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2025 (7) TMI 527 - HC - Income TaxValidity of Assessment Order passed u/s 143(3) r/w Section 144B - shorter period provided to respond to SCN - Denial of natural justice - Mandation to provide seven days time - HELD THAT - Admittedly the show-cause notice under challenge is one which was issued on 28.02.2025 i.e. the last day in the month of February. The time granted to respond to the said show-cause notice was only four days as the petitioner was called upon to appear before the authority concerned on 05.03.2025 even though 01 02.03.2025 were non-working days being Saturday and Sunday. Thus the effective days given under the show-cause notice was only four days. In the instant case the show-cause notice having been issued on 28.02.2025 the Department had around thirty one days time before the assessment order could had been passed. In view of the same if the petitioner instead of being called upon on 05.03.2025 if he would had been called upon on 07.03.2025 or on 08.03.2025 the requirement as per the SOP could had been met and the assessment order would still been passed with clear two or three weeks time left with the Department. The fact that the petitioner after having submitted his reply to the non-compliance report on 29.10.2024 the Department took almost four months time for issuance of the next show-cause notice i.e. the show-cause notice dated 28.02.2025. Department itself could had issued the show-cause notice on an earlier date so that they themselves would have had reasonable time left with them for comfortably completing the assessment for which again the Department alone which has to be held responsible. The petitioner cannot be blamed for such actions on the part of the Department in any manner. the show-cause notice dated 28.02.2025 and the assessment order dated 11.03.2025 are not sustainable and the same deserve to be and are accordingly set aside / quashed. At the same time we are inclined to remit the matter back to the authority concerned i.e. respondent No. 1 to permit the petitioner to file a detailed response to the show-cause notice dated 28.02.2025 within a period of seven days time and for which the respondent No. 1 shall take necessary steps in opening the portal and enable the petitioner to submit his response.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court in this petition under Article 226 of the Constitution of India are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of the Assessment Order and Show-Cause Notice vis-`a-vis Principles of Natural Justice and SOP Compliance Relevant legal framework and precedents: The Income Tax Act, 1961 governs the assessment proceedings, with Section 143(3) empowering the Assessing Officer to complete assessment after considering the taxpayer's response. Section 144B provides for certain procedural safeguards. The Department's SOP dated 03.08.2022 mandates adherence to principles of natural justice, prescribing a minimum response time of seven days for show-cause notices (clause N.1.3.1), with a limited exception allowing curtailment only if the limitation date for completing assessment necessitates it (clause N.1.3.2). Relevant precedents from the same High Court bench in Writ Petitions Nos. 11712 and 10685 of 2025 emphasize the binding nature of the SOP and the requirement of reasonable opportunity. Court's interpretation and reasoning: The Court noted that the show-cause notice was issued on 28.02.2025, with a response deadline of 05.03.2025, effectively granting only four days, including two non-working days (Saturday and Sunday). The SOP prescribes a minimum of seven days for response, except when curtailed due to limitation for completing assessment. The Court found that the Department had approximately thirty-one days remaining before the assessment order deadline, so the exception to curtail the response time did not apply. The Department's delay in issuing the show-cause notice (taking almost four months after the petitioner's previous response) was held to be responsible for the compressed timeline, and the petitioner could not be faulted for this delay. Key evidence and findings: The petitioner's contention that only four days (with two non-working days) were given was supported by the timeline of the notice and response dates. The Department's own SOP mandates seven days unless exceptional circumstances exist, which were absent here. The petitioner had previously responded to earlier notices and non-compliance reports, indicating a history of cooperation. Application of law to facts: The Court applied the SOP's timelines as binding internal guidelines, interpreting the exception narrowly. Since the Department had sufficient time to allow the full seven days, the shorter timeline violated the principles of natural justice by denying reasonable opportunity to the petitioner. Treatment of competing arguments: The Department argued that the petitioner had prior notice and opportunities, including earlier notices under Section 142(1), and that the petitioner could have responded within the time prescribed in the impugned notice. The Court acknowledged these points but emphasized that the immediate procedural fairness in issuing the show-cause notice was independently required and not cured by earlier notices. The Department's reliance on judgments not dealing with the SOP clauses was rejected as distinguishable. Conclusions: The Court concluded that the show-cause notice and the subsequent assessment order were illegal and void for non-compliance with the SOP and principles of natural justice. Issue 2: Constitutional Violations Alleged under Articles 14, 19(1)(g), and 265 Relevant legal framework and precedents: Article 14 guarantees equality before the law; Article 19(1)(g) protects the right to practice any profession or carry on any occupation, trade or business; Article 265 mandates that no tax shall be levied or collected except by authority of law. Court's interpretation and reasoning: The Court considered whether the impugned actions violated these constitutional provisions by arbitrary or unfair procedure. The denial of reasonable opportunity to respond to the show-cause notice was found to violate Article 14's mandate of fairness and equality, as the petitioner was not afforded the same procedural safeguards as mandated by the SOP. The right under Article 19(1)(g) was indirectly affected by the unfair tax assessment procedure. Article 265 was engaged as the assessment order was passed without due adherence to lawful procedure. Key evidence and findings: The Department's own SOP and the timeline evidence supported the petitioner's claim of procedural unfairness. Application of law to facts: The Court linked the procedural violation to constitutional guarantees, holding that the impugned order was violative of these Articles. Treatment of competing arguments: The Department did not specifically contest the constitutional violation arguments beyond procedural sufficiency, which the Court found inadequate. Conclusions: The Court held the impugned order to be violative of Articles 14, 19(1)(g), and 265. Issue 3: Availability of Alternative Remedy and Jurisdiction of the Writ Court Relevant legal framework and precedents: The Income Tax Act provides for statutory appeals against assessment orders. Generally, writ jurisdiction under Article 226 is discretionary and not to be exercised if an efficacious alternative remedy is available. Court's interpretation and reasoning: The Department argued that the petitioner should pursue appeal remedies rather than writ petition. The Court observed that while alternative remedies exist, the fundamental procedural violation concerning natural justice and SOP compliance warranted intervention at the writ stage to prevent miscarriage of justice. Key evidence and findings: The petitioner's challenge was directed at the procedural fairness of the show-cause notice and assessment order, not merely the quantum of tax or substantive issues. Application of law to facts: The Court exercised its writ jurisdiction to quash the impugned order and notice and remitted the matter for fresh consideration, thereby preserving the petitioner's right to statutory remedies thereafter. Treatment of competing arguments: The Court balanced the Department's submission with the petitioner's right to fair procedure and found the writ petition maintainable on these grounds. Conclusions: The writ petition was entertained and allowed to ensure procedural fairness, with directions for fresh proceedings. 3. SIGNIFICANT HOLDINGS The Court held as follows: "The show-cause notice dated 28.02.2025 and the assessment order dated 11.03.2025 are not sustainable and the same deserve to be and are accordingly set aside / quashed." "The Department's own Standard Operating Procedure dated 03.08.2022 mandates a response time of seven days to ensure adherence to principles of natural justice, which was not complied with in the present case." "The exception to curtail the response time is only applicable when the limitation date for completing the assessment is imminent, which was not the case here as the Department had around thirty-one days before the assessment deadline." "The petitioner was effectively given only four days, including two non-working days, to respond, which is insufficient and violative of the principles of natural justice." "The Department's delay in issuing the show-cause notice cannot be visited upon the petitioner." "The impugned order and notice are violative of Articles 14, 19(1)(g), and 265 of the Constitution of India." "The matter is remitted back to the authority concerned to grant the petitioner a reasonable opportunity of seven days to respond to the show-cause notice, with the portal to be opened and intimation given accordingly, obviating the need for a fresh notice." Core principles established include the binding nature of departmental SOPs that incorporate principles of natural justice, the narrow interpretation of exceptions to procedural timelines, and the Court's willingness to intervene under Article 226 to protect fundamental procedural rights even where alternative remedies exist.
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