural justice.
In the case of Asstt. Commissioner
Commercial Tax Department, Works Contract and Leasing Quota v. Shukla &
Bros. (2010) (4) JT 35, the Supreme Court observed that it shall be obligatory
on the part of the judicial or quasi-judicial authority to pass a reasoned
order while exercising statutory jurisdiction. In the absence of a reasoned
order, it would become a tool for harassment.
In the case of Santosh Hazari v.
Purushottam Tiwari (2001) (2) JT 407, the Supreme Court held as under: “The
appellate Court has jurisdiction to reverse or affirm the findings of the trial
Court. First appeal is a valuable right of the parties and unless restricted by
law, the whole case is therein open for hearing both on questions of fact and
law. The judgment of the Appellate Court must, therefore, reflect its conscious
application of mind, and record findings supported by reasons, on all the
issues arising along with the contentions put forth, and pressed by the parties
for decision of the Appellate Court.”
In the case of Baidya Nath Sarma v. CWT
(1983) 11 Taxman 158 (Gau.), the Court observed as under: “...The duty to give
reasons is a safety-valve against arbitrary exercise of discretionary power. If
such quasi-judicial authorities are permitted to render order without reason,
apart from arbitrariness there might be potent danger of non-consideration of
the application and would encourage mechanical exercise of the power.”
In Rasiklal Ranchhodbhai v. CWT, the Court struck down
the order of the Commissioner by observing that passing a cryptic order without
giving reasons violates the principles of natural justice. It was observed that
reasons must be substantial and cogent. It must not be an apology for reasons.
This order was passed in the context of waiver of penalty. – [Rasiklal Ranchhodbhai v. CWT (1980) 121 ITR
219 (Guj.)]
In the case of Woolcombers of India
Ltd. v. Woolcombers Workers’ Union AIR 1973 SC 2758, the Supreme Court held as
under: “...The giving of reasons in support of their conclusions by the
judicial and quasi-judicial authorities when exercising initial jurisdiction is
essential for various reasons. First, it is calculated to prevent unconscious
unfairness or arbitrariness in reaching the conclusions. The very search for
reasons will put the authority on the alert and minimise the chances of
unconscious infiltration of personal bias or unfairness in the conclusion. The
authority will adduce reasons which will be regarded as fair and legitimate by
a reasonable man and will discard irrelevant or extraneous considerations.
Second, it is a well-known principle that justice should not only be done but
should also appear to be done. Unreasoned conclusions may be just but may not
appear to be just to those who read them. Reasoned conclusions, on the other
hand, will also have the appearance of justice. Third, it should be remembered
that an appeal generally lies from the decisions of judicial and quasi-judicial
authorities to this Court by special leave granted under article 136. A
judgment which does not disclose the reasons will be of little assistance to
the Court. The Court will have to wade through the entire record and find for
itself whether the decision in appeal is right or wrong. In many cases this
investment of time ... will be saved if reasons are given in support of the
conclusions...” (p. 2761)
In view of the above, if any order is
made in violation of principles of natural justice, it would be void ab-initio
and would be liable to be annulled & cancelled.
Cross-examination is one part of the principles of
natural justice
A Constitution Bench of this Court in State of M. P.
v. Chintaman Sadashiva Vaishampayan AIR 1961 SC 1623, held that the rules
of natural justice, require that a party must be given the opportunity to
adduce all relevant evidence upon which he relies, and further that, the
evidence of the opposite party should be taken in his presence, and that he
should be given the opportunity of crossexamining the witnesses examined by
that party. Not providing the said opportunity to cross-examine witnesses,
would violate the principles of natural justice.—[CIT v. Sunita Dhadda –
Date of Judgement : 28.03.2018 (SC)]
It was held that when the action of a statutory
authority results in civil or evil consequences, the principles of natural
justice are required to be followed even in the absence of a statutory
provision. This can be taken as implicit in a statutory provision. – [Rajesh Kumar v. DCIT (2006) 157 Taxman 168
(SC)]
Technicalities and irregularities do
not occasion failure of justice
In State Bank
of Patiala v. K Sharma, the Supreme Court has observed as follows: “Justice
means justice between both the parties. The interests of justice equally demand
that the guilty should be punished and that technicalities and irregularities
which do not occasion failure of justice are not allowed to defeat the ends of
justice. Principles of natural justice are but the means to achieve the ends of
justice. They cannot be perverted to achieve the very opposite end. That would
be a counterproductive exercise.” – [State
Bank of Patiala v. K Sharma (1996) 3 SCC 364 (SC)]
Principles of natural justice do not
supplant law but supplement it
In Thakur V.
Hariprasad v. CIT, the High Court held as follows: “The doctrine of natural
justice is a facet of fair play in action. No person shall be saddled with a
liability without being heard. In administrative law, this doctrine has been
extended when a person is made liable in an action without being heard. The
principles of natural justice do not supplant the law but merely supplement the
law or even humanise it. If a statutory provision can be read consistent with
the principles of natural justice, the court could do so, for the Legislature
is presumed to intend to act according to the principles of natural justice.” –
[Thakur V. Hariprasad v. CIT (1987) 32
Taxman 196 (AP)]
Principles of natural justice are not
immutable and rigid
In the case
of Satyabir Singh v. UOI, the Supreme Court observed as under: “The principles
of natural Justice must be confined within their proper limits and not allowed
to run wild. The concept of natural justice is a magnificent thoroughbred on
which this nation gallops forwards towards its proclaimed and destined goal of
JUSTICE, social, economic and political. This thoroughbred must not be allowed
to turn into a wild and unruly horse, careering off where it lists, unsaddling
its rider, and bursting into fields where the sign no pasaran is put up.” – [Satyabir Singh v. UOI AIR 1986 SC 555]
The principle is
well settled in law that unless a hearing is statutorily excluded any
administrator taking a decision affecting the rights of a citizen, is bound to
hear him.
The Supreme
Court in Swadeshi Cotton Mills Co. Ltd. v. Union of has held as follows:
“Conversely, if the statute conferring the power is silent with regard to the
giving of a pre-decisional hearing to the person affected and the
administrative decision taken by the authority involves civil consequences of a
grave nature, and no full review or appeal on merits against that decision is
provided, courts will be extremely reluctant to construe such a statute as
excluding the duty of affording even a minimal hearing, shorn of all its formal
trappings and dilatory features at the pre-decisional stage, unless, viewed
pragmatically, it would paralyse the administrative process or frustrate the
need for utmost promptitude. In short, this rule of fair play ‘must not be
jettisoned save in very exceptional circumstances where compulsive necessity so
demands. The court must make every effort to salvage this cardinal rule to the
maximum extent possible, with situational modifications.” – [Swadeshi Cotton Mills Co. Ltd. v. Union of
India (1981) 51 Comp. Cas. 210 : AIR 1981 SC 818]
Silence of the statute not to be
construed as exclusion of opportunity
Where the
statute is silent as to whether or not the assessee should be heard before an
order is passed, it does not mean that opportunity of being heard is excluded.
The principle is that unless a hearing is statutorily excluded, an
administrator taking a decision affecting the rights of a citizen is bound to
hear him as held in Smt. Maneka Gandhi v. Union of India AIR 1978 SC 597.
In Chairman Mining Board v. Ramjee, the Supreme Court
observed that : “Natural justice is no unruly horse, no lurking landmine, nor a
judicial cure-all. If fairness is shown by the decision-maker to the man
proceeded against, the form, features and the fundamentals of such essential
procedural propriety being conditioned by the facts and circumstances of each
situation, no breach of natural justice can be complained of. Unnatural
expansion of natural justice without reference to the administrative realities
and other factors of a given case can be exasperating. Courts cannot look at
law in the abstract or natural justice as a mere artefact… If the totality of
circumstances satisfies the Court that the party visited with adverse order has
not suffered from denial of reasonable opportunity the Court will decline to be
punctilious or fanatical as if the rules of natural justice were sacred
scriptures.” – [Chairman Mining Board v. Ramjee 1977 AIR 965 SC]
Principles of natural justice apply
even where not expressly provided
In
the case of Peerless General Finance & Investment Co. Ltd. v. DCIT (1999)
236 ITR 671 (Cal.) it was observed that the principles of natural justice can
be presumed as necessary unless there exists a statutory prohibition.
In Sahara India (Firm) v. CIT (2008) 169 Taxman 328
(SC), the Supreme Court held that unless a statutory provision either
specifically or by necessary implication excludes the application of principles
of natural justice, because in that event the Court would not ignore the
legislative mandate, the requirement of giving reasonable opportunity of being
heard before an order is made, is generally read into the provisions of a
statute, particularly when the order has adverse civil consequences for the
party affected.
In Rajesh Kumar v. DCIT (2006) 157 Taxman 168 (SC), the
Supreme Court observed that when civil consequences ensue, there is hardly any
distinction between an administrative order and a quasi-judicial order. The
Supreme Court further held that there might have been difference of opinions at
one point of time, but it is now well-settled that a thin demarcated line
between an administrative order and quasi-judicial order now stands
obliterated.
In case of conflict between a statutory provision and
natural justice, the former should prevail. But where there is no such
exclusion in the statute, the application of the principles can be assumed in
cases where in exercise of administrative jurisdiction the rights of citizens
are affected to their prejudice. This was so held in the case of Asiatic Oxygen
Ltd. v. STO (1982) Tax LR (NOC) 200 (Ori).
