Court Quashes Tax Order, Grants Co-op Society Fresh Hearing on Rectification

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Case Name:

The Ernakulam District Posts Telecom and BSNL Employees Co-operative Society Ltd. Vs Income Tax Officer & Anr. (High Court of Kerala)

WP(C).No.12511 OF 2020(L)

Date: 24th June 2020

Key Takeaways:

1. The court emphasized the importance of following principles of natural justice in administrative decisions.

2. Technical issues in government systems should not disadvantage taxpayers.

3. Orders rejecting applications should be well-reasoned and not mechanical.

4. The court can intervene in tax matters if the order appears to be without jurisdiction.

Issue: 

Did the Income Tax Officer err in rejecting the petitioner's rectification application without providing proper reasons or an opportunity for hearing?

Facts:

1. The petitioner is a Co-operative Society registered under the Co-operative Societies Act, 1969, and an assessee under the Income Tax Act. 

2. The due date for filing income tax returns for the assessment year 2018-19 was extended to 28.02.2020 by a CBDT circular. 

3. The petitioner filed their return within the extended deadline but received an assessment on 29.06.2019. 

4. The petitioner filed a rectification application on 7.11.2019. 

5. On 29.01.2020, the Income Tax Officer informed the petitioner that the rectification couldn't be decided due to non-functionality of the system. 

6. The rectification application was ultimately rejected on 05.06.2020. 

Arguments:

Petitioner's Argument:

- The impugned order (Ext.P7) was passed without complying with principles of natural justice.

- The order lacked proper reasons and failed to meet legitimate expectations. 

Respondent's Argument:

- Raised objections regarding the maintainability of the writ petition, citing the availability of alternative remedies. 

Key Legal Precedents:

The judgment doesn't explicitly mention any specific legal precedents. However, it refers to general principles such as natural justice and the court's power to intervene in cases where orders appear to be without jurisdiction.

Judgement:

1. The court quashed the impugned order (Ext.P7) dated 05.06.2020. 

2. The matter was remitted back to the 1st respondent (Income Tax Officer) to decide the rectification application (Ext.P6) afresh. 

3. The Income Tax Officer was directed to make a decision in accordance with the law, after giving the petitioner an opportunity to be heard. 

4. The court set a two-month deadline for this process from the date of receipt of the certified copy of the judgment. 

5. The court ordered that no coercive measures should be taken against the petitioner until the fresh decision is made. 

FAQs:

1. Q: Why did the court intervene in this tax matter?

  A: The court intervened because the order appeared to be without jurisdiction and failed to follow principles of natural justice.

2. Q: What was the main issue with the Income Tax Officer's original decision?

  A: The original decision was rejected in a "sketchy and mechanical manner" without providing proper reasons or an opportunity for the petitioner to be heard.

3. Q: How long does the Income Tax Officer have to make a new decision?

  A: The Income Tax Officer has been given two months from the date of receiving the certified copy of the judgment to make a fresh decision.

4. Q: Can the tax authorities take any action against the petitioner during this time?

  A: No, the court has ordered that no coercive measures should be taken against the petitioner until the fresh decision is made.

5. Q: What does this judgment mean for other taxpayers facing similar issues?

  A: This judgment emphasizes the importance of fair hearings and well-reasoned decisions in tax matters, potentially setting a precedent for similar cases.

Challenging Ext.P7 this writ petition is filed. Petitioner is a Co-operative Society registered under the Co-operative Societies Act, 1969. It is an assessee under the Income tax Act. The return of income for the assessment year 2018-19 has to be filed on or before 31.10.2019. However, as per the circular dated 27.02.2019 of the Central Board of Direct Tax, time to file return was extended up to 28.02.2020. Petitioner filed the returns within the aforementioned provisions of the circular however received the assessment on 29.06.2019. Petitioner filed a rectification application dated 7.11.2019, however vide communication dated 29.01.2020 the concerned Income Tax Officer informed the petitioner that owing to non functionality that the petitioner rectification cannot be decided.

2. Sri. Anil D.Nair, learned counsel for the petitioner submits that without complying the principles of natural justice the impugned order Ext.P7 dated 05.06.2020 has been passed by rejecting the rectification application. The impugned order is bereft of the reasons and cannot stand test of legitimate expectation. It is in these circumstances, instead of taking alternative remedy, extra ordinary jurisdiction of this Court under Article 226 has been invoked.

3. Issue notice before admission. Mr.Christopher Abraham, who present in the video court hearing accepts the notice and raised objection with regard to the maintainability of this writ petition in view of the alternative remedy available, and urges this Court for dismissal of this writ petition.

4. I have heard learned counsel for the parties and appraised the paper books and find some force and merit in the submission of Sri.Anil D.Nair.

5. The communication Ext.P5 dated 29.01.2020 and order impugned Ext.P7 dated 05.06.2020 are extracted herein below:

Ext.P5:“Grievance Raised: WE HAVE RECEIVED DEMAND ORDER UNDER SECTION 154 STATING THAT, THE DEDUCTION UNDER SECTION 80P WILL NOT BE AVAILABLE SINCE RETURN IS FILED AFTER DUE DATE. BUT WE HAVE FILED THE ORIGINAL RETURN BEFORE THE DUE DATE EXTENDED FOR THE STATE OF KERALA.

The resolution for your grievance application: As per CBDT's order u/s 119(2) (of Income Tax Act, 1961) dated 27.02.2019, it is mentioned that all return of income and reports of audit which are filed till 28/02/2019 shall be deemed to have been filed by 31/10/2018. On the basis of this the intimation u/s 143(1) (of Income Tax Act, 1961) has to be rectified. But the functionality of rectification of ITR for AY 2018-19 is not available in ITBA as of now, CPC informed that the same will be available soon. Hence rectification order can be passed only when the functionality for AY 2018-19 is available in the system.”

EXT.P7:“Grievance Raised: WE HAVE RECEIVED DEMAND ORDER UNDER SECTION 154 STATING THAT, THE DEDUCTION UNDER SECTION 80P WILL NOT BE AVAILABLE SINCE THE RETURN IS FILED AFTER DUE DATE. BUT, WE HAVE FILED THE ORIGINAL RETURN BEFORE THE DUE DATE EXTENDED FOR THE SATE OF KERALA.

The resolution for your grievance application: Disallowance of deduction u/s 80P (of Income Tax Act, 1961) shown in the intimation u/s 143(1) (of Income Tax Act, 1961) dated 29/06/2019 issued by CPC cannot be rectified as the same will not come under the purview of rectification u/s 154 (of Income Tax Act, 1961).”

On a joint reading of the contents of the aforementioned communication, it is clear that the rectification application would not have been undertaken, owing to certain technical problems i.e, the functionality of the Department. However vide impugned communication dated 05.07.2019 Ext.P5, same has been rejected in a most sketchy and mechanical manner. Even the order do not disclose affording of any other opportunity of hearing.

6. Considering the facts and circumstances, I am of the view that the petitioner cannot be relegated to alternate remedy as the order prima facie is without jurisdiction. Accordingly, impugned order Ext.P7 dated 05.06.2020 is quashed and matter is remitted to 1st respondent to decide the rectification application Ext.P6 afresh, in accordance with law, after affording an opportunity of being heard to the petitioner. Let this exercise be undertaken within a period of two months from the date of receipt of a certified copy of the judgment. Till such time, no coercive measures shall be taken against the petitioner.

Sd/-

AMIT RAWAL

JUDGE