2025 (7) TMI 1504 - AT - Income Tax

Reopening of assessment u/s 147 - validity of notice issued u/s 148A(b) - less than 7 days provided to respond - violation of principles of natural justice HELD THAT - Date of issuance of notice u/s.148A(b) of the Act is 20.03.2022 and compliance from assessee sought for is 26.03.2022 therefore a clear cut 7 days time excluding the date of issuance of notice and date of compliance sought for is absent. As in the case of MM Wonder Park Private Limited 2022 (6) TMI 1523 - CHHATTISGARH HIGH COURT had observed that the A.O had issued a show cause notice u/s.148A(b) of the Act giving just 7 days time to the assessee/petitioner to file its reply. The Hon ble High Court observed that the time period of 7 days provided to the assessee vide notice u/s.148A(b) of the Act was unreasonably short and thus violative of principles of natural justice. Accordingly both the order passed by the A.O. u/s.148A(b) and the notice u/s.148 quashed and set aside the matter to the file of the A.O. with a direction to decide the matter afresh in accordance with law after affording an opportunity of being heard to the assessee/petitioner. Decided in favour of the assessee.

Summary

ISSUES:

Validity of notice issued under Section 148A(b) of the Income Tax Act, 1961, specifically whether the minimum statutory period of 7 clear days for compliance was provided.Whether an ex-parte order passed under Section 147 read with Section 144 of the Income Tax Act, 1961, without considering the assessee's reply, is sustainable.Applicability of exemption under Section 10(23C)(iiiad) of the Income Tax Act, 1961, to surplus/profit of a charitable institution running an educational institution.Whether the Assessing Officer (AO) was justified in making additions on estimated business income and bank interest without proper verification and consideration of documents.

RULINGS / HOLDINGS:

Notice issued under Section 148A(b) of the Act dated 20.03.2022, requiring compliance by 26.03.2022, did not provide the mandatory "clear 7 days" for filing a reply excluding the date of issuance and the date of compliance sought, and is therefore held to be "invalid and void ab initio" and quashed.The ex-parte order passed under Section 147 read with Section 144 without considering the assessee's reply and without affording a reasonable opportunity of hearing is not sustainable in law.The surplus/profit from the educational activities of the charitable institution is exempt under Section 10(23C)(iiiad) of the Income Tax Act, 1961.The Assessing Officer's additions on estimated business income and bank interest without proper enquiry and verification of documents furnished at the appellate stage are not justified; the matter requires fresh assessment after verification and opportunity to the assessee.

RATIONALE:

The Court applied the provisions of Section 148A(b) of the Income Tax Act, 1961, which mandates that the assessee must be given a notice to show cause with a time period "not less than seven days" excluding the date of issuance and the date on which compliance is sought, to ensure adherence to principles of natural justice.Judicial precedents from the jurisdictional High Courts and ITAT were relied upon, including rulings that interpret "not less than seven days" as requiring "clear seven days" excluding terminal days, citing the Apex Court's decision in Pioneer Motors (Private) Ltd. vs. Municipal Council, Nagercoil.The Court recognized that failure to provide the mandatory period violates the principles of natural justice and renders the notice and consequent proceedings null and void.The Court referred to the amendment by the Finance (No.2) Act, 2024, effective from 01.10.2024, which emphasizes procedural safeguards in reassessment proceedings under Sections 147 and 148A.The exemption under Section 10(23C)(iiiad) was acknowledged as applicable to the charitable institution's educational activities, supported by audit reports and documentary evidence submitted during appellate proceedings.On the issue of additions without enquiry, the Court emphasized the requirement of verifying documents and allowing the assessee to explain before making additions, consistent with principles of fair assessment and natural justice.Since the notice under Section 148A(b) was quashed, all subsequent proceedings based on such notice were held to be non est in the eyes of law, rendering other grounds academic.