2025 (6) TMI 906 - HC - Income Tax

Exparte order - procedure followed by the Income Tax Department in serving notices and assessment orders - e-portal scheme - According to the petitioner since all the notices were uploaded in the e-portal he was not aware of the fact and further he is a poor tailor and therefore he had no occasion to the portal and he had not at all filed any return - HELD THAT - In the present case admittedly the assessment order was passed ex-parte. According to the petitioner since all the notices were uploaded in the e-portal he was not aware of the fact and further he is a poor tailor and therefore he had no occasion to the portal and he had not at all filed any return. This Court is of the considered opinion that when an exparte order was passed after uploading the notices through the portal atleast the respondent should have sent the order by way of registered post. So that the petitioner cannot take the plea now before this Court that the order was not served. In the present case the petitioner is a poor tailor and therefore he did not aware of the fact that he has to file his return of income or reply to the demand notice. This Court finds merit in the submissions of the learned counsel for the petitioner and therefore is inclined to give one more opportunity to the petitioner to put forth his case before the respondents by filing a proper reply. Accordingly impugned order passed by the 2nd respondent is set aside.The respondents / Income Tax Department shall make the portal available for filing a reply by the petitioner.The petitioner shall file his reply through the portal within a period of six weeks from the date of opening of the portal.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in these writ petitions are:

• Whether the assessment orders passed under Section 147 read with Section 144B of the Income Tax Act, 1961, dated 29.09.2021 and 31.03.2022, can be sustained when the petitioner claims non-receipt of physical copies of the orders and notices, despite their upload on the e-portal.
• Whether the procedure followed by the Income Tax Department in serving notices and assessment orders solely through the faceless e-portal scheme complies with principles of natural justice, especially when the petitioner is a poor individual with limited access to digital platforms.
• Whether an ex-parte assessment order passed without adequate opportunity to the petitioner to file a reply or participate in the proceedings is valid.
• Whether the petitioner should be granted an opportunity to file a reply and be heard before finalizing the assessment.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of assessment orders passed under Section 147 r.w.s. 144B when notices and orders were served only via e-portal

Relevant legal framework and precedents: Section 147 of the Income Tax Act authorizes reopening of assessments in certain circumstances, while Section 144B prescribes faceless assessment procedures, including issuance and communication of notices and orders through electronic means. The faceless scheme aims to promote transparency and efficiency but must comply with principles of natural justice, including effective service of notices and opportunity to be heard.

Court's interpretation and reasoning: The Court noted that the assessment order dated 29.09.2021 was passed ex-parte and was uploaded on the faceless portal. However, the petitioner, a poor tailor, was unaware of the notices or the order because he did not access the portal. The Court opined that mere uploading on the portal does not suffice for service when the affected party has no knowledge or access to the portal.

Key evidence and findings: The petitioner did not file any return and was unaware of the assessment proceedings. The physical copy of the order was served only in January 2025, over three years after the order was passed. The counter affidavit admitted this delay. The petitioner's socioeconomic status was considered relevant to his lack of access to the e-portal.

Application of law to facts: The Court held that the faceless scheme must be balanced with the right to be heard, especially for individuals lacking digital access. The faceless scheme's procedural compliance cannot override the requirement of effective communication and opportunity to respond.

Treatment of competing arguments: The Income Tax Department argued that uploading on the portal sufficed for service and that the delay in retrieving the order by the petitioner does not invalidate the proceedings. The Court rejected this argument, emphasizing the petitioner's lack of awareness and access.

Conclusion: The Court concluded that the assessment orders were not validly served and that principles of natural justice were violated.

Issue 2: Validity of ex-parte assessment order without opportunity to file reply or personal hearing

Relevant legal framework and precedents: The Income Tax Act and faceless assessment scheme require that the assessee be given an opportunity to file a reply and be heard before finalizing assessment orders. Ex-parte orders are generally disfavored unless the assessee deliberately avoids participation.

Court's interpretation and reasoning: Given the petitioner's lack of awareness due to non-service, the ex-parte order was not justifiable. The Court emphasized that the Department should have ensured communication by sending the order by registered post or other reliable means to prevent prejudice.

Key evidence and findings: The petitioner had no occasion to file a reply or appear for hearing as he was not informed of the proceedings. The Department's failure to provide physical service or alternative notice was a critical lapse.

Application of law to facts: The Court applied the principle that natural justice requires notice and opportunity to be heard, which was lacking here due to procedural deficiencies.

Treatment of competing arguments: The Department's reliance on the faceless scheme and digital communication was found insufficient to justify the ex-parte order.

Conclusion: The ex-parte order was set aside, and the petitioner was granted an opportunity to file a reply and be heard.

Issue 3: Granting opportunity to file reply and personal hearing post-ex-parte order

Relevant legal framework and precedents: Principles of natural justice and statutory provisions under the Income Tax Act mandate that an assessee be given a fair opportunity to present their case before finalization of assessment.

Court's interpretation and reasoning: The Court found merit in the petitioner's request for an opportunity to file a reply and be heard. It directed the Department to keep the portal open for filing the reply and to issue appropriate notices for personal hearing.

Key evidence and findings: The petitioner's socioeconomic status and lack of prior knowledge of the proceedings justified the relief.

Application of law to facts: The Court balanced the Department's procedural compliance with the petitioner's right to be heard and ordered remedial measures.

Treatment of competing arguments: The Department's opposition to reopening the proceedings was overruled in light of natural justice considerations.

Conclusion: The petitioner was granted six weeks to file a reply through the portal, and the Department was directed to afford a personal hearing before deciding the matter afresh.

3. SIGNIFICANT HOLDINGS

The Court held:

"The mere delay in retrieving the document from the portal cannot invalidate the proceedings." (Counter affidavit of the respondent, noted but rejected in context)

"When an exparte order was passed, after uploading the notices through the portal, at least the respondent should have sent the order by way of registered post. So that, the petitioner cannot take the plea now before this Court that, the order was not served."

"The petitioner is a poor tailor and therefore, he did not aware of the fact that, he has to file his return of income or reply to the demand notice."

Core principles established include:

• Service of notices and orders solely by uploading on the faceless portal is insufficient where the assessee lacks access or awareness.
• Natural justice mandates effective communication and opportunity to be heard before passing assessment orders, especially ex-parte.
• Income Tax Department must take additional steps, such as sending physical copies by registered post, when digital communication may not reach the assessee.
• Petitioners deprived of notice and hearing due to procedural lapses are entitled to a fresh opportunity to file replies and be heard.

Final determinations on each issue:

• The impugned assessment order dated 31.03.2022 was set aside.
• The Income Tax Department was directed to keep the portal open for the petitioner to file a reply within six weeks.
• The Department was directed to issue appropriate notices for personal hearing upon receipt of the petitioner's reply.
• In absence of portal availability, the petitioner may represent