2025 (5) TMI 1864 - AT - Income Tax

Validity of assessment order passed by NFAC or AO passed in violation of principles of natural justice - audi alteram partem HELD THAT - We find there has indeed been violation of natural justice in as much the proceeding limitation date is stipulated on 30 th September 2022 assessment order is passed on 19 th September 2022 and e-submission closed on 30 th March 2022 (with noting e submission closed by officer) without any further opportunity of submission of documentary evidence or explanations and a time gap of nearly six months remaining in between closing of submission and passing of assessment order which is resultant to not granting of proper and adequate opportunity of filing submission (uploading documentary evidences and submissions by the assessee) which prevented the assessee from a fair opportunity of presenting his case audi alteram partem which tantamount to violation of the principles of natural justice. As such we set aside the matter back to the files of the jurisdictional assessing officer for fresh assessment. Appeal of the assessee allowed for statistical purposes.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal include:

• Whether the assessment order dated 19.09.2022 passed by the National Faceless Assessment Centre (NFAC) is perverse and erroneous, and whether it was passed in violation of principles of natural justice, thereby warranting quashing of the order.
• Whether the assessment order is illegal and bad in law for being passed without issuance of a valid show cause notice or draft order as mandated under section 144B of the Income Tax Act, 1961.
• Whether the addition of Rs. 15,00,000/- by treating the claimed agricultural income as income from other sources was justified.
• Whether the CIT(A)/NFAC erred in upholding the addition in absence of any other source of income besides agricultural income.
• Whether the additions made are unjust and excessive.
• Whether the initiation of penalty proceedings under section 270A of the Income Tax Act was erroneous.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Violation of Principles of Natural Justice in Passing the Assessment Order

Relevant Legal Framework and Precedents: The principles of natural justice, particularly audi alteram partem (right to be heard), are fundamental in tax proceedings. Section 144B of the Income Tax Act mandates issuance of a draft assessment order and an opportunity to the assessee to respond before the final order is passed. The faceless assessment scheme emphasizes transparency and opportunity for submission of evidence and explanations.

Court's Interpretation and Reasoning: The Tribunal noted that the e-proceeding portal was closed on 30.03.2022, which was the last date for uploading documentary evidence and submissions by the assessee. However, the final assessment order was passed on 19.09.2022, nearly six months after closure of the portal. The Tribunal observed that no further opportunity was granted to the assessee to submit fresh evidence or explanations during this period.

Key Evidence and Findings: The assessee submitted a screenshot of the e-proceeding portal showing closure of submissions. The Tribunal found that this closure effectively prevented the assessee from submitting crucial documentary evidence supporting the claim of agricultural income.

Application of Law to Facts: The Tribunal held that the closure of the portal well before the assessment order was passed, without any opportunity for further submissions, amounted to denial of a fair hearing. This violated the audi alteram partem principle and the procedural safeguards under section 144B.

Treatment of Competing Arguments: The Revenue did not object to admission of fresh evidence but sought verification of authenticity. The Tribunal emphasized that the procedural lapse in denying opportunity was a fundamental flaw.

Conclusion: The Tribunal concluded that the assessment order was passed in violation of natural justice and therefore set aside the order for fresh assessment after allowing the assessee to file all relevant documents and submissions.

Issue 2: Validity of Assessment Order without Issuance of Valid Show Cause Notice or Draft Order under Section 144B

Relevant Legal Framework: Section 144B prescribes issuance of a draft assessment order and opportunity to the assessee to file objections before passing the final order. This procedural safeguard is mandatory.

Court's Reasoning: The Tribunal observed that the assessment order was passed without affording the assessee a valid opportunity to respond to the draft order or show cause notice, as the portal for submissions was closed prematurely.

Application of Law to Facts: The procedural non-compliance with section 144B was held to be a serious irregularity, rendering the assessment order illegal and bad in law.

Conclusion: The Tribunal found merit in the ground challenging the validity of the assessment order on this basis and directed fresh proceedings.

Issue 3 & 4: Addition of Rs. 15,00,000/- by Treating Agricultural Income as Income from Other Sources

Relevant Legal Framework: Agricultural income is exempt under the Income Tax Act, but the burden of proof lies on the assessee to establish genuineness of such income through documentary evidence such as land ownership, agricultural activity, sales records, and expenditure incurred. Precedents emphasize the need for credible evidence to substantiate agricultural income claims.

Court's Interpretation and Reasoning: The AO disallowed the agricultural income claim due to lack of supporting evidence, including absence of agreements with landowners, no documentary proof of agricultural expenditure, and no sales records or J Forms evidencing sale of agricultural produce.

Key Evidence and Findings: The CIT(A) upheld the addition for the same reasons. However, before the Tribunal, the assessee filed fresh documentary evidence including purchase invoices, ledger accounts, and evidence of sales to traders.

Application of Law to Facts: Since the fresh evidence was not considered by the AO or CIT(A) due to procedural constraints, the Tribunal found it appropriate to remit the matter back for fresh consideration after allowing the assessee to file all relevant documents.

Treatment of Competing Arguments: The Revenue did not dispute the admissibility of fresh evidence but sought verification of authenticity, which the Tribunal acknowledged as part of the reassessment process.

Conclusion: The Tribunal did not uphold the addition but remanded the matter for fresh assessment considering all evidence to determine the genuineness of agricultural income.

Issue 5: Excessiveness and Unjust Nature of Additions

Analysis: Since the Tribunal set aside the assessment order for violation of natural justice and procedural lapses, the question of excessiveness of additions was not adjudicated on merits. The Tribunal implicitly recognized that the additions may be unjust if proper evidence is furnished.

Issue 6: Initiation of Penalty under Section 270A

Analysis: The Tribunal did not specifically address the penalty issue in detail, as the appeal primarily challenged the assessment order and procedural fairness. Given the remand for fresh assessment, penalty proceedings would also be subject to reconsideration in light of fresh evidence and assessment outcome.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"We find there has indeed been violation of natural justice in as much the proceeding limitation date is stipulated on 30th September, 2022, assessment order is passed on 19th September, 2022 and e-submission closed on 30th March, 2022 (with noting e submission closed by officer), without any further opportunity of submission of documentary evidence or explanations, and a time gap of nearly six months remaining in between closing of submission and passing of assessment order, which is resultant to not granting of proper and adequate opportunity of filing submission (uploading documentary evidences and submissions by the assessee) which prevented the assessee from a fair opportunity of presenting his case 'audi alteram partem', which tantamount to violation of the principles of natural justice."

The Tribunal established the core principle that adherence to procedural safeguards, including providing reasonable opportunity to submit evidence and respond to draft orders under section 144B, is mandatory and failure to do so renders the assessment order invalid.

It was also held that the genuineness of agricultural income claims must be established through credible documentary evidence and that denial of opportunity to submit such evidence violates natural justice.

Accordingly, the Tribunal set aside the impugned assessment order and remanded the matter for fresh assessment after allowing the assessee to file all relevant evidence and submissions, directing the AO to provide reasonable opportunity of hearing.