Informist, Wednesday, May 31, 2023
By Surya Tripathi
NEW DELHI – The Delhi High Court's ruling last week that a tax assessee has no fundamental or vested legal right to be assessed by a faceless assessing officer and the discretion to transfer a case lies with the central government may lead to increased litigation, according to tax experts and lawyers.
A division Bench of Justice Manmohan and Justice Dinesh Kumar Sharma gave the ruling in a batch of petitions by Congress leaders Sonia Gandhi, Rahul Gandhi and Priyanka Gandhi, and the Aam Aadmi Party, challenging the tax authorities' decision to transfer their tax assessments to the central circle.
Noting that the transfer of tax assessment was done according to law, the high court upheld the decision of income tax authorities. Assessments of five charitable trusts associated with the Gandhi family--Sanjay Gandhi Memorial Trust, Jawahar Bhawan Trust, Rajiv Gandhi Foundation, Rajiv Gandhi Charitable Trust, and Young Indian--were also transferred to the central circle.
The Gandhis had opposed the move by the tax authorities, saying the transfer of an assessment to the central circle of the income tax department could only be done in cases of search and seizure.
Siddharth Joshi, a senior associate with SKV Law Offices, said the judgement will have an impact on tax litigations as the power under Section 127 has been predominantly expanded and the applicability of faceless assessment and appeals has been minimised by subjecting it to the discretion of the Central government.
Section 127 of the Income Tax Act says that an income tax commissioner may transfer a case from an income tax officer after giving the assessee a reasonable opportunity of being heard.
Since the high court has now expanded the definition of Article 127, the government has got a go ahead in its discretion to transfer such cases.
The result is that more and more litigation will follow as there would be no set criteria to measure the government's discretion.
Adithya Reddy, an international tax advisor based in New York, said the recent high court judgement on transfer of faceless income tax assessments under Section 127 of the Income Tax Act was controversial because the court ruled that the petitioners do not have any fundamental or vested legal right to be assessed by a faceless assessing officer.
Reddy said that although the Income Tax Department's arguments that there is no vested legal right for a faceless assessment are constitutional, there appears to be some irregularity in its intentions and approach, which could lead to future litigation.
There are apprehensions about giving the power to transfer such cases because of possible misuse of power by the government against its critics.
There have been instances of the government launching investigations into alleged tax evasion against those who have been critical.
Earlier this year, the tax authorities conducted searches in the offices of BBC, weeks after it aired a documentary in the UK that was critical of Prime Minister Narendra Modi.
Reddy feels that the government should issue a clarification to resolve the issue once and for all, so that the taxpayer has clarity.
The judgement would increase tax litigations as the high courts will restrain from entertaining the writ petitions filed by assesses challenging the transfer order passed under Section 127 of the Income Tax Act, said Joshi.
Sandeep Bajaj, the managing partner of PSL Advocates & Solicitors, said that allowing personal hearing only at the discretion of the Chief Commissioner or the Director General of the Income Tax, hampers the assessee's right of personal hearing in contradiction to the legal principle of "audi alteram partem" which means listen to the other side.
Bajaj said that there has been a plethora of orders that ruled against the violation of principle of natural justice. In the case of Lemon Tree Hotels Ltd vs National Faceless Assessment Centre Delhi, 2021, the court set aside the order of the assessment officer because the assessee had sought a personal hearing but it was not granted to him, added Bajaj.
Bajaj feels that in reference to Section 127, there remains a doubt about the court's interpretation.
There are also contrary views of different high courts that require that the assessee must be given reasons in a comprehensive manner, said Bajaj.
Whenever there is an open interpretation to a law, the litigation around such interpretation increases, which ultimately leaves it to the Supreme Court to decide.
Pallav Pradyumn Narang, partner at CNK, feels that the ruling will be undoubtedly challenged in the highest court of the land and in all likelihood the final answer may lie with the Supreme Court. End
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