2025 (6) TMI 1715 - HC - Income Tax

Rejection of petition u/s 264 - petitioner had failed to file any reply or produce any documentary evidences to demonstrate the case before the AO - reason given by the petitioner for not participating in the assessment proceedings was because of change in the name of the Management and notices were served in the Old PAN Number instead of New PAN Number hence he was not aware of the notices - HELD THAT - This Court is of the considered opinion that merely because of non participation of the assessment proceedings the valuable right of the petitioner would not be deprived of to prosecute a case under Section 264. Initially the petitioner s society had been registered as a Trust and subsequently it has been converted into a society. So therefore some practical difficulties were aroused in the management of the society due to the change in the name of the management. Considering this aspect in the interest of justice to give one more opportunity to the petitioner this Court is inclined to set aside the impugned orders passed under Section 264 along with the best judgment assessment orders passed under Section 143 147 and remand the matter to the Assessing Officer / 2nd respondent for fresh consideration.

Summary

1. ISSUES PRESENTED and CONSIDERED

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

- Whether the impugned assessment orders for the assessment years 2015-16 and 2018-19, passed without hearing the petitioner due to non-participation in the proceedings, are valid and sustainable.

- Whether the penalty order issued for the year 2015-16 is justified given the procedural circumstances.

- Whether the rejection of the petition filed under Section 264 of the Income Tax Act, on the ground of non-participation and failure to produce documentary evidence before the Assessing Officer, was appropriate.

- Whether the petitioner's explanation regarding non-receipt of notices due to change in management and PAN number is a valid ground for non-participation and for seeking reconsideration.

- The extent to which procedural fairness and the right to be heard must be observed in assessment proceedings, particularly when the petitioner claims practical difficulties arising from administrative changes.

- The propriety of remanding the matter for fresh consideration, subject to the payment of costs, in the interest of justice.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Impugned Assessment Orders Passed Without Hearing the Petitioner

Relevant Legal Framework and Precedents: The Income Tax Act mandates that assessment orders should be passed after affording the assessee a reasonable opportunity of being heard. The principles of natural justice require that no adverse order be passed without giving the affected party a chance to present their case. Section 143 and Section 147 of the Income Tax Act govern the assessment and reassessment procedures respectively.

Court's Interpretation and Reasoning: The Court noted that the petitioner did not participate in the assessment proceedings because notices were issued under the old PAN number, which the petitioner was unaware of due to a change in management and conversion of the entity from a Trust to an Association of Persons (Society). The Court recognized that this administrative change created practical difficulties in management and communication.

Key Evidence and Findings: The petitioner had filed a condone delay petition which was allowed, and subsequently filed returns under the new PAN number. However, the notices for assessment were issued under the old PAN number, leading to non-awareness and non-participation.

Application of Law to Facts: The Court held that despite the petitioner's non-participation, the right to prosecute a case under Section 264 cannot be denied outright. The failure to participate was linked to genuine practical difficulties arising from the change in entity status and management.

Treatment of Competing Arguments: The respondents argued that the petitioner had transactions under the old PAN and failed to produce documents to prove regular filing under the new PAN, justifying the rejection of the Section 264 petition. The Court, however, balanced this against the petitioner's explanation and the principle of natural justice.

Conclusions: The Court found the impugned assessment orders passed without hearing the petitioner to be unsustainable in the interest of justice and procedural fairness.

Issue 2: Justification of the Penalty Order for the Year 2015-16

Relevant Legal Framework: Penalty orders under the Income Tax Act are contingent upon the validity of the underlying assessment and the conduct of the assessee.

Court's Interpretation and Reasoning: Since the assessment order itself was passed without affording an opportunity to the petitioner, the penalty order based on such assessment was also set aside. The Court implicitly recognized that penalty proceedings must be predicated on valid assessments and fair procedures.

Application of Law to Facts: The penalty order dated 12.03.2025 was set aside along with the assessment orders, emphasizing the interconnectedness of assessment and penalty proceedings.

Issue 3: Rejection of Petition Under Section 264

Relevant Legal Framework: Section 264 of the Income Tax Act allows for revision of orders by the Commissioner if the assessee has reasonable cause and the order is prejudicial to the assessee.

Court's Interpretation and Reasoning: The Assessing Officer rejected the Section 264 petition on the ground that the petitioner failed to participate and produce documentary evidence. The Court, however, found that the petitioner's non-participation was due to genuine reasons linked to changes in entity status and management, which caused notices to be issued under the old PAN number.

Key Evidence and Findings: The petitioner's condone delay petition was allowed, indicating recognition of procedural irregularities. The Court also noted the absence of any opportunity given to the petitioner to explain or produce evidence during assessment proceedings.

Application of Law to Facts: The Court opined that procedural lapses and practical difficulties should not deprive the petitioner of the valuable right to seek revision under Section 264.

Treatment of Competing Arguments: The respondents' contention that the petitioner failed to prove regular filing under the new PAN was acknowledged but not held decisive given the circumstances.

Conclusions: The rejection of the Section 264 petition was set aside, and the matter was remanded for fresh consideration.

Issue 4: Effect of Change in Entity Status and Management on Notices and Proceedings

Court's Interpretation and Reasoning: The Court recognized that the petitioner was initially registered as a Trust and later converted into a Society, leading to issuance of a new PAN number. The notices issued under the old PAN number caused the petitioner to be unaware of the proceedings.

Application of Law to Facts: This administrative change was held to be a reasonable cause for non-participation and non-filing of replies, warranting a fresh opportunity.

Issue 5: Remand and Conditions for Fresh Consideration

Court's Reasoning: To balance the interests of justice and procedural propriety, the Court set aside the impugned orders and remanded the matter to the Assessing Officer for fresh consideration. The Court imposed a cost of Rs. 10,000 payable to a specified government institution as a condition for remand, emphasizing the petitioner's responsibility to adhere to procedural discipline.

Directions: Upon payment of costs, the petitioner must file a reply with supporting documents within four weeks. The Assessing Officer is directed to issue appropriate notice and afford personal hearing before deciding the matter in accordance with law.

3. SIGNIFICANT HOLDINGS

- "Merely because of non participation of the assessment proceedings, the valuable right of the petitioner would not be deprived of to prosecute a case under Section 264."

- "Initially, the petitioner's society had been registered as a Trust and subsequently, it has been converted into a society. So, therefore some practical difficulties were aroused in the management of the society, due to the change in the name of the management."

- The impugned assessment orders dated 25.03.2023 and 28.03.2023, consequential orders dated 24.09.2024, and penalty order dated 12.03.2025 are set aside and remanded for fresh consideration subject to payment of costs.

- The petitioner is entitled to file a reply with supporting documents and to be afforded an opportunity of personal hearing before the Assessing Officer.

- The Court emphasized adherence to principles of natural justice and procedural fairness, especially in cases involving administrative changes affecting communication and participation.