2022 (6) TMI 1343 - HC - Income Tax

Violation of Natural Justice Principles in Income Tax Assessment Reopening

The High Court found a violation of natural justice principles in the reopening of assessment under Section 148A(b) of the Income Tax Act for the ... Principles of natural justice - reopening of assessment - notice under Section 148A(b) of the Income Tax Act - order under Section 148A(d) of the Income Tax Act - enforcement of notice under Section 148 of the Income Tax ActPrinciples of natural justice - notice under Section 148A(b) of the Income Tax Act - Whether the reassessment proceedings under the amended Act violated principles of natural justice by not furnishing to the assessee the full information or reasons on which reopening was proposed - HELD THAT: - The Court found that the assessing officer's order dated 30.03.2022 proceeded on material and paragraphs (4 to 7) which were not explicitly disclosed in the reasons annexed to the Section 148A(b) notice dated 12.03.2022. There was also reference in the record to a search action and statements recorded from a director, which, if relied upon, required disclosure so that the assessee could give an effective reply. In these circumstances the Court held that the assessee had not been furnished the full information on which reopening was proposed and that the failure to provide such information amounted to a violation of the principles of natural justice. The Court therefore required that the order dated 30.03.2022 be reckoned as the reasons for reopening and directed that the assessee be afforded an opportunity to file objections and supporting documents and to be heard before any fresh decision is taken under Section 148A(d).Findings recorded that principles of natural justice were violated; directions issued to treat the order dated 30.03.2022 as reasons for reopening and to afford the assessee an opportunity to reply and be heard.Order under Section 148A(d) of the Income Tax Act - enforcement of notice under Section 148 of the Income Tax Act - Remedial course and further procedure to be followed by the assessing officer after the defect in disclosure was found - HELD THAT: - In view of the procedural deficiency, the Court directed that the assessee shall file objections, together with supporting documents, within two weeks of receipt of the server copy of the order. The assessing officer is required to consider the reply and documents, afford personal hearing to the assessee, and thereafter pass fresh orders under Section 148A(d) in accordance with law. Meanwhile the notice issued under Section 148 dated 06.04.2022 shall not be enforced pending compliance with these directions. These directions amount to remanding the matter to the assessing officer for fresh consideration on a proper record and after giving the assessee an opportunity of hearing.Matter remanded to the assessing officer to consider objections, documents and to pass fresh orders under Section 148A(d); enforcement of the Section 148 notice stayed until compliance.Final Conclusion: Writ petition and connected appeal disposed of by quashing the impugned proceedings to the extent that the assessee was not furnished full reasons; directions issued for fresh consideration under Section 148A(d) after the assessee files objections and is afforded a personal hearing, and the Section 148 notice dated 06.04.2022 restrained from being enforced until compliance. Issues: Violation of principles of natural justice in reopening assessment under Section 148A(b) of the Income Tax Act for the assessment year 2018-2019.Detailed Analysis:The appeal was filed challenging an order directing the filing of an affidavit-in-opposition without granting an interim order in favor of the appellant/assessee. The appellant contested a notice issued under Section 148A(b) of the Income Tax Act dated 12.03.2022, alleging a violation of natural justice principles. The assessing officer initiated proceedings under the amended Act post the conclusion of scrutiny assessment under Section 143(3) of the Act. The appellant responded with relevant details, asserting that no income had escaped assessment for the relevant year. However, the order dated 30.03.2022 did not explicitly state the reasons for reopening beyond the reply provided by the assessee.The High Court observed that the appellant was not provided with full information forming the basis for the reopening proceedings, which included references to a search action and recorded statements. The lack of complete information hindered the appellant's ability to effectively respond, leading to a violation of natural justice principles. Consequently, the Court directed the appellant to file objections within two weeks of receiving the order, enclosing all supporting documents. The assessing officer was instructed to consider the reply, documents, and provide a personal hearing to the appellant before passing fresh orders under Section 148A(d) of the Act.The Court ruled that the order dated 30.03.2022 under Clause (d) of Section 148A would serve as the basis for reopening, emphasizing the need for the appellant to have a fair opportunity to present their case. The notice issued under Section 148 of the Act dated 06.04.2022 was deemed unenforceable until compliance with the Court's directions. Subsequently, both the appeal and the writ petition were disposed of, along with any connected applications, ensuring the appellant's rights were protected and due process was followed throughout the proceedings.