2023 (12) TMI 1093 - HC - Income Tax

Assessment order set aside for violating natural justice - inadequate time given for reply and hurried hearing process

The Madras HC set aside an assessment order for violating principles of natural justice. The Department issued a show cause notice on 27.03.2022, required ... Validity of assessment order passed w/o affording fair opportunities to the petitioner to put forth their contentions - denial of principles of natural justice - main grievance expressed by the petitioner is that no fair opportunity of hearing was granted to the petitioner before passing the impugned order and the opportunity that was granted to the petitioner cannot be deemed to be fair opportunity, since within a short span of time - HELD THAT:- As respondent-Department has concluded the assessment proceedings hurriedly inasmuch as, the show cause notice itself was issued only on 27.03.2022 and within two days the petitioner was called upon to file their reply on 29.03.2022 and immediately on the very next day, i.e. on 30.03.2022 at 3.30. p.m the petitioner was asked to appear for hearing through video conference within one hour, i.e. at 4.30 p.m. and on the very same day,, the impugned assessment order has been passed. Therefore, impugned order suffers from violation of principles of natural justice. As decided in M/s. Gemini Film Circuit Vs. Additional/Joint/Deputy/Assistant Commissioner of Income Tax.[2023 (10) TMI 1040 - MADRAS HIGH COURT] provision of fair opportunity of hearing, held that minimum of 21 days has to be granted to an assessee to enable him to file reply in an effective manner, and the opportunity granted to the assessee should be nominal in nature and should not be an empty formality. This Court is inclined to set aside the impugned order passed by the respondent, since, in the present case, opportunity that was granted to the petitioner was not realistic in nature rather appears to be a nominal one and further, the petitioner has been deprived away of their rights to appear in person to put forth their contention as the petitioner was heard only through video conferencing, which lasted only for five to six minutes and thereafter, the Portal was closed and within a short span of time, no assessee can be expected to put forth their contention in an effective manner. Therefore, this Court holds that the impugned order is in gross violation of principles of natural justice and liable to be aside. Writ Petition is allowed, the impugned order is set aside and the matter is remanded back to the first respondent for re-consideration, in which case, the respondent is directed to provide an opportunity of personal hearing to the petitioner, which can be fixed by the respondent at any date granting 15 days' time after the receipt of a copy of this order 1. ISSUES PRESENTED AND CONSIDERED 1. Whether the reopening of assessment under Section 148/147 was vitiated by failure to afford a fair and effective opportunity of hearing to the assessee, having regard to the short notice for filing reply and a five-six minute video conferencing hearing conducted the next day. 2. Whether the principle in the Court's recent decision requiring a minimum period to file objections (observed as 21 days in the cited precedent) applies to show-cause notices issued before passing assessment orders and whether that precedent is to be followed. 3. Whether an assessment order passed immediately after a curtailed virtual hearing and on the same day as the hearing and after a constrained time to file objections suffers from breach of principles of natural justice sufficient to warrant quashing and remand, and the incidental question of the fate of consequential penalty proceedings initiated pursuant to such order. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Fair and effective opportunity of hearing before confirming assessment under Section 148/147 Legal framework: Principles of natural justice require that an assessee be given a meaningful opportunity to present objections and documents before any adverse order is passed. Statutory provisions relevant to reopening and assessment include Sections 147 and 148 (reopening on belief of escaped income), and procedural provisions permitting issuance of show-cause notices and personal hearing (including notice under Section 142(1)). Precedent Treatment: The Court followed its prior reasoning that the opportunity to the assessee must be real and not a nominal formality; the cited recent decision (referred to in the judgment) established that sufficient time must be allowed for effective reply/objection and that hearings must be substantive. Interpretation and reasoning: The Court examined the chronology: show-cause notice issued with two days to reply; reply filed under constraint; next day an email summoned a one-hour-later video hearing that lasted only five-six minutes before the portal was closed; the same day the assessment order was passed. The Court found that the compressed timeline and the extremely short virtual hearing made the opportunity illusory and inadequate for the assessee to effectively present submissions or have meaningful engagement with the department. The Court emphasized that an effective hearing requires time and opportunity to present and consider documents and submissions, which were absent here. Ratio vs. Obiter: Ratio - The impugned assessment is invalid where the departmental procedure provides only nominal/illusory opportunity to reply and be heard (as demonstrated by very short virtual hearing immediately preceding the order). Obiter - Observations on the general desirability of personal hearing versus remote hearing, and the pragmatic difficulties that short windows create, serve as guiding comments but the decision's core rests on the facts showing denial of effective hearing. Conclusion: The Court concluded there was a gross violation of principles of natural justice; the opportunity granted was not realistic and the assessment order could not stand on that basis. Issue 2 - Applicability and treatment of the precedent requiring minimum time to file objections (21 days) Legal framework: Administrative fairness and prior judicial pronouncements inform how much time should reasonably be allowed to an assessee to prepare and file objections to a show-cause notice, unless a shorter period is fixed by statute or special circumstances exist. Precedent Treatment: The Court expressly followed and applied the reasoning of its recent decision which held that, ordinarily, a minimum of 21 days should be allowed to enable an assessee to file an effective reply to a show-cause notice, unless a specific statutory time limit applies. Interpretation and reasoning: The Court regarded the 21-day benchmark as a requirement to ensure the opportunity to be meaningful, noting that very short time limits render the notice process ineffective and formalistic. The Court applied that principle to the facts, observing the notice here afforded only two days, which fell far short of the benchmark and thereby demonstrated procedural unfairness. Ratio vs. Obiter: Ratio - In the absence of a statutory shorter timeline, a show-cause notice leading to assessment should ordinarily grant sufficient time (benchmarked at 21 days) to enable effective response; failure to do so may vitiate the assessment. Obiter - The specific numeric minimum (21 days) is applied as a guiding rule in this Court's jurisprudence; the Court's application to different factual matrices may allow some flexibility where statutory limits or exceptional reasons exist. Conclusion: The precedent was followed and applied; the two-day window in this case was inadequate in light of that principle and contributed to quashing the order. Issue 3 - Validity of virtual hearing of extremely short duration and remedial directions (remand and setting aside consequential proceedings) Legal framework: Administrative action must afford real opportunities to be heard; technology-enabled hearings are permissible but must still afford the essence of a hearing. Remedies for breach include quashing the impugned order and remanding for fresh consideration with appropriate procedural safeguards. Consequential proceedings based on a vitiated order are likewise liable to be set aside. Precedent Treatment: The Court treated virtual hearings as acceptable in principle but held that their sufficiency depends on substance - i.e., length, opportunity to present material, and genuine engagement. The Court relied on its prior decision to require meaningful time to reply and effective hearing as a precondition to sustaining orders. Interpretation and reasoning: Given that the virtual hearing lasted only five-six minutes, took place within an hour of the summons email, and the assessment order was passed the same day, the Court found the hearing to be nominal. The Court reasoned that a hearing which does not permit proper presentation or consideration of submissions cannot cure the defect of inadequate notice and time. On remedies, the Court held that quashing and remand for reconsideration with directions to afford a personal hearing and fresh decision in accordance with law are appropriate to secure justice. Ratio vs. Obiter: Ratio - Very short virtual hearings that do not permit effective presentation/consideration of submissions will not cure prior denial of realistic opportunity and will lead to invalidation of the order. The appropriate remedy is remand with directions for a substantive hearing. Obiter - Preferential encouragement for personal hearing where practicable, and the suggested procedural timelines (the Court directed 15 days on remand) are pragmatic directions tailored to the case rather than immutable rules for all cases. Conclusions: The Court set aside the impugned assessment order and all consequential proceedings initiated thereunder, remanded the matter for fresh consideration, and directed the revenue to grant a personal hearing to be fixed after 15 days' notice from receipt of the order; thereafter the respondent must pass orders in accordance with law.