2023 (10) TMI 1481 - HC - Income Tax

Court Overturns Tax Assessment Due to Procedural Errors: Case Remanded for Fair Hearing u/s 147.

Tadimalla Gowthami Versus The Income Tax Officer, Non-Corporate Ward 10 (6), Chennai, National Faceless Assessment Centre, Delhi

The HC set aside the assessment order issued under Section 147 of the Income Tax Act, 1961, due to procedural lapses, including the failure to notify the ... Validity of impugned order passed without providing an opportunity of personal hearing to the petitioner - HELD THAT:- As order appears to have been passed without providing an opportunity of personal hearing to the petitioner this Court is inclined to set aside the impugned order and accordingly the same is set aside. The matter is remanded back to the second respondent, in which case, since the petitioner has already filed the reply this Court directs the second respondent to re-consider the matter on merits after providing an opportunity of hearing to the petitioner and pass orders in accordance with law. 1. ISSUES PRESENTED and CONSIDEREDThe following core legal questions were presented and considered in this judgment:Whether the assessment order passed under Section 147 read with Sections 144 and 144B of the Income Tax Act, 1961, was valid, given that notices were sent to a deceased representative of the petitioner.Whether the petitioner was entitled to an opportunity for a personal hearing before the assessment order was finalized.Whether the calculation of capital gains tax on the sale of rural agricultural land was correctly assessed, considering the petitioner's claims regarding the nature of the asset and the sale consideration.Whether the petitioner is entitled to a refund of the tax amount deposited following the setting aside of the impugned order.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of the Assessment OrderRelevant legal framework and precedents: The assessment order was issued under Section 147, along with Sections 144 and 144B of the Income Tax Act, 1961. Section 147 deals with income escaping assessment, while Section 144 pertains to best judgment assessment, and Section 144B outlines the procedure for faceless assessment.Court's interpretation and reasoning: The court noted that the notices were sent to the petitioner's tax consultant, who had passed away, and the petitioner was unaware of these notices. This procedural lapse affected the validity of the assessment order.Key evidence and findings: The petitioner did not receive the notices due to the death of her representative, and the assessment order was passed without her knowledge or response.Application of law to facts: The court found that the procedural requirement of notifying the petitioner directly was not fulfilled, impacting the fairness of the assessment process.Treatment of competing arguments: The respondent argued that the petitioner failed to reply to the notices, justifying the assessment order. However, the court prioritized the petitioner's lack of awareness due to the death of her representative.Conclusions: The court set aside the assessment order due to the failure to provide proper notice to the petitioner.Issue 2: Opportunity for Personal HearingRelevant legal framework and precedents: The principles of natural justice require that parties be given an opportunity to be heard before any adverse order is passed.Court's interpretation and reasoning: The court emphasized the importance of a personal hearing, especially when the petitioner was unaware of the ongoing proceedings due to the death of her representative.Key evidence and findings: The petitioner was not granted a personal hearing before the assessment order was finalized.Application of law to facts: The court applied the principles of natural justice, concluding that the lack of a personal hearing rendered the assessment order procedurally flawed.Treatment of competing arguments: The respondent did not adequately address the lack of a personal hearing, focusing instead on the petitioner's failure to respond to notices.Conclusions: The court remanded the matter for reconsideration, directing that the petitioner be given an opportunity for a personal hearing.Issue 3: Calculation of Capital Gains TaxRelevant legal framework and precedents: Section 2(14) of the Income Tax Act defines 'capital asset,' and the petitioner argued that rural agricultural land does not fall within this definition.Court's interpretation and reasoning: The court did not delve into the merits of the capital gains tax calculation, as the procedural issues were deemed sufficient to set aside the assessment order.Key evidence and findings: The petitioner's claim of receiving a lower sale consideration than assessed was noted, but not resolved in this judgment.Application of law to facts: The court focused on procedural fairness rather than the substantive tax calculation.Treatment of competing arguments: The petitioner's argument about the nature of the asset and sale consideration was not addressed in detail due to the procedural setting aside of the order.Conclusions: The court did not make a final determination on the capital gains tax issue, leaving it open for reconsideration.Issue 4: Refund of Deposited Tax AmountRelevant legal framework and precedents: The court did not express an opinion on the refund, leaving it to be addressed by the tax authorities.Court's interpretation and reasoning: The court indicated that the petitioner should approach the authorities for a refund, as the impugned order was set aside.Key evidence and findings: The petitioner had deposited 20% of the tax amount, which she sought to have refunded.Application of law to facts: The court deferred the issue of refund to the tax authorities, following standard procedures.Treatment of competing arguments: The court did not engage with arguments regarding the refund, focusing instead on the procedural setting aside of the order.Conclusions: The petitioner must pursue the refund through the appropriate administrative channels.3. SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: 'This Court feels that the impugned order appears to have been passed without providing an opportunity of personal hearing to the petitioner and therefore, this Court is inclined to set aside the impugned order dated 24.09.2021.'Core principles established: The judgment underscores the necessity of adhering to procedural fairness, including proper notification and the opportunity for a personal hearing, in tax assessment proceedings.Final determinations on each issue: The assessment order was set aside due to procedural deficiencies, and the matter was remanded for reconsideration with a directive to provide the petitioner a personal hearing. The issue of tax refund was left to the tax authorities for resolution.