2022 (5) TMI 53 - HC - Income Tax

Court overturns tax penalties for procedural errors, stresses natural justice principles.

The Court set aside the assessment order and penalty notices under Sections 271(1)(c) and 273(1)(b) of the Income Tax Act, 1961 for AY 2015-16 due to ... Revision u/s 263 - Revision challenged by the Petitioner is that notices prior to the assessment hearings purportedly issued to the Petitioner and served upon him on 28th December 2020, 22nd January 2021 and 23rd February 2021 and 14th September 2021 were in fact not served on him physically - HELD THAT:- For the AO to conclude in the impugned assessment order that despite the above notices “no compliance was made” by the Assessee, does not appear to be correct, particularly when no hearing took place admittedly after 1st February, 2021. The impugned assessment order was passed on 29th September, 2021, almost eight months after 1st February, 2021, the last date of hearing. It is thus apparent that no hearing took place after 1st February, 2021 and yet notices were supposed to have been served on the Assessee on at least two dates after the last hearing date. In the circumstances, the Court is satisfied that the Petitioner was not given an effective opportunity of hearing before the impugned assessment order was passed. The impugned assessment order as well as the consequential penalty notices under Sections 271(1)(c) and 273 (1)(b) of the Act are hereby set aside and the matter is remanded to the AO i.e. the ACIT (Central Circle-2), Bhubaneswar (Opposite Party No.3) for passing a fresh assessment order after an effective opportunity of hearing is given to the Petitioner. For this purpose, the matter will be listed before Opposite Party No.3 on 14th February, 2022. A fresh assessment order after hearing the Petitioner shall be passed in accordance with law within a further period of three months thereafter. The Court clarifies that the present order has proceeded only on the procedural illegalities and does not touch upon the merits of the case. Issues:Challenge to assessment order under Income Tax Act, 1961 for AY 2015-16 based on improper service of notices and lack of effective opportunity of hearing.Analysis:The Petitioner challenged the assessment order dated 29th September 2021 under Section 144 read with Section 263 of the Income Tax Act, 1961 for AY 2015-16 on the grounds of improper service of notices. The Petitioner contended that notices served on 28th December 2020, 22nd January 2021, 23rd February 2021, and 14th September 2021 were not physically served on him. It was highlighted that the notice served on 28th December 2020 was issued by a different officer before the file was transferred to the Assessing Officer (AO) who passed the impugned assessment order.The impugned assessment order indicated hearing dates on 12th January 2021 and 1st February 2021, but the notice dates did not align with these hearing dates. The dates of service mentioned in the order were 22nd January 2021, 23rd February 2021, and 14th September 2021, which should have been subsequent to the last hearing date of 1st February 2021. However, no hearing took place after 1st February 2021, raising doubts about the compliance by the Assessee as stated in the assessment order.The Court found that no effective opportunity of hearing was provided to the Petitioner as no hearing occurred after 1st February 2021 despite notices being served on dates post that last hearing date. Consequently, the Court set aside the assessment order and penalty notices under Sections 271(1)(c) and 273(1)(b) of the Act. The matter was remanded to the Assistant Commissioner of Income Tax for a fresh assessment order after ensuring an effective opportunity of hearing for the Petitioner. The Court clarified that the decision was based on procedural irregularities and did not delve into the case's merits.In conclusion, the writ petition was disposed of with the direction to issue an urgent certified copy of the order. The judgment focused on the importance of providing a fair opportunity of hearing to the parties involved in tax assessments to uphold the principles of natural justice and procedural fairness.