This article explains Income Tax Assessment and laws related to the jurisdiction, principles of natural justice, deeming provisions, the burden of proof, onus, and shifting of burden.

Income tax assessment can be defined as the process of collecting and reviewing the income tax returns filed by assessees. This assessment is done after filing the income tax returns. In this article, we will discuss case laws about jurisdiction and deeming provisions, among others.

Case Laws of Income Tax Assessments

1. Jurisdiction

Knowing your income tax jurisdiction is essential for smooth tax filing and communication with the tax department. Your jurisdiction is determined by factors like your residential address and income level.

Key components of your income tax jurisdiction include:

• Area code: The geographic region where you reside.
• Assessing Officer (AO) type: This determines whether you fall under a ‘Ward’ or ‘Circle’ office. Generally, individuals with higher incomes are assigned to a ‘Circle’ office.
• Range code: Indicates the specific income tax range you belong to.
• AO number: A unique identifier for your assigned Assessing Officer.

Having this information readily available is crucial for filing returns, responding to notices, and resolving tax-related matters. It helps you connect with the correct tax office for efficient communication.

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2. Principles of Natural Justice

(a) It is also called ‘hearing opportunity,’ and it is based on the ‘audi alteram partem’ rule. This principle has been known from the beginning of time. A fundamental legal principle states that every judgement that will affect someone’s rights must first provide that individual with a chance to present their side of the matter.

(b) Articles 14 and 21 of the Indian Constitution specifically state the principles of natural justice. Adherence to the Principles of Natural Justice is at the centre of justice administration.

(c) Natural justice is based on fundamental, very basic principles, and it is not to be interpreted as a simple formality or misinterpreted as such.

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3. Burden of Proof, Onus and Shifting of Burden

(a) The burden of proof is a significant factor in assessment proceedings. It’s interesting how the burden of proof is constantly changing, just like the ball in a football game. Additionally, there are a few deeming provisions that must be given their proper role to play, such as sections 68, 69, 69A, 69B, and 69C, where the assessee has the initial burden of proof.

(b) The rule of the onus is an important rule of evidence. Similar to how the toss determines who must bat first in a game of cricket, the person whose burden of proof is on them in a court case is required to present evidence in support of that individual. 

Imagine a case where the assessee and the department are at a standstill because neither has any supporting evidence. The question of whose side the decision would be made in such a situation arises. And the answer will depend on who has the onus. In the event that the assessee had the burden of proof and he failed to discharge it, the matter will be resolved against them, and vice versa.

(c) The basic rule is that the onus, or primary burden of proof, is always on the person declaring a proposition or fact that is not self-evident. The onus is on the side, asserting that the apparent is not genuine. 

If a party asserting a fact that is not obvious must provide evidence but fails to do so, the issue must be ruled against that party. 

The onus is on the assessing officer to establish the truth of any allegations made by the department, including any claims that a transaction is fraudulent or false or that the assessee is Benami or some other person.

4. Deeming Provisions

(a) To put it simply, a deeming provision is one that considers a male to be a female and vice versa.

(b) A ‘deeming provision’ is a presumptive claim that allows legal processes to move promptly and without unfavourable pauses.

(c) The term ‘deemed’ might refer to the obvious, the unclear, or even the impossible. It is occasionally used to prove a certain construction that could otherwise be uncertain.

(d) A deeming provision may occasionally be used to broaden the definition of a term to cover situations that would not typically fall within the scope of the provision. Therefore, the events and consequences that arise from legal fiction also need to be considered real.

(e) A legal fiction and a legal presumption are two different things. A legal provision that fabricates a fact out of something that is not one is known as a legal fiction. Legal fictions serve a certain function solely. They must be strictly defined, limited to the function for which they were intended, and should not be used outside of their proper scope. Fiction, on top of fiction, is not possible. In the context of a penalty provision, it assumes significance.

(f) A legal presumption is an inference that can be made based on a specific fact, collection of facts, etc. When a legal presumption is intended to be raised by a specific and unique provision, it cannot be considered to be simply clarifying in nature but must be treated as a substantive provision of law for all intents and purposes.

Nemo Judex in Causa Sua and Taxation Proceedings

The principle of ‘Nemo judex in causa sua’ essentially means that no one should be a judge in their own case. This fundamental principle of natural justice is somewhat diluted in the context of income tax proceedings.

The Income Tax Officer (ITO) is uniquely positioned as both investigator and adjudicator. They gather evidence, conduct assessments, and impose penalties. This dual role raises concerns about potential bias, as the ITO is both a party to the proceedings and the decision-maker.

However, the Income Tax Act empowers the ITO with these responsibilities to ensure efficient tax administration. To mitigate potential conflicts of interest, there are provisions for appeals and judicial review, allowing taxpayers to challenge assessments if they believe the ITO has acted unfairly or incorrectly.

While the principle of natural justice is not strictly applied in its purest form in tax proceedings, there are safeguards in place to protect taxpayers’ rights.

Audi Alteram Partem and Taxation Proceedings

The principle of ‘audi alteram partem’ — the right to be heard — is fundamental to any fair legal or administrative process. This principle is deeply ingrained within the Indian tax system.

The Income Tax Act incorporates provisions that mandate taxpayers be given an opportunity to present their case before any adverse action is taken. This includes the right to receive notices, respond to inquiries, and defend one’s position.

Landmark judgments, such as Suraj Mall Mohta v. A.V. Visvanatha Sastri, have reinforced the idea that tax assessment proceedings are quasi-judicial in nature, necessitating adherence to principles of natural justice. The Supreme Court has consistently emphasised the taxpayer’s right to a fair hearing and access to relevant information.

While the tax administration has evolved, the core principle of providing taxpayers an opportunity to be heard remains a cornerstone of the system. This ensures fairness, transparency, and accountability in tax matters.

Right to Have Notice

The fundamental principle of natural justice dictates that no individual should be adversely affected without prior notice. In the realm of taxation, this translates to the taxpayer’s right to be informed of any actions that may impact their tax liability.

A clear, concise, and unambiguous notice is essential for taxpayers to understand the grounds on which the tax authority is acting. This notice should provide sufficient details and a reasonable timeframe to respond. Without adequate notice, the taxpayer’s ability to present their case is compromised, potentially leading to unfair outcomes.

Courts have consistently upheld the importance of proper notice, emphasising that it forms the bedrock of a fair hearing. The absence of a valid notice can render subsequent actions, such as assessments or penalties, invalid.

Right to Present Case and Evidence

A cornerstone of fair administrative practice, the right to present one’s case is fundamental to the tax assessment process. Taxpayers have the right to submit relevant evidence and arguments in support of their tax position. This includes both written and oral representations.

Courts have consistently upheld the taxpayer’s right to be heard. The Supreme Court has emphasised that authorities must provide taxpayers with ample opportunity to present their case before reaching a decision. This right extends to examining relevant documents and cross-examining witnesses under certain circumstances.

Denying a taxpayer the opportunity to present their case is a serious violation of natural justice and can lead to the invalidation of tax orders.

Right to Rebut Adverse Evidence

Taxpayers have the right to know what evidence is being used against them. This is essential for a fair fight. While the tax authorities don’t have to share every single detail, they must provide a clear and easy-to-understand summary of any information that could hurt your case. This gives you a chance to explain your side of the story.

The Supreme Court has made it clear that taxpayers can’t be surprised with new information at the last minute. Even if the tax authorities rely on someone else’s opinion, they have to share it with you so you can respond. How you can defend yourself depends on the specific situation. Sometimes you might need to question witnesses, but this isn’t always necessary.

Ultimately, the goal is simple: everyone deserves a fair chance to defend themselves.

Key points covered:

• Taxpayers have the right to know the evidence against them.
• Tax authorities must provide a clear summary of adverse information.
• Taxpayers get a chance to respond to the evidence.
• The method of defense depends on the situation.
• The core principle is fair treatment for all taxpayers.

Cross-examination

Cross-examination is like asking questions to someone who has given evidence against you. It’s a powerful tool to challenge their story and find the truth. Without this chance to question witnesses, you can’t properly defend yourself.

The highest court in India has said that stopping you from questioning a witness is very unfair and can ruin the whole case. It’s your right to know why someone is saying something about you, and to ask them about it. Not letting you do this is like not letting you tell your side of the story.

Key points covered:

• Cross-examination is important for a fair trial.
• It helps you challenge the evidence against you.
• Denying cross-examination is unfair and can lead to wrong decisions.
• You have the right to question witnesses.

Legal Representation

When you’re facing a tax dispute, having someone experienced on your side can be a big help. While it’s not always automatic, Indian tax law lets you hire a lawyer or accountant to represent you.

Some people worry that lawyers might complicate things or slow down the process. But the truth is, having a professional can help you understand complex tax rules and protect your rights. The law allows you to have a lawyer or accountant with you when you meet with tax officials or go to a tax tribunal.

Key points covered:

• You have the right to have a lawyer or accountant help you.
• Legal representation can help you understand tax laws.
• Don’t worry about legal help slowing things down.
• You can have a lawyer or accountant with you at tax meetings.

Have the Report of the Inquiry

You have the right to see all the information the tax authorities are using against you. This includes any reports or documents that were used to make a decision about your taxes. Seeing this evidence helps you understand why a decision was made and gives you a chance to explain your side of the story.

Indian tax laws have specific rules that say you should get copies of important reports. Courts have also ruled that not showing you the evidence is unfair and can lead to wrong decisions. For example, there’s a law that says the tax officer must share a draft of their decision with you before making it final. This gives you a chance to challenge it before it becomes official. If they skip this step, the final decision might not be valid.

Key points covered:

• You have the right to see the evidence against you.
• This helps you understand the tax officer’s decision.
• There are laws that say you should get copies of reports.
• Courts have said not showing you the evidence is unfair.
• Tax officers must share a draft decision with you before making it final.

Post Decisional Hearing

Normally, you should have a chance to share your side of the story before a final decision is made. This is called a pre-decisional hearing. However, there are rare cases where this isn’t possible. In these situations, the law allows for a post-decisional hearing, which means you can explain your point of view after the decision has been made.

It’s important to understand that having a chance to speak after the decision doesn’t replace the right to speak beforehand. Courts have said that this should only be done in very special cases and that the hearing must be real and fair, not just for show.

Key points covered:

• You usually have the right to be heard before a decision.
• In rare cases, you can be heard after the decision.
• A hearing after the decision isn’t as good as one before.
• Courts say this should only happen in special cases.
• The hearing must be real and fair.

Faceless Assessment Principles of Natural Justice

The faceless assessment system is designed to make the tax process fairer and more transparent. A key part of this is making sure taxpayers have a chance to defend themselves.

Before making a final decision, tax officials must prepare a draft assessment. If this draft proposes changes that could hurt the taxpayer, they must give the taxpayer a chance to explain their side of the story. This is done through a notice asking the taxpayer to explain why the proposed changes are wrong. Only after considering the taxpayer’s response can the final assessment be made.

This process ensures that taxpayers are treated fairly and have a real opportunity to be heard. It’s a step towards a more just tax system.

Key points covered:

• Faceless assessment aims for fairness.
• Taxpayers get a chance to respond to proposed changes.
• This is to ensure fair treatment.
• The process includes a notice to the taxpayer.
• Taxpayer’s response is considered before final decision.

Conclusion

Now that you are aware of what is the income tax assessment and its case laws, you can take a necessary call as to what to do if need be. In case of any queries, you can always take expert help by contacting the legal experts at Vakilsearch. 

Read More:

• How to Submit your ITR Online?
• Why we should file Income Tax Returns?
• Things to know about Income Tax Act