The right to personal hearing under Section 148A of the Income Tax Act

Recently, the Allahabad High Court in Ravish Rastogi v. Union of India held that personal hearing is an important facet of the right to be heard under Section 148A of the Income Tax Act, 1961 (IT Act), which provides for reassessment proceedings in case there’s an allegation of income escaping assessment.

In this judgment, the High Court held that prior to issuance of a notice for re-assessment u/s 148 of the IT Act, a personal hearing should be provided, following which a detailed order shall be passed by the income tax authority, after considering all the objections raised by the assessee.

Further, while setting aside the notice and order issued under Section 148A(b) of the Income Tax Act, the Court also placed reliance on the guidelines issued by the Central Board of Direct Taxes (CBDT) for issuance of notice of reassessment u/s 148 of the Act. As per the circular, the procedural requirement includes issuing a notice under Section 148A(b) and providing the assessee an opportunity to respond before a reassessment notice is issued. Failure to adhere to this procedure means that the decision-making process lacks the critical component of fairness, rendering any subsequent reassessment notice invalid.

Section 148A lays down a detailed procedure to be followed before issuing a reassessment notice including issuance of a show-cause notice under Section 148A(b) to the assessee along with supply of all relevant documents relating to the information suggesting escapement of income relied upon by the assessing officer to propose the reassessment. Upon receiving the notice under Section 148A(b), the assessee is granted an opportunity to respond to the show-cause notice and a personal hearing, if requested by the assessee. The assessing officer must then fix a date and time for the personal hearing by giving at least one week notice. This is a crucial step as it allows the assessee to present any information, objections and effectively explain to the assessing officer his perspective before the assessing officer issues a reassessment notice.

Further, the CBDT has issued guidelines for issuance of reassessment notices (Circular No. 299/10/2022), which includes personal hearing in the procedure for issuing reassessment notice. It is pertinent to refer to the judgments of Ravish Rastogi and Beboy Joseph John v. Assistant Commissioner of Income Tax, where the courts observed that the circular, in addition to Section 148A, expressly states that a personal hearing should be provided to the assessee if the same is requested for.

However, in this article, we aim to argue that notwithstanding the guidelines issued by the CBDT, the right to personal hearing is a part of the Income Tax Act.

No assessee can be subjected to multiple assessments of income without opportunity of being heard

The rule of audi alteram partem in pre-reassessment process is essential since the outcome of the pre-reassessment process may have adverse financial effects on the assessee.

Further, the language of the provision reflects the legislative intent to safeguard the assessee’s right to be heard, ensuring that they are not arbitrarily subjected to multiple assessment proceedings for the same assessment period.

The essence of these principles is to prevent arbitrary action by authorities and to ensure that decisions affecting an individual’s rights are made transparently and fairly. The jurisprudence surrounding the right to a fair hearing has long emphasised that any action taken without giving the affected party a chance to be heard is inherently unjust.

Furthermore, an opportunity of personal hearing prevents unnecessary harassment of the assessee, including prolonged litigation and uncertainty. The courts have consistently held that the provisions of the Income Tax Act must be interpreted in a manner that upholds the rights of the assessee, including the right to a fair hearing.

Hence, any action that subjects an assessee to multiple assessments for the same assessment year, without providing them with an opportunity to be heard, not only contravenes the language of Section 148A(b), but also violates the foundational principles of natural justice.

Personal hearing ensures fair proceedings

The opportunity of hearing, to be effective, must involve a consideration of the reply to the show cause notice by the Income Tax Officer and also permit the assessee to persuade the Income Tax Officer to see his point of view in the matter.

Hence, in the context of Section 148A, a personal hearing should be viewed as an extension of the assessee’s right to fair hearing. The purpose of this provision is to ensure that the Assessing Officer fully understands the assessee’s position before deciding to initiate the reassessment proceedings. Thus, it is not just a formality but a substantive right of the assessee to get a personal hearing. This process helps in avoiding arbitrary or unjust reassessment and provides a safeguard against potential misuse of power by tax authorities.

Strict adherence to principles of natural justice is mandatory while initiating reassessment proceedings u/s 148

The proceedings for initiation of reassessment of income u/s 148A are quasi-judicial proceedings. Two fundamental principles of natural justice are entrenched in Indian jurisprudence while acting judicially or quasi-judicially: (i) nemo judex in causa sua, which means that no person should be a judge in their own cause; and (ii) audi alteram partem, which means that a person affected by administrative, judicial or quasi-judicial action must be heard before a decision is taken.

If an assessee is not given the opportunity to be heard before the issuance of a notice under Section 148A, they are effectively denied the chance to contest or clarify any evidence or information that suggests income has escaped assessment. This lack of opportunity undermines the fairness of the process, as the assessee cannot address potential errors or provide context that might influence the decision on whether to issue a reassessment notice.

The procedural fairness of the reassessment process is compromised when an assessee is not allowed to respond before a notice is issued. The issuance of a notice under Section 148 without prior notice under Section 148A(b) means that the assessee is deprived of an essential procedural safeguard. This is contrary to the principles established to ensure that all parties involved have a fair opportunity to be heard and that decisions are based on a complete and balanced consideration of all relevant information.

In summary, not providing an assessee with the right to be heard before issuing a notice under Section 148A violates the principles of natural justice. It denies the taxpayer a substantive procedural safeguard that ensures fairness and transparency. This procedural lapse impairs the integrity of the reassessment process, undermining the principles of equity and justice that are essential to fair decision-making.

In the case of SR Cold Storage v. Union of India and Ors, the Allahabad High Court said that the principles of natural justice are those rules which have been laid down by the courts as being the minimum protection of the rights of the individual against the arbitrary procedure that may be adopted by a judicial, quasi-judicial and administrative authoritoes while making an order affecting those rights. These rules are intended to prevent such authority from doing injustice. Even an administrative order which involves civil consequences must be consistent with the rules of natural justice.

Further, the "rule of strict construction" is deeply rooted in taxation law. It states when there are two reasonable interpretations of a tax statute, the interpretation that favours the taxpayer should be adopted. This is rooted in the principle that taxation is a burden imposed by the state, and therefore, any ambiguity in the law should be resolved in favour of the taxpayer. The principle was articulated in the case of CIT v. Vegetable Products Ltd where the Supreme Court of India held that "if two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted." This principle is grounded in fairness and ensures that taxpayers are not unfairly penalised due to ambiguous or unclear tax provisions.

Conclusion

From the above discussion, it is evident that in case an assessee requests for a personal hearing, then the same should be granted to him by the income tax authorities. Section 148A is a code in itself determining the procedure for initiation of reassessment proceedings, which encapsulates a commitment to procedural fairness by ensuring that taxpayers are not only notified of potential reassessment, but also given a meaningful opportunity to defend their position and explain their view of the situation. This procedural safeguard aims to enhance transparency and accountability in the tax assessment process.

Areeb Uddin Ahmed and Himanshu Singh are Advocates practicing at the Allahabad High Court and Associates at A&A Partners. Amitav Singh is the Managing Partner at A&A Partners.