1 The principles of natural justice are enshrined in two hoary Latin maxims – nemo judex in causa sua and audi alteram partem. Translated literally, these maxims mean respectively that – (i) no one can be a judge in his own cause, and (ii) let the other side be heard. In other words, the first is to the effect that no Judge should have personal interest in a case before him, and the second that no one should be condemned unheard. Thus, not only the assessment order but each and every action taken by the AO in the course of assessment should stand the test of appeal on the grounds of impartiality and fairness. Negatively, these two rules may also be called rules against bias and arbitrariness.
2 The assessment proceedings are quasi judicial proceedings and therefore every action of the AO is tested on the touchstone of natural justice. It is all the more so because the assessment proceeding before the AO is not an adversarial proceeding where both the appellant and the respondent get a chance to have their say. The AO is a revenue tribunal and he is therefore investigator – cum – prosecutor -cum – inquiry officer, rolled into one. He owes his jurisdiction and his powers to the provisions of the Act. Every action of his must conform to the procedure laid down in the Act read with the Rules and the CBDT Circulars. Therefore, all his actions must pass the test of procedural fairness. The non-observance of principals of natural justice or the prescribed procedure is itself a prejudice to the assessee. Any act or a decision in the course of an assessment on any particular point which is adverse to the assessee must be made only after bringing that point duly to the notice of the assessee and hearing him on it. If it is not done, the courts may take an adverse view even if the decision is right. A large number of assessments where good investigation has been carried out go waste because the appellate authorities set aside or annul the assessment orders on `grounds of failure of natural justice’.
3 The principle of audi alteram partem has been well-recognised by the legislature and a large number of procedural provisions in the Act have expressly incorporated this principle. For example, Chapter XVI of the Act dealing with the procedure for assessment incorporates this principle in sub-section 3 of Section 142 which reads as :-
The assessee shall, except where the assessment is made under s.144, be given an opportunity of being heard in respect of any material gathered on the basis of any inquiry under sub-section (2) (or any audit under sub-section (2A) and proposed to be utilised for the purposes of the assessment.”
Similarly Sections 144A, 154, 158, 163, 170, 171, 263 and 275 specifically provide for hearing. This list is not exhaustive but is merely illustrative. The courts have however held that even where the statute does not provide for hearing, the principles of natural justice demand that hearing should ordinarily be given unless it is implicitly or expressly excluded. However, ‘hearing’ means reasonable hearing and `fairness’ does not require plurality of hearings. The Supreme Court observed in the celebrated Kraipak case :
‘Rules of natural justice are to secure justice and to prevent miscarriage of justice. They supplement the law and do not supplant it.’
4 Prima facie indications of `fairness’ on the part of the AO are: i) adequate notice, ii) opportunity of hearing, and iii) speaking order. The assessment order must be a speaking order. A speaking order is one in which each and every point of controversy has been properly dealt with. The order itself bears evidence to ‘due application of mind’ on the part of the authority. Due application of mind has been judicially defined to mean that there is something in the order which shows that the point or the issue has been duly considered by the AO after taking into account the objections of the assessee.