2021 (9) TMI 1576 - HC - Income Tax

Gross injustice as respondents have violated principles of natural justice - Whether the petitioner was afforded a reasonable and adequate opportunity to respond to the Show Cause Notice and the draft assessment order including the sufficiency of time granted for filing submissions? HELD THAT - From the order sheet details it appears that on 19/04/2021 itself the draft assessment order was sent to Regional e-Assessment Unit for approval. On the same day it was approved and review report was filed and on 20/04/2021 review report was approved concurring with the assessment unit. On 22/04/2021 comments of the review officer was endorsed and approval was granted and it was approved pending for signing. On 23/04/2021 assessment order was approved and was waiting order generation. But final order was approved only on 25/05/2021. Therefore on 23/04/2021 itself respondent had sent for approval the final assessment order. The statement in the affidavit in reply that respondent waited for almost one month for assessment therefore is not correct. Be that as it may in any event the time granted in the show cause notice of only one day as noted earlier certainly cannot be accepted as sufficient time for petitioner to respond. In the circumstances the assessment order dated 26/05/2021 and any consequential demand notice and penalty notice is hereby set aside. The matter is sent to the concerned authority for de novo consideration. Petitioner to submit any further material or information in response to the draft assessment order issued on 16/04/2021 within one week of the link being provided by the concerned authority. The concerned unit may thereafter pass the assessment order after granting personal hearing and hearing petitioner personally as per the rules. We will also add that we have not made any observations on the merits of the Draft Assessment Order or response of petitioner to Draft Assessment Order.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter are:

• Whether the principles of natural justice were violated by the respondents in the issuance and handling of the Show Cause Notice dated 16/04/2021 and the subsequent assessment proceedings for Assessment Year 2018-19.
• Whether the petitioner was afforded a reasonable and adequate opportunity to respond to the Show Cause Notice and the draft assessment order, including the sufficiency of time granted for filing submissions.
• Whether the respondents acted in accordance with procedural fairness by considering or ignoring the petitioner's requests for adjournment.
• Whether the assessment order dated 26/05/2021 and any consequential demand or penalty notices passed pursuant thereto were valid, given the procedural conduct.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Violation of Principles of Natural Justice

Relevant legal framework and precedents: The principles of natural justice require that a person affected by a decision must be given a fair opportunity to be heard before the decision is taken. This includes adequate notice and sufficient time to prepare and present a response. Precedents emphasize that administrative or quasi-judicial authorities must act fairly and not deprive a party of the opportunity to be heard.

Court's interpretation and reasoning: The Court noted that the Show Cause Notice dated 16/04/2021 was digitally signed and issued at 20:30:10 IST on the same day, with a compliance deadline of 23:59 hours on 19/04/2021. Since 17/04/2021 and 18/04/2021 were weekend days, effectively, the petitioner had only one working day to respond. The Court found this to be an insufficient period to prepare a meaningful reply.

Key evidence and findings: The petitioner's adjournment requests dated 16/04/2021 and 18/05/2021, seeking extension until 31/05/2021 for gathering material, were supported by screenshots of e-proceedings annexed as Exhibit G. The respondents failed to acknowledge these adjournment requests in the assessment order dated 26/05/2021, which stated that the petitioner did not file any submissions or documentary evidence.

Application of law to facts: The Court held that the inadequate time given and the failure to consider the petitioner's adjournment requests amounted to a breach of natural justice. The petitioner was deprived of a fair opportunity to represent his case.

Treatment of competing arguments: The respondents contended that the time barring date was 30/04/2021 at the time of issuance of the Show Cause Notice, and the petitioner did not file any reply or request adjournment by the compliance date of 19/04/2021. They further stated that the time barring date was extended to 30/06/2021, and the assessment order was passed on 26/05/2021 after waiting over a month, providing ample opportunity to respond.

The Court rejected this contention based on the record of the order sheet, which revealed that the draft assessment order was sent for approval on 19/04/2021 itself, approved by 23/04/2021, and only the final signing was delayed until 25/05/2021. Therefore, the claim that the respondents waited for over a month to pass the order was factually incorrect.

Conclusions: The Court concluded that the petitioner was not given a proper and reasonable opportunity to respond, and the respondents' actions violated the principles of natural justice.

Issue 2: Validity of the Assessment Order and Consequential Notices

Relevant legal framework and precedents: An assessment order passed without adherence to principles of natural justice is liable to be set aside. The validity of demand and penalty notices flowing from such an order is also contingent upon the order's validity.

Court's interpretation and reasoning: Given the procedural irregularities and violation of natural justice, the Court found it necessary to set aside the assessment order dated 26/05/2021 and any consequential demand or penalty notices.

Key evidence and findings: The absence of consideration of the petitioner's adjournment requests and the insufficient time to respond were critical factors in invalidating the order.

Application of law to facts: The Court directed that the matter be remanded to the concerned authority for de novo consideration. The petitioner was granted an opportunity to submit further material or information in response to the draft assessment order within one week of receiving the link from the authority.

Treatment of competing arguments: The respondents' assertion that the petitioner had ample opportunity to respond was rejected based on documentary evidence and the timeline of approvals.

Conclusions: The assessment order and consequential notices were set aside, and the respondents were directed to conduct fresh proceedings in accordance with the rules, including granting personal hearing to the petitioner.

3. SIGNIFICANT HOLDINGS

The Court held as follows:

"The time granted in the show cause notice of only one day as noted earlier certainly cannot be accepted as sufficient time for petitioner to respond."

"The assessment order dated 26/05/2021 and any consequential demand notice and penalty notice is hereby set aside."

"The matter is sent to the concerned authority for de novo consideration. Petitioner to submit any further material or information in response to the draft assessment order issued on 16/04/2021 within one week of the link being provided by the concerned authority."

"The concerned unit may thereafter pass the assessment order after granting personal hearing and hearing petitioner personally as per the rules."

Core principles established include the necessity of providing a reasonable opportunity to respond to show cause notices and draft assessment orders, the requirement to consider adjournment requests seriously, and the invalidity of assessment orders passed in violation of natural justice. The Court emphasized procedural fairness over the merits of the draft assessment order, explicitly stating that no observations were made on the merits.