Gujarat High Court
Shree Sarkhej Kelavani Mandal vs Additional /Joint /Dy. /Assistant ... on 15 April, 2025
Author: Bhargav D. Karia
Bench: Bhargav D. Karia
NEUTRAL CITATION
C/SCA/6003/2021 JUDGMENT DATED: 15/04/2025
undefined
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/SPECIAL CIVIL APPLICATION NO. 6003 of 2021
With
R/SPECIAL CIVIL APPLICATION NO. 3060 of 2022
FOR APPROVAL AND SIGNATURE:
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
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Approved for Reporting Yes No
==========================================================
SHREE SARKHEJ KELAVANI MANDAL
Versus
ADDITIONAL /JOINT /DY. /ASSISTANT COMMISSINOER OF INCOME
TAX /INCOME TAX OFFICER & ANR.
==========================================================
Appearance:
MR MANISH J SHAH(1320) for the Petitioner(s) No. 1
MS MAITHILI D MEHTA(3206) for the Respondent(s) No. 1,2
==========================================================
CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA
and
HONOURABLE MR.JUSTICE D.N.RAY
Date : 15/04/2025
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE D.N.RAY)
1. Heard learned advocate Mr. Manish J. Shah appearing on behalf of the Petitioner and learned Senior Standing Counsel Ms. Maithili D.Mehta for the Respondents.
2. Rule returnable forthwith. Learned Senior Standing Counsel Page 1 of 29 Uploaded by BINA SHAH(HC00353) on Tue Apr 22 2025 Downloaded on : Tue Apr 22 21:17:54 IST 2025 NEUTRAL CITATION C/SCA/6003/2021 JUDGMENT DATED: 15/04/2025 undefined Ms. Maithili D. Mehta waives service of notice of rule for the Respondents. With the consent of the learned advocates for the respective parties, the matter is taken up for hearing, as the macro issue involved is of great concern.
3. The brief facts of Special Civil Application No. 6003 of 2021 are being narrated hereinbelow to put in context the controversy involved herein :-
3.1 The Petitioner filed its return of income for the Assessment Year 2018-19 on 30.03.2019, declaring Nil income, while claiming exemption under Sections 11 and 12 of the Income Tax Act, 1961 ("the Act").
3.2 It is the case of the Petitioner that, since the Petitioner's gross total income exceeded the maximum amount not chargeable to tax, the Petitioner audited its books of accounts in accordance with Section 12A(b) of the Act. The audit report in Form No.10B, as prescribed under Rule 17B of the Income Tax Rules, 1962, (the Rules) was duly uploaded on the Income Tax Portal on 30.03.2019.Page 2 of 29 Uploaded by BINA SHAH(HC00353) on Tue Apr 22 2025 Downloaded on : Tue Apr 22 21:17:54 IST 2025
NEUTRAL CITATION C/SCA/6003/2021 JUDGMENT DATED: 15/04/2025 undefined 3.3 Subsequently, it was noticed that due to an inadvertent error on the part of the Chartered Accountant who prepared the audit report in Form No.10B, incorrect figures were entered in certain fields. Specifically, at Row No. 1, the amount of income applied during the year was erroneously stated as ₹1,93,61,840/- instead of1,93,61,840/- instead of the correct figure of ₹1,93,61,840/- instead of4,51,06,113/-, and at Row No. 3, the amount set apart for application was stated to be ₹1,93,61,840/- instead of71,36,765/- instead of ₹1,93,61,840/- instead of24,72,325/-. Upon discovery of this error, a revised audit report in Form No.10B was furnished on 03.10.2019.
3.4 Thereafter, the return of income was processed under Section 143(1) of the Act, and an intimation dated 10.11.2019 was issued to the Petitioner, whereby the exemption under Section 11 of the Act was denied. The Petitioner's case was later selected for scrutiny, and a notice under Section 143(2) of the Act was issued on 22.09.2019 under "Form 10B Filing Compliance." The Petitioner responded to the said notice vide letter dated 05.10.2019, explaining the reasons for the revision of Form No.10B.
3.5 Thereafter, a show cause notice dated 27.02.2021 was issued Page 3 of 29 Uploaded by BINA SHAH(HC00353) on Tue Apr 22 2025 Downloaded on : Tue Apr 22 21:17:54 IST 2025 NEUTRAL CITATION C/SCA/6003/2021 JUDGMENT DATED: 15/04/2025 undefined to the Petitioner, enclosing a draft assessment order and calling upon the Petitioner to explain as to why the assessment should not be completed in such terms.
3.6 In the draft assessment order dated 26.02.2021, the Assessing Officer proposed to make an addition of ₹1,93,61,840/- instead of4,75,78,438/- by denying the benefit of exemption under Sections 11 and 12 of the Act, on the ground that the Petitioner had allegedly violated the conditions prescribed under Section 12A of the Act by not filing the return of income and Form No.10B within the prescribed time limit. The Department required the petitioner to submit a response to the said show cause notice cum draft assessment order on or before 03.03.2021, i.e. within three days.
3.7 In view of the three day time provided for submitting a response, the Petitioner submitted a request for adjournment on 02.03.2021 through the portal of the Income Tax Department, seeking an extension of time till 11.03.2021 to file its reply. 3.8 The Assessing Officer passed a final assessment order under Page 4 of 29 Uploaded by BINA SHAH(HC00353) on Tue Apr 22 2025 Downloaded on : Tue Apr 22 21:17:54 IST 2025 NEUTRAL CITATION C/SCA/6003/2021 JUDGMENT DATED: 15/04/2025 undefined Section 143(3) of the Act on 04.03.2021, assessing the Petitioner's total income at ₹1,93,61,840/- instead of4,75,78,438/-, as proposed in the draft assessment order. Consequently, a demand of ₹1,93,61,840/- instead of2,46,52,505/- was raised upon the Petitioner.
4. In the aforesaid circumstances, the petitioner had filed Special Civil Application No. 6003 of 2021 seeking the following reliefs:-
A) "this Hon'ble Court be pleased to call for the records of the proceedings, look into them and be pleased to issue a writ of certiorari or any other appropriate writ, order or direction quashing the assessment order passed by Respondent No.2 u/s.143(3) dated 04.03.2021 at Annexure-J and demand notice u/s.156 dated 04.03.2021 at Annexure-K-coll and further direct the Respondent No. I to pass a fresh assessment order u/s.143(3) after providing opportunity of furnishing submissions against the draft assessment order at Annexure-H. B) Pending the hearing and final disposal of this application.
this Hon'ble Court be pleased to stay operation and implementation of assessment order passed u/s.143(3) dated 04.03.2021 at Annexure-J and demand notice issued u/s 156 at Annexure-K-coll and further stay the recovery of demand in pursuance of notice issued u/s.156 at Annexure-K-coll. C) This Hon'ble Court be pleased to grant any further or other relief as this Hon'ble Court deems just and proper in the interest of justice, and Page 5 of 29 Uploaded by BINA SHAH(HC00353) on Tue Apr 22 2025 Downloaded on : Tue Apr 22 21:17:54 IST 2025 NEUTRAL CITATION C/SCA/6003/2021 JUDGMENT DATED: 15/04/2025 undefined D) This Hon'ble Court be pleased to allow this application with costs against the respondent."
5. This Court by Order dated 06.04.2021 had issued notice in Special Civil Application No.6003 of 2021 and had stayed further proceedings. It appears that in spite of the same, the respondent No.2 had passed a penalty order dated 21.12.2021 in utter disregard of the stay order of this Court dated 06.04.2021. The aforesaid action on the part of the Department compelled the petitioner to file a further petition being Special Civil Application No. 3060 of 2022 with the following reliefs:-
A) this Hon'ble Court be pleased to call for the records of the proceedings, look into them and be pleased to issue a writ of certiorari or any other appropriate writ, order or direction quashing the penalty order passed by Respondent No.2 u/s.270A dated 21.12.2021 at Annexure-F and demand notice u/s.156 dated 21.12.2021 at Annexure-G. B) Pending the hearing and final disposal of this application, this Hon'ble Court be pleased to stay operation and implementation of the penalty order passed by Respondent No.2 u/s.270A dated 21.12.2021 at Annexure-F and demand notice issued u/s.156 at Annexure-G and further stay the recovery of demand in pursuance of notice issued u/s.156 at Annexure-G. C) This Hon'ble Court be pleased to grant any further or other relief as this Hon'ble Court deems just and proper in the interest of justice, and;Page 6 of 29 Uploaded by BINA SHAH(HC00353) on Tue Apr 22 2025 Downloaded on : Tue Apr 22 21:17:54 IST 2025
NEUTRAL CITATION C/SCA/6003/2021 JUDGMENT DATED: 15/04/2025 undefined D) This Hon'ble Court be pleased to allow this application with costs against the respondent.
6. These two petitions have been heard together and are being disposed of in the present judgment.
7. Mr. Manish J.Shah, learned Counsel appearing on behalf of the petitioner submitted that the action of the Assessing Officer in passing the impugned Assessment Order when the petitioner had specifically prayed for an adjournment on 02.03.2021 requesting time till 11.03.2021 is in complete breach of the principles of natural justice. This is apart from the fact that the entire gross receipts of the petitioner has been assessed as the petitioner's income, completely contrary to the scheme of the Act.
7.1 Mr. Shah, learned Counsel further submitted that the conduct of the Department in ignoring the stay order dated 06.04.2021 passed by this Court and going ahead with issuing the penalty order under Section 270-A dated 21.12.2021 and a Demand Notice under Section 156 of the Act dated 21.12.2021 was as shocking, as inexplicable.
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NEUTRAL CITATION C/SCA/6003/2021 JUDGMENT DATED: 15/04/2025 undefined 7.2 Mr. Shah, learned Counsel further submitted that the initial action of the Department was bad enough, inasmuch as, the proposed variation came to be confirmed in thorough disregard of the principles of natural justice but the subsequent action on the part of the Department to ignore the stay of this Court and to proceed with the penalty order shows that the Department does not apply its mind to the Assessee's submissions or even the orders passed by this Court and does whatever it pleases, based upon the ipse dixit of the random officer who has the occasion to deal with the Assessee's case.
8. On the other-hand, Ms. Maithili Mehta, learned Senior Standing Counsel for the Department submitted that during the course of hearing of the present petition, initially referred to and relied upon the affidavit-in-reply dated 10.02.2025 filed by Ashish Kumar Gupta serving as Income Tax Officer(Exemption) Ward-II, Ahmedabad but, had subsequently relied upon the affidavit dated 28.02.2025 filed by the same officer, wherein, an unconditional apology was tendered for filing the previous affidavit dated Page 8 of 29 Uploaded by BINA SHAH(HC00353) on Tue Apr 22 2025 Downloaded on : Tue Apr 22 21:17:54 IST 2025 NEUTRAL CITATION C/SCA/6003/2021 JUDGMENT DATED: 15/04/2025 undefined 10.02.2025.
9. DISCUSSION & FINDINGS :-
9.1 After hearing the learned Counsel on both sides and in view of the myriad cases that we have had the occasion to deal with in the last six months or so, in the present Roster, more than the redressal of an individual/isolated wrong, we deemed it our bounden duty to address what we perceived to be a systemic failing of the Income Tax Department.
9.2 The record shows that on 11.02.2025, this Court after a detailed hearing on the merits of the matter had passed the following Order:-
"Heard learned advocate Mr. Manish J. Shah for the petitioner and learned Senior Standing Counsel Ms. Maithili D. Mehta for the respondents.
This Court (Coram : Hon'ble the Chief Justice Mr. Justice Vikram Nath and Hon'ble Mr. Justice Bhargav D. Karia) by order dated 06.04.2021 while admitting the present matter had recorded as under:
"1. We have heard Mr. Manish J. Shah, learned counsel for the petitioner.
2. Mr. Shah submitted that vide draft assessment order communicated by show cause notice dated 27.02.2021, the petitioner was required to submit his response on the additions made by 23:59 hours of 03.03.2021 whereby Page 9 of 29 Uploaded by BINA SHAH(HC00353) on Tue Apr 22 2025 Downloaded on : Tue Apr 22 21:17:54 IST 2025 NEUTRAL CITATION C/SCA/6003/2021 JUDGMENT DATED: 15/04/2025 undefined he could either accept the proposed modification or file his written reply objecting the proposed modification or may request for personal hearing (AnnexureG to the petition).
3. According to Mr. Shah, the petitioner vide communication dated 02.03.2021 requested for adjournment up to 11.03.2021, acknowledgment whereof along with the request for adjournment is filed as AnnexureI. The adjournment was served on the ground that the details are under compilation and as such some time be allowed. Mr. Shah further submitted that the date for making the assessment is already extended up to 30.04.2021. But despite the aforesaid request, the Assessing Officer proceeded to pass the final assessment order dated 04.03.2021 (AnnxeureJ) without even taking notice of the request for adjournment made by the petitioner. He, thus submits that there is serious denial of opportunity and violation of principles of natural justice.
4. Prima facie case for consideration is made out.
5. Admit. Issue notice.
6. Till further orders of this Court, the effect and operation of the impugned assessment order dated 04.03.2021 (AnnexureJ to the petition) shall remain stayed.
7. Copy of this order be also forwarded to the Chairman, Central Board of Direct Taxes and also to the Principal Chief Commissioner of Income Tax, Ahmedabad for their perusal."
Thus, it will be seen that the order admitting the present petition was founded on the facts recorded at paragraph no.3 thereof which was in turn founded on the documents at page no. 73 of the petition which clearly demonstrated that against notice dated 27.02.2021, an adjournment was sought on 02.03.2021 citing the reason "Gathering of material from multiple sources requires time"
and the adjournment was sought upto 11.03.2021. In the affidavit dated 10.02.2025 which has been placed on record, the deponent -Page 10 of 29 Uploaded by BINA SHAH(HC00353) on Tue Apr 22 2025 Downloaded on : Tue Apr 22 21:17:54 IST 2025
NEUTRAL CITATION C/SCA/6003/2021 JUDGMENT DATED: 15/04/2025 undefined Shri Ashish Kumar Gupta serving as Income Tax Officer (Exemption) Ward-2, Ahmedabad has at paragraph no.6 submitted as under :
"With respect to submission made in petition in para 3(i), I say and submit that, As per records, the assessee was afforded several opportunities to present his case and submit his response during the course of assessment proceeding u/s 143(3) of the Act by issuing various notices as listed here under:
Sr. No. Date Notice and remarks
1 22.09.2021 Notice u/s 143(2)
issued.
2 15.10.2020 Notice issued.
3 01.12.2020 Notice u/s 142(1) issued
and fixing hearing on
16.12.2020
4 04.01.2020 Notice issued -
adjournment sought
5 14.01.2021 Notice issued-No
response
6 27.01.2021 Notice u/s 142(1) issued
and fixing hearing on
03.02.2021-
adjournment sought.
7 13.02.2021 Notice u/s 142(1) issued
fixing hearing on
17.02.2021-Response
on 15.02.2021
8 27.02.2021 Show cause notice
issued fixed hearing on
03.03.2021- No
response
As can be seen from the above records and order sheet, no adjournment has been sought by the assessee against notice issued on 27.02.2021. Therefore, The assessment order u/s 143(3) was passed on 04.03.2021 Page 11 of 29 Uploaded by BINA SHAH(HC00353) on Tue Apr 22 2025 Downloaded on : Tue Apr 22 21:17:54 IST 2025 NEUTRAL CITATION C/SCA/6003/2021 JUDGMENT DATED: 15/04/2025 undefined raising a demand of Rs.2,46,52,505/- after giving adequate opportunity to the assessee, hence there is no breach of Principles of natural justice in the case."
"It is categorically submitted in the said paragraph no.6 quoted here-in-above that "As can be seen from the above records and order sheet, no adjournment has been sought by the assessee against the notice issued on 27.02.2021. Therefore, the assessment order u/s 143(3) was passed on 04.03.2021..."
Ms. Maithili Mehta, learned Senior Standing Counsel appearing on behalf of the department when confronted with the contradiction of the aforesaid affidavit with the facts on record of the case submits that the deponent of the said affidavit had insisted on filing the present affidavit stating the above facts and the remarks to that effect have also been received by her in writing. She however, expresses her apology as counsel and seeks to withdraw the aforesaid affidavit.
We accept the apology of Ms. Mehta, however, we decline the permission to withdraw the present affidavit which has been tendered before us. The same is directed to be kept on record.
Let notice be issued to the deponent of the said affidavit - Shri Ashish Kumar Gupta serving as Income Tax Officer (Exemption) Ward-2, Ahmedabad, to explain the circumstances which has led to filing of the present affidavit, returnable on 3 rd March, 2025."
10. Thereafter, on 03.03.2025, this Court, after noting the development in the matter and replies filed by the Department upto that point of time, had recorded inter alia, as under:
"6. From the aforesaid explanation sought to be provided to this Court, we find that the deponent had tried to justify his act of filing a false affidavit on two primary grounds: (a) that he had based the Page 12 of 29 Uploaded by BINA SHAH(HC00353) on Tue Apr 22 2025 Downloaded on : Tue Apr 22 21:17:54 IST 2025 NEUTRAL CITATION C/SCA/6003/2021 JUDGMENT DATED: 15/04/2025 undefined contents of the earlier affidavit solely on the remarks prepared by his colleague and; (b) that the deponent had tried to justify that "remarks were prepared based on the order sheet which gets updated automatically all the details related to assessment proceedings which are shown in the IPBA portal. However, the fact of the petitioner seeking adjournment on 02.03.2021 mentioned at page No.73 to the petition did not get updated automatically in the order sheet." Thus, it will be seen that in spite of the detailed order of this Court dated 06.04.2021 framing the issue and refraining the department from proceeding further, not only has the said direction been completely ignored and the respondents have proceeded to flout the same with impunity and levied a penalty on the petitioners by ignoring the stay granted at para 6 thereof, but before this Court, in the proceedings which are now been heard for the purpose of adjudicating the issues framed on 06.04.2021, a false affidavit has been filed with the knowledge that it is false, with the intention that the petition may be dismissed by this Court taking reliance upon the false facts pleaded by the respondent. Despite the best efforts of learned Senior Standing Counsel Ms. Mehta appearing on behalf of the respondent and her repeated pleas that one more opportunity may be granted to the respondents, we are of the firm opinion that the brazen action of contempt and perjury on the part of the department must not go unpunished because the credibility of the orders of this Court is at stake and we are of the opinion that until and unless suitable action is taken in respect of all concerned, the very purpose for the functioning of writ courts will be impaired and this Court will be acting and passing orders in futility.
7. In these circumstances, as aforesaid, we request the learned Chairman, CBDT and the Principal Chief Commissioner of Income Tax, Ahmedabad to tell us what action they propose to take to remedy the situation which is portrayed here-in-above and to prevent future abuse of the process of this Court as documented here-in-above. The same may be done by filing an affidavit before the next date of hearing i.e. on 07.04.2025."
11. When the matter was last listed on 07.04.2025, Ms. Mehta, learned Senior Standing Counsel referred to and relied upon the Page 13 of 29 Uploaded by BINA SHAH(HC00353) on Tue Apr 22 2025 Downloaded on : Tue Apr 22 21:17:54 IST 2025 NEUTRAL CITATION C/SCA/6003/2021 JUDGMENT DATED: 15/04/2025 undefined affidavit dated 2nd April, 2025 filed by the Principal Commissioner of Income (OSD) (EXEMPTION), Ahmedabad on behalf of the Chairman, CBDT and the Principal CCIT, Ahmedabad. It is necessary to extract a substantial part of the said affidavit to complete the narration of the proceedings as it had taken place. The relevant extract from the aforesaid affidavit of Shri Sanjeev Jain, Principal CIT(OSD)(EXEMPTION) are as under:-
"2. I humbly say and submit that I have personally gone through the whole record of the proceedings of the captioned writ petitions and briefed the Chairman, CBDT and the PCCIT. Ahmedabad of the proceedings of the captioned writ petitions. At the outset, I humbly say and submit that in the first instance, such a situation should not have arisen at all and tender unconditional and unqualified apology for the present situation on behalf of the Department. I humbly say and submit that it was never the intention of the Income Tax Department or any of its officers to disobey or disregard the orders passed by this Hon'ble Court either wilfully or otherwise and I earnestly pray to this Hon'ble Court to kindly pardon the inadvertent mistakes committed by the officers.
3. I humbly say and submit that after briefing of the Chairman, CBDT and other senior officers in hierarchy, explanations of all the officers responsible for creation for this situation have been/are being called for through their respective controlling officers.
4. I humbly say and submit that as soon as the issue came to the notice of the present Chairman CBDT and PCCIT, Ahmedabad, immediately the penalty order dated 21.12.2021 has been rectified under Section 154 of the Act Page 14 of 29 Uploaded by BINA SHAH(HC00353) on Tue Apr 22 2025 Downloaded on : Tue Apr 22 21:17:54 IST 2025 NEUTRAL CITATION C/SCA/6003/2021 JUDGMENT DATED: 15/04/2025 undefined vide order dated 17.03.2025, whereby the penalty order has been withdrawn.
5. I humbly say and submit that explanations of Mr. Ashish Kumar Gupta, ITO (Exemption), Ward-1, Ahmedabad as well as Mr. R. S. Saju, ITO (Exemption), Ward-2, Ahmedabad, who are primarily responsible for filing the Affidavits dated 10.02.2025 and 28.02.2025 have been called for. I humbly say and submit that explanation has also been called for from Faceless Assessing Officer Mr. Lokesh C. Meena, ITO, presently posted at Ward-4(1), Jaipur, who has been unmasked to inquire into fact how penalty order dated 21.12.2021 under section 270A of the. Income Tax Act, 1961 ('the Act' for short) was passed, despite the stay granted by this Hon'ble Court vide order dated 06.04.2021.
6, I humbly say and submit that explanation has also been called for from Mr. Harish Shah, Assessing Officer, ITO, Exemption, Ward-2, presently posted at Verification Unit- 1(2)(4), Palanpur, who was Respondent no. 2 in the present petitions under consideration, for explaining circumstances why the order dated 06.04.2021 passed by this Hon'ble Court was not communicated to National e-Assessment Centre (NeAC for short, presently known as National Faceless Assessment Centre NaFAC for short). I humbly say and submit that explanation has also been called for from Mr. N. D. Poojara, presently posted as ITO(AU)5(4)(3), Ahmedabad at Surendranagar, who was looking after the judicial proceedings falling within the jurisdiction of CIT Exemption, Ahmedabad at the relevant point of time for not taking proper action on his part in this matter.
7. I humbly say and submit that inquiries in this regard are under progress to find out how and why such a situation has arisen. I humbly say and submit that inquiry to find out lapses and causes thereof in this matter is under progress and appropriate action as per rules will be taken against the erring officers responsible for the present situation.
8. I humbly say and submit that "e-Assessment Scheme 2019 Page 15 of 29 Uploaded by BINA SHAH(HC00353) on Tue Apr 22 2025 Downloaded on : Tue Apr 22 21:17:54 IST 2025 NEUTRAL CITATION C/SCA/6003/2021 JUDGMENT DATED: 15/04/2025 undefined was, for the first time, launched in 2019, vide Notification No. 61/62 of 2019, as a pilot project to introduce faceless assessment under the Act, which was implemented only in select few jurisdictions and was thereafter, implemented throughout India by Notification No. 60 of 2020 dated 13.08.2020. I state that India is the only country in the world, where the Faceless e-Assessment Scheme is conceived, designed and implemented for the first time.
9. I humbly say and submit that by the time the pilot project could be actually implemented fully, the whole world was grappled with the Pandemic of Covid-19 resulting into worldwide lockdowns and disrupting information and communication systems across the world. The officers of the department and vendors developing the department software were also not untouched. I say and submit that assessment through Faceless scheme at this very point of time was in a nascent and premature phase, which had its own technical problems & issues and software was being updated constantly. I humbly say and submit that as any other software system of such a big magnitude, the system is dynamically upgraded to suit to take care of technical difficulties and to make it more user friendly both at front end and back end, when system is actually put into use.
10. I humbly say and submit that at the relevant point of time when the Petitioner had made application dated 02.03,2021 for adjournment, the entries of adjournment in the hearing module were not synchronized in Case History Noting/ order sheet, on account of gap in software development due to which the said adjournment request made by the petitioner did not reflect in the Case History Noting / order sheet. I humbly say and submit that such shortcoming in software came to be noticed subsequently and accordingly in the year 2023, the software was updated so that adjournment entries in the hearing module get synchronized in Case History Noting /order sheet module.
11. I humbly state that the Department has not only taken several steps to remedy the situation as stated above in Para Page 16 of 29 Uploaded by BINA SHAH(HC00353) on Tue Apr 22 2025 Downloaded on : Tue Apr 22 21:17:54 IST 2025 NEUTRAL CITATION C/SCA/6003/2021 JUDGMENT DATED: 15/04/2025 undefined 10 to deal with situations similar to those arising after the order dated 04.03.2021, but it is also committed to take all further remedial steps to prevent denial of, as in this case, opportunity to the taxpayer to defend its case.
12. I humbly say and submit that the Department highly respects and bows to the judicial discipline to maintain judicial decorum and would never permit any action of its officers to undermine or disrespect the Hon'ble Court's orders. For handling writ petitions where assessment is made under Faceless Assessment Scheme, NaFAC has issued Standard Operating Procedure (SOP) Vide F.No. CIT(NaFAC)-1/58/2021-22/333 dated 26.07.2021 with the prior approval of CBDT, which has further been reviewed and revised by CBDT vide SOP In F.No. NaFAC/Delhi/CIT- 3/2022-23/339/76 dated 01.08.2022, 1 humbly say and submit that after implementation of the said SOPs, the process of handling the writs has been streamlined to a large extent and has helped in minimizing the repetition of mistakes similar to the mistakes occurred in the present case such as passing penalty order by FAO during continuation of stay by judicial forums.
13. I humbly say and submit that the Department is committed to prevent repetition of mistakes to address the situation of court directions etc not being followed by Faceless Assessing Officers (FAOs), in addition to steps already taken as enumerated in Para 10 and 12 and to examine the specific gaps in the implementation of the directions of Hon'ble court in this case and other cases, to suggest remedial actions or measures to address such systemic gaps, mistake or delays, to propose systemic Improvements for expeditious coordination between Jurisdictional Assessing Officer (JAO) and Faceless Assessing Officer (FAO), to recommend mechanism for enhanced monitoring and reporting of compliance with the High Court order, the Department has set up a committee under the chairmanship of PCCIT, NaFAC with 5 members of the rank of Principal Commissioner of Income Tax (PCIT)/Commissioner of Income Tax (CIT) from various verticals. (Annexed herewith marked Annexure R2 is the Page 17 of 29 Uploaded by BINA SHAH(HC00353) on Tue Apr 22 2025 Downloaded on : Tue Apr 22 21:17:54 IST 2025 NEUTRAL CITATION C/SCA/6003/2021 JUDGMENT DATED: 15/04/2025 undefined copy of the constitution of the Committee dated 17.03.2025).
14. I humbly say and submit that in order to increase the awareness amongst the officers in respect of technical procedures and SOPs for handling writ matters, DGIT (NATIONAL ACADEMY OF DIRECT TAXES) has been requested to conduct an All India online course for the officers of the Department.
15. I humbly pray to the Hon'ble Court that considering the fact that the errors on the part of the Department were unintentional and not with any ulterior motive, the Hon'ble Court may take a lenient view and pardon the errors."
12. In further compliance of the directions dated 03.03.2025 of this Court, the Department, on the last date of hearing i.e., 07.04.2025 had placed before this Court the files pertaining to their inward investigation of the matter.
13. Ms. Maithili Mehta, learned Senior Standing Counsel for the Department had taken us through the files, which inter alia, contained questionnaires to the concerned officers and their written responses to their respective Superiors.
14. From the same, it is apparent that the failure of the administration rested on the twin factors: issues with the portal and human error.
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NEUTRAL CITATION C/SCA/6003/2021 JUDGMENT DATED: 15/04/2025 undefined
15. This Court deems it appropriate not to venture in the area of errors and the degrees of negligence in the performance of duties by the concerned officers. It is up to the Department to deal with the same on the administrative side.
16. As far as issues with the portal are concerned, we find that these portals have become silent stakeholders in the Justice Delivery System. On the last hearing, we were pleased to note that there is an acknowledgment on behalf of the Department, coupled with a sincere effort to rectify the issues.
17. Given such a situation, the Department, whose avowed objective being to participate in the economic growth of the country through the Tax collection system as mandated and circumscribed by Parliament in Article 265 of the Constitution of India, has to ensure that at all times, every wing of the Department including the "portal" is attuned and fine tuned to the imminent needs of the functioning of the Department. Likewise, it is bounden duty of this Court to strike a balance between the competing rights of the Page 19 of 29 Uploaded by BINA SHAH(HC00353) on Tue Apr 22 2025 Downloaded on : Tue Apr 22 21:17:54 IST 2025 NEUTRAL CITATION C/SCA/6003/2021 JUDGMENT DATED: 15/04/2025 undefined Assessees and the duty of the Department to collect tax to ensure that the Constitutional mandate is carried out in the best possible manner.
18. We find that by the Office Order dated 17.03.2025, the National Faceless Assessment Center (NFAC), Delhi, had set up the following Committee as per directions of the Chairman, CBDT :
Sr. No Name & Designation of the officer Position in the Committee 1 Smt. Jahanzeb Akhtar Pr. CCIT Chairperson NaFAC 2 Sh. Amol Kamat PCIT-17 Mumbai Member 3 Smt. Anusha Khurana PCIT-2 Member NaFAC 4 Sh. Binod Kumar CIT NFAC Member 5 Sh. Vipul Agrawal CIT (E) Member 6 Sh. Awijit Rakshit CIT (OSD) ITBA Member 7 Sh. Sudeep Dabas JCIT-2 NaFAC Member Secretary
2. The terms of the Reference for the Committee were as under:-
"1. To carefully examine the systems and reasons which created the specific gaps in the implementation of the directions as per the orders of the Hon'ble High Court in the case of Shree Sarkhej Kelavani Mandal v. Additional/Joint/Dy/Assistant Commissioner of Income Tax/Income Tax Officer & ANR in SCA No. 6003 of 2021 and SCA No. 3060 of 2022 dated 03.03.2025 and similar other orders and to suggest remedial actions or measures to address such systemic gaps, mistakes or delays.Page 20 of 29 Uploaded by BINA SHAH(HC00353) on Tue Apr 22 2025 Downloaded on : Tue Apr 22 21:17:54 IST 2025
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2. To propose systemic improvements for expeditious coordination between JAO & FAO hierarchy to ensure perfect compliance in future.
3. To recommend mechanisms for enhanced monitoring and reporting of compliance with the High Court Orders. "
19. Ms.Mehta, learned Senior Standing Counsel has also placed before this Court an Interim Report dated 03.04.2025 of the "Committee on improvement in the compliances of Court Order", Chapter 2 of the said Report contains the "Suggestions" of the said Committee which are reported as under :-
"1. Office of CIT (Judicial) to upload Court orders on ITBA for Faceless and Jurisdictional hierarchy The order shall be accompanied by immediate action points in the form of drop down menu, if feasible in ITBA or else a textbox containing such pointwise immediate actions directed by the court for various users. The office of CIT (Judicial) was selected as the nodal point as CIT (Judicial) is at the heart of all the judicial functions being performed in the office of PCCIT, and also is the first recipient of the Court orders. Further, CIT (Judicial) is already coordinating and collaborating with multiple stakeholders like Standing Counsels & Jurisdictional hierarchy. Also, as per the CBDT instruction no 1 of 2024 dated 09.02.2024, in all the judicial matters, CIT (Judicial) is the coordinating body. The proposed changed is depicted graphically as below:-Page 21 of 29 Uploaded by BINA SHAH(HC00353) on Tue Apr 22 2025 Downloaded on : Tue Apr 22 21:17:54 IST 2025
NEUTRAL CITATION C/SCA/6003/2021 JUDGMENT DATED: 15/04/2025 undefined Current receipt and communication Proposed receipt and of court orders communication of court orders Court Court CIT (Judicial) CIT (Judicial) Jurisdictional Hierarchy (including PCIT, JCIT, DCIT) ITBA through CIT (J) ITO/AC/DC in JAO through ITBA All users in Jurisdictional Faceless Hierarchy (ITO/AC/DC) and Faceless Hierarchy 1.1. The proposed change will have multiple benefits:
(a) The Court order will be immediately uploaded on the ITBA for all users. There will be more prompt communication of such orders for FAOs who are operating on very thin timelines at the end of time limitation dates.
(b) The orders will be populated on ITBA for all users- both Jurisdictional and Faceless hierarchy. This will lead to early digitization of Court orders.
(c) Ease of monitoring by supervisory authorities- both Jurisdictional and Faceless.Page 22 of 29 Uploaded by BINA SHAH(HC00353) on Tue Apr 22 2025 Downloaded on : Tue Apr 22 21:17:54 IST 2025
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(d) The orders will be accompanied with immediate action points for ease of interpretation by all users. This will lead to uniform stand in all cases under consideration of the office of CIT (Judicial).
1.2. Technical feasibility of the proposal The proposed change was discussed with the ITBA team. The team has submitted as below:
"Response from the ITBA technical team is awaited on this issue because of preoccupation in disposal of time-barring matters. However, if role of CIT (J) is not found defined in ITBA it can be defined and they may also be provided the DIN/PAN AY functionality for uploading of documents."
Therefore, the role of CIT (Judicial) is to be defined on the ITBA at the earliest, and additional functionality of uploading of documents/orders can be provided in the DIN/ PAN AY Functionality.
1.3. SOP for handling writ petitions against assessment proceedings conducted under Section 144B dated 01.08.2022. The jurisdictional charges shall continue to perform all such other functions and responsibilities as assigned under the SOP. Only the uploading and attaching of writ petition is to be done by CIT (Judicial).
2. Colour coding of communication of Court orders to FAOS. In the current system of communication between JAO and FAO, there is no provision for pop up or colour coding of stay orders etc. in order to highlight the differential treatment required as per court direction. Therefore, it is proposed that the communication of important court orders like stay etc, be colour coded for ease of access and attention of FAO. The proposal was also discussed with the ITBA team for technical feasibility and they have accepted it to be implementable.
3. SMS and email alerts to be sent to all users (Jurisdictional and Page 23 of 29 Uploaded by BINA SHAH(HC00353) on Tue Apr 22 2025 Downloaded on : Tue Apr 22 21:17:54 IST 2025 NEUTRAL CITATION C/SCA/6003/2021 JUDGMENT DATED: 15/04/2025 undefined faceless hierarchy) Once the documents are uploaded under the proposed drop down functionality of "court order & related category", SMS and email alerts will be sent by ITBA to the concerned AO, Range Head and PCIT. The ITBA team has confirmed the technical feasibility of the implementation of proposal.
4. Communication utility between PCIT (Jurisdictional) and PCIT (AU) for enhanced monitoring and expeditious communication The NaFAC has requested for a direct system channel in ITBA between PCIT of Jurisdictional and AU hierarchy (referred to as communication utility in the SOP of NaFAC). The ITBA team has not confirmed the technical feasibility of the proposal. Details will be presented in subsequent report.
5. Introduction of MIS report for AU hierarchy. MIS for PCIT (AU), Range Head (AU) and FAO (AU) detailing the PAN AY and designation of the ITBA user uploading the document and the date of uploading of documents under the "Court order & related" category.
6. Transfer out of cases from Faceless Assessments For the cases where writ petitions have been filed and the issues involved are complex, require submissions of large volume of documents, protracted litigation and continuous interaction with Standing Counsel is anticipated the same may be transferred from JAO to FAO for uniform stand, regular communication and compliance. The same may be done on case-to-case basis with the approval of PCIT (AU) after examining necessary parameters that will be built into ITBA and approved by NaFAC.
20. Ms.Mehta, learned Senior Standing Counsel has further drawn the attention of this Court to Board Instruction No. 1 of 2024 Page 24 of 29 Uploaded by BINA SHAH(HC00353) on Tue Apr 22 2025 Downloaded on : Tue Apr 22 21:17:54 IST 2025 NEUTRAL CITATION C/SCA/6003/2021 JUDGMENT DATED: 15/04/2025 undefined dated 09.02.2024 regarding the functions of CIT(Judicial). Paragraph No.2 of the said instructions are quoted hereinbelow for the ready reference:
"2. Work Jurisdiction of CIT (J):
2.1 The CIT (J) shall be the nodal office for all matters, including but not limited to those mentioned in Para 3 below, relating to the jurisdictional High Court as also co-ordination with counterparts for other High Court/s and shall be responsible for ensuring that the Departmental view on interpretation of the Income-tax Act, 1961 [hereinafter referred to as the Act] is enforced uniformly and coherently within the jurisdiction of the respective Pr.CCIT.
2.2 The CIT(J) shall assist the Pr. CCIT in supervising the litigation management/judicial functions within the region."
20.1 Thus from the above quoted portion, it is clear that the Department intends to position the CIT(J) as a Nodal Officer to be connected with each jurisdictional High Court. The further functions elaborated under the Head "Work Domain" under paragraph No.4 of the aforesaid instruction No.1/2024, if implemented, should go a long way in mitigating lapses of the kind, forming the subject matter of the present proceedings.
20.2 This Court, therefore, passes the following directions :-
(1) In all future Income Tax petitions (Special Civil Applications Page 25 of 29 Uploaded by BINA SHAH(HC00353) on Tue Apr 22 2025 Downloaded on : Tue Apr 22 21:17:54 IST 2025 NEUTRAL CITATION C/SCA/6003/2021 JUDGMENT DATED: 15/04/2025 undefined and Tax Appeals), apart from the usual respondents, the CIT (Judicial) is to be mandatory made a party respondent by the Assessee petitioners and a co-petitioner by the Income Tax Department, where the Tax Appeals are filed by the Department.
The postal address and E-mail address for CIT (Judicial) are as under:-
PCIT (Judicial), Ahmedabad Room No.214, Aaykar Bhavan, Ashram Road, Ahmedabad 380 009 E-mail ID : [email protected] Phone No.079-29695007 (2) Once the CIT (Judicial) stands impleaded in the petition, the sole responsibility for implementation of the Orders of this Court and to follow Instruction No.1/2024 to the hilt, shall be upon the CIT (Judicial), as a representative of the Income Tax Department.
The buck shall stop there.
21. The present proceedings were being continued beyond the immediate reliefs claimed in personam by the Petitioner herein because in the course of the hearings, this Court had become aware of the systemic deficiencies in the administration of the Income Tax Department which has resulted in egregious violation of the rule of law.With the aforesaid steps taken by the Department in consultation with the Chairman, CBDT and the directions passed by us in the foregoing paragraphs, we are buoyant and optimistic that the deficiencies recorded in the Orders of this Court, of which the Page 26 of 29 Uploaded by BINA SHAH(HC00353) on Tue Apr 22 2025 Downloaded on : Tue Apr 22 21:17:54 IST 2025 NEUTRAL CITATION C/SCA/6003/2021 JUDGMENT DATED: 15/04/2025 undefined Department is now alive to and both pro-active and re-active, the administration of the provisions of the Income Tax Act will be optimized to ensure that a powerful engine of our economy can maximize its potential and at the same time remain just and humane to the Assessee. It is the need of the hour.
22. Lastly, it brings us to the individual case of the "little man"
who had knocked the doors of this Court for his own statutory and Constitutional rights.
Special Civil Application No.3060 of 2022:-
1. The Department has filed affidavit dated 10.02.2025 wherein, it has been stated as under:-
"8. Further, the audit reports in Form 10B (original as well as the revised) are shown to be obtained on 30.03.2018 which is actually before the close of the relevant Financial Year. Further, it is also be noted that while both the audit reports are claimed to be obtained on 30.03.2018 there is a large gap in filing of the same on ITBA. While the original audit report was filed on 30.03.2019 (inexplicably after one year of having obtained on 30.03.2018), the revised audit report, which is also claimed to be obtained on 30.03.2018, was filed on 03.10.2019 (again after almost 18 months from date of obtaining and 6 months after filing the original audit report).
9. I state that it is noteworthy that though in revised audit report the assessee has shown application of income of Rs.1,93,61,840/-
and accumulation of Rs.71,30,915/-, in the revised audit report, application of income is declared at Rs.4,51,06,113/- and accumulation of Rs.24,72,325/-. However, it has not revised its Page 27 of 29 Uploaded by BINA SHAH(HC00353) on Tue Apr 22 2025 Downloaded on : Tue Apr 22 21:17:54 IST 2025 NEUTRAL CITATION C/SCA/6003/2021 JUDGMENT DATED: 15/04/2025 undefined ITR. Therefore, in absence of any validly obtained and filed audit report, the exemption claimed by the assessee u/s 10(23C)(iiiad) of the Act was not allowable and therefore correctly disallowed by the Faceless Assessment Officer.
10. With respect to submission made in petition in para 3(iii), I say and submit that the respondent authority is relying upon the decision of the Hon'ble Supreme Court in the case of Checkmate Services Pvt Ltd v VIT (2022) wherein it was held that procedural compliance is mandatory unless exempted by a specific statutory provision or directive. Similarly, the Hon'ble High Court of Bombay in CIT v Nagpur Hotel Owners Association (247 ITR
201) also held that the onus of adhering to statutory timelines lies with the taxpayer and failure to do so without prior condonation leads to disqualification for claiming exemptions. Further more, the Hon'ble Supreme Court in the case of Principal CIT Vs. New Nobel Educational Society (2022) 448 ITR 1 (SC) emphasized the mandatory nature of compliance with conditions for claiming exemption u/s. 11.
2. In view of the fact that the penalty and demand orders, both dated 21.12.2021, were passed in the teeth of the order dated 06.04.2021 by which Assessment Order dated 04.03.2021 came to be stayed, the penalty order under Section 270-A dated 21.12.2021 and the Demand Notice under Section 156 of the Act dated 21.12.2021 are hereby quashed and set aside. Special Civil Application No.6003 of 2021 :-
1. By way of Draft Assessment Order in respect of Assessment Year 2018-19, communicated through show cause notice dated 27.02.2021, the petitioner was granted just three days time to submit Page 28 of 29 Uploaded by BINA SHAH(HC00353) on Tue Apr 22 2025 Downloaded on : Tue Apr 22 21:17:54 IST 2025 NEUTRAL CITATION C/SCA/6003/2021 JUDGMENT DATED: 15/04/2025 undefined its response to the same. It is clear from the documents on record that the petitioner vide communication dated 02.03.2021 had categorically requested for an adjournment up to 11.03.021. The adjournment was requested on the ground that the details were under compilation. It is further undisputed that the date for making the assessment stood extended up to 30.04.2021. Despite the same, without either granting an adjournment or rejecting the said request thereby compelling the petitioner to file their response to the show cause notice dated 27.02.2021, the Department straightaway proceeded to pass the impugned Assessment Order on 04.03.2021.
In the circumstances, the aforesaid Assessment Order has been clearly passed in utter disregard of the principles of natural justice and is consequently quashed and set aside. The petitions therefore succeed. In the circumstances, the Department is directed to bear the costs of Rs. 500/- in each petition payable to The Gujarat High Court Advocates Library. Rule is made absolute to the aforesaid extent.
(BHARGAV D. KARIA, J) (D.N.RAY,J) BINA SHAH Page 29 of 29 Uploaded by BINA SHAH(HC00353) on Tue Apr 22 2025 Downloaded on : Tue Apr 22 21:17:54 IST 2025