2025 (5) TMI 758 - HC - Income Tax

Assessment order and the consequential penalty and demand notices - Denial of natural justice - HELD THAT - As noted earlier from the pleadings sequence of events and the emails produced on record we are satisfied that no opportunity for a personal hearing was granted to the Petitioner. Thus the impugned assessment order violated the principles of natural justice and fair play. In such circumstances it would be appropriate for this Court to entertain this Petition and set aside the impugned assessment order along with the consequential show cause notices or demand notices based on the impugned assessment order without relegating the Petitioner to avail of the alternate remedy. We accordingly do so. The impugned assessment order the consequential show cause notice and the demand notices of the same date are hereby quashed and set aside and the matter remitted to the 1st respondent for fresh consideration after granting the petitioner opportunity for a personal hearing. The 1st Respondent must pass the fresh assessment order within three months from the date of uploading this order. If this is done learned Counsel for the Petitioner agrees not to raise the limitation issue. We remit the matter to the 1st Respondent for passing a fresh assessment order after giving the Petitioner an opportunity of being heard. All contentions on merits are left open because we have interfered with the impugned assessment order only because it was made in breach of principles of natural justice and fair play.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court were:

• Whether the impugned assessment order dated 6 March 2025 was validly passed in accordance with the principles of natural justice and fair play, particularly whether the Petitioner was afforded an opportunity of personal hearing before the order was issued.
• Whether the Petitioner's failure to obtain a personal hearing due to technical glitches in the video conferencing system constituted a breach of the principles of natural justice, thereby justifying interference with the assessment order despite the availability of alternate remedies.
• Whether the consequential penalty and demand notices issued on the same date as the assessment order could be sustained where the assessment order itself was passed without affording the Petitioner a hearing.
• Whether the Court should exercise its discretion to quash the impugned orders and remit the matter for fresh consideration, or require the Petitioner to exhaust alternate remedies.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of the Assessment Order in Light of Principles of Natural Justice

Relevant Legal Framework and Precedents: The principles of natural justice require that a person affected by an adverse order must be given a fair opportunity to be heard before such an order is passed. This includes the right to a personal hearing where requested. The Court recognized that these principles are fundamental and breach thereof vitiates the impugned order.

Court's Interpretation and Reasoning: The Court noted that the Petitioner was issued a show cause notice and filed a timely reply, expressly seeking a personal hearing. The Petitioner was informed that the hearing would be conducted via video conferencing, and detailed efforts were made by the Petitioner to access this facility.

Key Evidence and Findings: The record showed multiple emails by the Petitioner reporting technical glitches in accessing the video conferencing facility. The Petitioner was directed to the Central Processing Centre (CPC) and help desk, who acknowledged the technical issues and promised resolution and rescheduling of the hearing. Despite this, the assessment order was passed without rescheduling the hearing or providing any opportunity to the Petitioner.

Application of Law to Facts: The Court found that the failure to provide a personal hearing, especially after the Petitioner's repeated attempts and notifications of technical difficulties, amounted to a patent breach of natural justice. The impugned assessment order was therefore invalid.

Treatment of Competing Arguments: Although the Respondent had alternate remedies available to challenge the order, the Court held that the breach of natural justice was so fundamental that it warranted direct interference. The Respondent's inability to provide clear instructions or justification for the failure to grant hearing was noted.

Conclusions: The Court concluded that the impugned assessment order violated the principles of natural justice and could not stand.

Issue 2: Validity of Consequential Penalty and Demand Notices

Relevant Legal Framework and Precedents: Penalty and demand notices issued consequential to an invalid assessment order cannot be sustained as they are derivative of the original order.

Court's Interpretation and Reasoning: Since the assessment order was quashed for breach of natural justice, the penalty and demand notices issued on the same date were also quashed as they were consequential to the invalid order.

Application of Law to Facts: The Court set aside the penalty and demand notices along with the assessment order.

Conclusions: The consequential notices could not survive independently of the assessment order and were quashed accordingly.

Issue 3: Whether to Remit the Matter for Fresh Consideration or Require Alternate Remedy

Relevant Legal Framework and Precedents: Courts generally require litigants to exhaust alternate remedies unless there is a fundamental breach of natural justice or other exceptional circumstances.

Court's Interpretation and Reasoning: The Court acknowledged that ordinarily, alternate efficacious remedies would preclude interference at this stage. However, the fundamental breach of natural justice justified direct intervention. The Court therefore exercised discretion to entertain the Petition and quash the impugned orders without relegating the Petitioner to alternate remedies.

Application of Law to Facts: The Court remitted the matter to the first Respondent for fresh assessment after granting the Petitioner a personal hearing.

Treatment of Competing Arguments: The Respondent's request for postponement and inability to provide clear instructions was considered but ultimately rejected to avoid further delay and injustice.

Conclusions: The Court set aside the impugned orders and directed a fresh assessment within three months, leaving all merits open for consideration.

3. SIGNIFICANT HOLDINGS

The Court held:

"From the pleadings, sequence of events, and the emails produced on record, we are satisfied that no opportunity for a personal hearing was granted to the Petitioner. Thus, the impugned assessment order violated the principles of natural justice and fair play."

"In such circumstances, it would be appropriate for this Court to entertain this Petition and set aside the impugned assessment order along with the consequential show cause notices or demand notices based on the impugned assessment order, without relegating the Petitioner to avail of the alternate remedy."

"The impugned assessment order dated 6 March 2025, the consequential show cause notice and the demand notices of the same date are hereby quashed and set aside and the matter remitted to the 1st respondent for fresh consideration after granting the petitioner opportunity for a personal hearing."

Core principles established include the inviolability of the right to a fair hearing as a component of natural justice, especially in administrative and quasi-judicial proceedings. The Court emphasized that technical glitches causing denial of hearing must be remedied before passing adverse orders.

The final determinations were:

• The impugned assessment order, penalty notice, and demand notice were quashed for violation of natural justice.
• The matter was remitted for fresh consideration after affording the Petitioner a personal hearing.
• The fresh assessment was to be completed within three months, with the limitation issue waived if done timely.
• All merits and contentions were left open for fresh adjudication.