2022 (6) TMI 1523 - HC - Income Tax

Court Quashes Tax Notice for Violating Natural Justice; Insufficient Response Time and Lack of Approval Cited.

The HC quashed the order and notice issued under Sections 148A(d) and 148 of the Income Tax Act due to a violation of natural justice principles, as the ... Reopening of assessment notice with shorter period to respond - giving a mere 7 days’ time to the Petitioner/assessee to furnish a reply to the said notice - HELD THAT:- The time granted to the Petitioner/assessee to submit reply to the said notice appears to be unreasonable short and the Petitioner/assessee cannot be blamed for not being able to file the reply within such a short period. Thus, it appears that there is a violation of principle of natural justice. Therefore, the prayer made on behalf of the Petitioner/assessee appears to be reasonable. Order passed u/s 148A(d) and the notice issued u/s 148 of the Act are quashed - Decided in favour of assesse. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are:Whether the issuance of a notice under Section 148A(b) of the Income Tax Act, 1961, with a 7-day response period, violates the principles of natural justice.Whether the procedural requirements for obtaining prior approval from the specified authority under Section 148A of the Act were complied with before issuing notices and orders related to reassessment proceedings.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Violation of Principles of Natural JusticeRelevant Legal Framework and Precedents:The principles of natural justice require that a party be given a fair opportunity to present their case. Under Section 148A(b) of the Income Tax Act, a notice is issued to the assessee to show cause why a reassessment should not be initiated. The law does not specify a fixed period for response, but it implies that reasonable time must be given.Court's Interpretation and Reasoning:The court observed that the notice dated 25.3.2022 gave the Petitioner only 7 days to respond, which was deemed unreasonably short, especially considering the transaction in question related to the financial year 2014-15. The court held that this short period did not allow the Petitioner adequate time to prepare a response, thus violating the principles of natural justice.Key Evidence and Findings:The court relied on the timeline of events, particularly the issuance of the notice and the subsequent order and notice under Sections 148A(d) and 148, respectively. The court found that the Petitioner was not given a fair opportunity to respond due to the short notice period.Application of Law to Facts:The court applied the principles of natural justice to the facts, determining that the 7-day period was insufficient for the Petitioner to respond adequately, considering the complexity and age of the financial transactions involved.Treatment of Competing Arguments:The Respondents argued that the notice period was sufficient and in compliance with the law. However, the court found these arguments unpersuasive, emphasizing the need for a fair opportunity to be provided to the Petitioner.Conclusions:The court concluded that the 7-day notice period violated the principles of natural justice, warranting the quashing of the order and notice issued under Sections 148A(d) and 148.Issue 2: Compliance with Procedural RequirementsRelevant Legal Framework and Precedents:Section 148A of the Income Tax Act requires that prior approval from the specified authority be obtained before issuing notices and orders related to reassessment proceedings.Court's Interpretation and Reasoning:The court noted that the Petitioner alleged non-compliance with the procedural requirement of obtaining prior approval from the specified authority. The court found merit in this argument, as there was no evidence presented by the Respondents to demonstrate compliance with this requirement.Key Evidence and Findings:The absence of documentation or evidence showing that prior approval was obtained from the specified authority was a critical factor in the court's decision.Application of Law to Facts:The court applied the statutory requirement of obtaining prior approval to the facts, finding that the Respondents failed to comply with this procedural mandate.Treatment of Competing Arguments:The Respondents did not adequately counter the Petitioner's claim of non-compliance with the procedural requirements, leading the court to accept the Petitioner's position.Conclusions:The court concluded that the failure to obtain prior approval from the specified authority constituted a procedural irregularity, further justifying the quashing of the orders and notices.3. SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning:'The time granted to the Petitioner/assessee to submit reply to the said notice appears to be unreasonable short and the Petitioner/assessee cannot be blamed for not being able to file the reply within such a short period. Thus, it appears that there is a violation of principle of natural justice.'Core Principles Established:Reasonable time must be provided to an assessee to respond to show-cause notices, in accordance with the principles of natural justice.Compliance with procedural requirements, such as obtaining prior approval from the specified authority, is mandatory before proceeding with reassessment notices and orders.Final Determinations on Each Issue:The court quashed the order dated 4.4.2022 and the notice dated 5.4.2022, directing the Respondents to afford the Petitioner a proper opportunity of hearing and to decide the matter afresh in accordance with the law.