The principles of natural justice must be adhered to in administrative proceedings, and any violation at the initial stage cannot be remedied at the appellate stage.

Order :

(Arvind Kumar Verma, J.)

Since the question of law involved in the batch of petitions under Article 226 of the Constitution of India have been heard on the maintainability of the writ petitions as well as on merits.

2. By way of the instant writ petitions, the petitioner is challenging the order of the Respondent No.2 under Section 250 of the Income Tax Act, 1961 dated 29.12.2023 whereby the penalty proceedings initiated against the petitioner pertaining to the assessment year 2015-16 were decided in a manner prejudicial to the natural justice.

3. Facts of the case in brief is that the petitioner concerned is engaged in advancement of learning, teaching, research and diffusion of knowledge in the field of law. The income tax return filed by the assessee for the assessment year 2015-16 was reopened for assessment. That the respondent No.2 denied exemption under Section 10(23C) (iiiab) of the Income Tax Act, 1961 to the petitioner on the ground that it was not substantially financed by the Government. The petitioner had preferred an appeal to the Respondent No.2 who dismissed the appeal without considering the contentions put forth in the written submission of the petitioner and without affording opportunity to the petitioner for hearing. The respondent No.2 decided the appeal 6 years after the date of institution of the appeal and without serving a copy of the impugned order to the petitioner. The respondent No.3 has initiated penalty proceedings against the pertinent. Thus, being aggrieved by the revenue oriented approach of the respondents and a continuous violation of the principle of natural justice has preferred the instant writ petition.

4. The Petitioner is a not for profit institution created through a State Government legislation and exists solely for the purposes of imparting education in law. The petitioner receives grants from the Government to carry out its operations and had sought to claim income tax exemption under Section 10923C)(iiiab) of the income Tax Act, 1961. The term “wholly or substantially financed” is not defined under the act and thus was interpreted to varying degrees by various courts and Tribunals. Rule 2BBB was added to the Income Tax Rules, 1962 on 12.12.2014 which, when read with the Explanation added to Section 10(23C) (iiiab) that came into effect on 01.04.2015 (AY 15-16 onwards) states that an institution would be considered as being wholly or substantially financed” by the Government for any previous year if the government grants to the institution exceeded 50% of its total receipts, including voluntary contributions, for that previous year. It is to be noted that the Explanatory notes the finance (No.2) Act, 2014 which inserted the Explanation to Section 10923C) (iiiab), clarifies that the amendment shall be applicable from Assessment Year 2015 onwards and that the same will be applicable only prospectively.

5. The income tax returns filed by the petitioner for the assessment years 2011-12, 2012-12,2015-16, 2016-17 and 2017-18 were selected for scrutiny and proceedings were initiated by the respondent No.3. The respondent No.3 proceeded to pass adverse orders denying the benefit of exemption under Section 10(23C)(iiiab) of the Act to the Petitioner. For the Annual Year 2011-12 and 2012-13, respondent NO.3 also retrospectively applied rule 2BBB of the Rules.

6. Being aggrieved by the orders of the respondent No.3, the petitioner filed appeal before respondent No.2 seeking for the orders to be set aside on the ground that the AO had erred in rejecting the exemption claimed by the petitioner under Section 10(23C)(iiiab). The respondent No.2 however passed orders against the petitioner for the Annual Year 2011-12, 2012-13, 2015-16, 2016-17 and 2017-18 on 29.12.2023 without giving any regard to the grounds raised or opportunity of personal hearing and these orders were never communicated to the petitioner. It came into the knowledge of the petitioner when Orders-in-Appeal were passed. Five im