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2025 (6) TMI 496 - HC - Income TaxAssessment order passed u/s 143(3) r/w section 144-B as passed in violation of the principles of natural justice - HELD THAT - Petitioners sought an adjournment the impugned order reflects that the reply cannot be considered as relevant. These two facts are contrary to each other. Thus when there is no reply filed by the assessee nor any adjournment being granted which was reasonable demand the respondents ought not to have passed the impugned order without following the principles of natural justice. Section 144-B(i)(xvi) of the Act provides for an opportunity to the assessee in case any variation prejudicial to the interest of the assessee is proposed in the draft assessment order by serving the notice calling upon the assessee to show cause as to why the proposed variation could not be made. Thus in view of the mandatory provisions to provide an opportunity of hearing to the assessee by issuing show cause notice along with the draft order which in the facts of the present case was issued on 5.12.2022 calling upon the assessee to furnish the reply / respond before 12.12.2022 9 15 hours the assessee having prayed for an adjournment on 10.12.2022 i.e. two days in advance before the proposed date seeking an adjournment for seven days it cannot be said to be unreasonable demand and the respondents without considering the same passed the impugned order on 21.12.2022 in clear violation of the principles of natural justice and contrary to the provisions of section 144-B of the Act. It can be safely said that the impugned order was passed by the respondents in violation of the principles of natural justice without affording an opportunity of filing reply within reasonable period of time considering the fact that the assessee was also required to be given personal hearing so as to make his oral submissions before the income tax authority as per section 144-B (vii) of the Act. In the result the present petition succeeds and the same is accordingly allowed. The impugned assessment order dated 21.12.2022 and demand notices raised thereto for the Assessment Year 2021-22 are quashed and set aside. Assessing Officer shall be at liberty to proceed with the assessment under the provisions of section 144-B of the Act from the stage of issuing draft assessment order as permissible under the law after issuing show cause notice so as to provide an opportunity of hearing to the petitioners as per the provisions of section 144-B of the Act.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court in this matter are:
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 require that an assessee be given a fair opportunity to present their case before any adverse order is passed. Section 144-B of the Income Tax Act mandates that where a draft assessment order proposes variations prejudicial to the assessee, a show cause notice must be issued, and the assessee must be given an opportunity to respond, including a personal hearing under sub-section (vii). Precedents such as Golden Tobacco Ltd. vs NFAC, Mantra Industries Ltd. vs NFAC, Gandhi Reality (India) (P) Ltd. vs ACIT, and Index India (P) Ltd. vs ACIT emphasize the mandatory nature of these procedural safeguards. Court's Interpretation and Reasoning: The Court noted that the petitioners received a show cause-cum-draft assessment order on 5.12.2022, calling for a reply by 9:15 hours on 12.12.2022. The petitioners filed an adjournment request on 10.12.2022 seeking extension of time up to 19.12.2022 to file their reply. The impugned assessment order was passed on 21.12.2022 without considering this adjournment request. The Court found this to be a clear violation of the principles of natural justice as the petitioners were not afforded a reasonable opportunity to respond. Key Evidence and Findings: The adjournment request dated 10.12.2022 was undisputed and on record. The impugned order itself noted that the petitioners' reply "cannot be considered as relevant," which was contradictory given that no opportunity was granted to file a substantive reply. The Court observed that the respondents acted with undue haste, passing the order within two days after the requested adjournment period. Application of Law to Facts: The Court held that the mandatory provisions of section 144-B, which require issuance of show cause notice and opportunity to respond including personal hearing, were not complied with. The failure to consider the adjournment request and denial of reasonable time to file a reply amounted to breach of natural justice. Treatment of Competing Arguments: The respondents contended that the procedure under the Act was followed and that the petitioners had not submitted any reply or adjournment request for the related assessment year 2019-20. However, the Court distinguished the facts by focusing on the undisputed adjournment request and procedural lapses specific to the impugned order for the Assessment Year 2021-22, which was under challenge. Conclusion: The impugned assessment order was passed in gross violation of the principles of natural justice and the statutory scheme under section 144-B of the Act. Issue 2: Compliance with Procedural Requirements under Section 144-B of the Income Tax Act Relevant Legal Framework and Precedents: Section 144-B of the Income Tax Act prescribes a faceless assessment procedure, including issuance of a draft assessment order, show cause notice specifying the date and time for reply, and providing an opportunity for personal hearing. The procedure aims to ensure transparency and fairness in assessment proceedings. Court's Interpretation and Reasoning: The Court underscored that the show cause notice dated 5.12.2022 complied with the requirement of specifying a date and time for reply (12.12.2022, 9:15 hours). The petitioners' request for adjournment till 19.12.2022 was a reasonable demand to collate relevant materials from multiple sources. The respondents' failure to consider this request and to provide a personal hearing as mandated under section 144-B(vii) was contrary to the statutory scheme. Key Evidence and Findings: The Court relied on the annexures and order-sheet details which recorded the adjournment request and the absence of any substantive reply from the petitioners due to non-grant of time. The impugned order's rejection of the petitioners' reply as "not relevant" was found to be inconsistent with the procedural requirements. Application of Law to Facts: The Court applied the statutory provisions and relevant judicial pronouncements to hold that the procedural safeguards under section 144-B were not adhered to, thereby invalidating the impugned order. Treatment of Competing Arguments: The respondents' reliance on the department's risk management strategy and the classification of the case as a "High Risk Transaction Case" was noted but found irrelevant to the procedural non-compliance. The Court emphasized that procedural fairness cannot be compromised even in cases flagged for scrutiny. Conclusion: The assessment proceedings must comply with the procedural safeguards under section 144-B, including consideration of adjournment requests and providing personal hearing opportunities, which were not followed in the present case. Issue 3: Legality and Validity of the Demand Raised by the Impugned Assessment Order Relevant Legal Framework: An assessment order passed without following the principles of natural justice and statutory procedure is liable to be quashed. The validity of the demand raised depends on the legality of the assessment order. Court's Interpretation and Reasoning: Since the impugned order was passed without affording the petitioners a reasonable opportunity to respond, the demand of Rs. 27,56,57,960/- raised therein could not stand. The Court did not delve into the merits of the assessment but limited its interference to procedural infirmities. Key Evidence and Findings: The demand notices were directly connected to the impugned assessment order, which was found to be procedurally defective. Application of Law to Facts: The Court quashed and set aside the impugned assessment order and the demand notices, remanding the matter for fresh assessment in accordance with law. Treatment of Competing Arguments: The respondents' defense of procedural compliance and substantive correctness of the demand was not accepted due to the overriding procedural lapses. Conclusion: The demand raised pursuant to the impugned order was quashed along with the order itself. 3. SIGNIFICANT HOLDINGS The Court held:
Core principles established include the inviolability of the principles of natural justice in faceless assessment proceedings, mandatory compliance with procedural safeguards under section 144-B of the Income Tax Act, and the necessity to consider adjournment requests reasonably before passing adverse orders. The final determination was that the impugned assessment order and demand notices were quashed and set aside on the ground of breach of natural justice, and the matter was remanded for fresh assessment in accordance with law and procedure.
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