2025 (7) TMI 904 - HC - Income Tax

Validity of reassessment - non service of notice - as alleged notice sent on wrong email ID - HELD THAT - Only when a notice was sent on 18.10.022 at the correct email ID of the petitioner the proceedings were known to the petitioner. This factual aspect and controversy is not disputed by DR. Therefore it is fundamental proposition of law that the other side should be heard before any order is passed. The maxim of Audi Alteram Partem is broad enough to include the rule against bias since a fair hearing is must for it to be unbiased hearing. The essential ingredients of fair hearing is that a person should be served with a proper notice. That the person has to have right of a proper notice. In the instance case it is not disputed that notice under Section 148 of the Act on 31.3.2022 was sent on a wrong email address and therefore the petitioner was not in a position to controvert the same. Assessee appeal allowed.

Summary

The core legal questions considered by the Court in this matter include:

• Whether the impugned assessment order issued under Section 147 read with Sections 144 and 144B of the Income Tax Act, 1961 (hereinafter 'the Act') and the demand notice under Section 156 of the Act for Assessment Year 2013-14 were validly passed in compliance with principles of natural justice.
• Whether the petitioner was afforded a fair opportunity of being heard before passing adverse orders, particularly with respect to service of notices and communication of proceedings.
• Whether the service of notices on incorrect or unauthorized email addresses vitiates the assessment and penalty proceedings.
• Whether the petitioner had an alternative efficacious remedy under Section 249 of the Act to challenge the impugned orders.
• Whether the additions made by the revenue in the assessment order, specifically regarding the sales value of immovable property, were justified on merits.

Issue-wise Detailed Analysis

1. Validity of the Assessment Order and Demand Notice under the Act

Relevant Legal Framework and Precedents: The assessment order was issued under Section 147 read with Sections 144 and 144B of the Act. Section 147 empowers the Assessing Officer to reopen assessments if income has escaped assessment. Section 144B provides for service of notices and orders electronically on the email address registered in the Income Tax Department's ITBA system. Section 156 deals with the issue of demand notices for recovery of tax dues. The principles of natural justice, particularly the audi alteram partem rule, require that a person be given proper notice and an opportunity to be heard before adverse orders are passed.

Court's Interpretation and Reasoning: The Court noted that the petitioner received an assessment order and demand notice dated 26.03.2022, which resulted in a substantial demand. However, the petitioner contended that no prior notice was served on them before passing the assessment order, violating natural justice. The Court observed that the notice under Section 148 of the Act dated 31.03.2022 was sent to an incorrect email address ([email protected]), which did not belong to the petitioner or its representatives. Consequently, the petitioner was deprived of the opportunity to respond or be heard before the assessment order was passed.

Key Evidence and Findings: The petitioner demonstrated that the recovery notice was sent to the correct email ID ([email protected]), but the crucial Section 148 notice initiating reassessment proceedings was sent to an incorrect email ID. The petitioner only became aware of the proceedings upon receipt of a later notice under Section 142(1) for a different assessment year sent to the correct email ID. The respondent did not dispute these factual aspects.

Application of Law to Facts: The Court emphasized the fundamental principle that fair hearing requires proper service of notice. Sending notices to an incorrect email address effectively negated the petitioner's right to be heard. The Court held that such a procedural lapse vitiates the assessment order passed under Section 147 read with Section 144B of the Act.

Treatment of Competing Arguments: The respondent argued that sufficient opportunities were provided via the e-filing portal and that the petitioner could have filed an appeal under Section 249 of the Act. However, the Court found that since the petitioner was not served with the initiating notice properly, the opportunity to file an appeal did not arise in a meaningful manner. The Court also noted that the petitioner had complied with notices sent to the disputed email ID in other assessment years, undermining the respondent's claim that the petitioner was aware of proceedings.

Conclusion: The Court concluded that the impugned assessment order and the demand notice were passed in violation of natural justice and were therefore not tenable. The orders were quashed and set aside.

2. Service of Notices and Communication under Section 144B of the Act

Relevant Legal Framework and Precedents: Section 144B of the Act mandates service of notices and orders electronically on the email address registered with the Income Tax Department. The validity of electronic service depends on correct and authorized email addresses being used.

Court's Interpretation and Reasoning: The Court observed that the notices under penalty proceedings and assessment were uploaded on the income tax portal and sent to various email addresses, some of which did not belong to the petitioner or its representatives. The petitioner's contention that only the recovery notice was served correctly was accepted. The Court emphasized that correct service is indispensable for compliance with natural justice.

Key Evidence and Findings: The petitioner showed that notices under penalty provisions (Sections 271(1)(b), 271(1)(c), and 271F) were sent to an unrelated email ID, and the Section 148 notice initiating reassessment was also sent to a wrong email ID. The petitioner's legitimate email ID was used only for the recovery notice.

Application of Law to Facts: The Court held that service of notices on incorrect email addresses is not valid service. Consequently, the petitioner was denied the opportunity to respond to the notices and participate in the proceedings.

Treatment of Competing Arguments: The respondent relied on Section 144B and the e-filing portal's availability for communication. The Court found that these provisions presuppose correct email addresses and valid service. Merely uploading notices on the portal or sending to wrong email IDs does not satisfy the requirement of proper service.

Conclusion: The Court ruled that the service of notices under Section 144B was defective and contributed to the violation of natural justice, warranting quashing of the assessment and penalty orders.

3. Availability of Alternative Remedy under Section 249 of the Act

Relevant Legal Framework: Section 249 provides for filing appeals against orders passed by the Assessing Officer. The appeal must be filed within 30 days of receipt of the order or notice.

Court's Interpretation and Reasoning: The respondent contended that the petitioner had an alternative efficacious remedy by way of appeal under Section 249. The Court acknowledged the availability of this remedy but observed that the petitioner was not properly served with the initiating notice and thus was deprived of the opportunity to file a timely appeal.

Application of Law to Facts: Since the petitioner was unaware of the proceedings due to defective service, the remedy under Section 249 was illusory. The Court implicitly recognized that procedural fairness must precede the availability of statutory remedies.

Conclusion: The Court did not reject the availability of appeal remedy but held that the defective service rendered the remedy ineffective in this case.

4. Merits of the Addition Regarding Sales Value of Immovable Property

Relevant Facts: The petitioner challenged the addition of Rs. 21,40,97,624/- made by the revenue on account of sales value of immovable property. The petitioner contended that the project was completed and all units sold in the previous assessment year (2012-13), and subsequent sale deeds did not amount to the said addition.

Court's Treatment: The Court noted the petitioner's submissions on merits but did not delve into detailed examination of the correctness of the addition. The primary focus remained on procedural irregularities and natural justice.

Conclusion: The Court did not pass substantive findings on the merits of the addition, as the assessment order was quashed on procedural grounds.

Significant Holdings

"The maxim of Audi Alteram Partem is broad enough to include the rule against bias since a fair hearing is must for it to be unbiased hearing. The essential ingredients of fair hearing is that a person should be served with a proper notice. That the person has to have right of a proper notice."

"In the instance case, it is not disputed that notice under Section 148 of the Act on 31.3.2022 was sent on a wrong email address and, therefore, the petitioner was not in a position to controvert the same. In view of the same, the impugned assessment order passed by the respondent in case of the petitioner dated 26.3.2022 under Section 147 read with Section 144B of the Act for the Assessment Year 2013-14 is not tenable and is required to be quashed and set-aside and is accordingly quashed and set-aside."

"In view of the same, the notice issued under Section 156 of the Act dated 26.3.2022 is also required to be quashed and set-aside."

Core Principles Established:

• Proper and valid service of notices is a fundamental prerequisite for compliance with principles of natural justice in tax proceedings.
• Electronic service under Section 144B of the Act must be effected on the correct and authorized email address registered with the Income Tax Department.
• Failure to serve notice on the correct email ID vitiates the assessment and demand orders passed subsequently.
• Availability of statutory remedies such as appeal under Section 249 cannot cure the defect arising from non-service of notice.

Final Determinations:

• The impugned assessment order under Section 147 read with Sections 144 and 144B of the Act for AY 2013-14 dated 26.03.2022 was quashed and set aside.
• The demand notice under Section 156 of the Act dated 26.03.2022 was also quashed and set aside.
• The petition was allowed with no order as to costs.