2024 (5) TMI 1532 - HC - Income Tax

Reassessment order under Section 147 set aside for violating natural justice principles and improper service procedures

The HC set aside a reassessment order under Section 147 due to violation of natural justice principles. The court found that the initial notice under ... Reopening of assessment u/s 147 - as argued petitioner was denied the opportunity of a fair hearing, thus violating principles of natural justice - HELD THAT:- As first notice u/s 148A(b) of the Act was not served in the manner provided. Second, the order u/s 148A(d) was initially not served. Later, it was served with delay of nine months. Even if it is assumed that the objections to jurisdiction (raised by the petitioner), had been rejected on 20.03.2024, there existed no justifiable situation or circumstance as may have allowed the assessing authority (whether faceless or otherwise) - to pass the re-assessment order on the next day, without issuing any further notice in terms of Section 142(1) of the Act. By taking that course, the assessing authority has consciously allowed a wholly ex parte order to arise. Under the new regime, though the assessing authority may remain faceless, at the same time, it cannot act mindless of the procedural law. No useful purpose may be served in keeping the present petition pending or calling for a Counter Affidavit at this stage. The rules of natural justice are found completely broken in the present case. Hence, the impugned re-assessment must be set aside for this reason alone, at this stage itself. In facts noted above, no useful purpose may be served in keeping this petition pending or calling for a reply. Accordingly, the reassessment order and the order dated 31.03.2023 are set aside. The matter is remitted to the stage of reply to the notice dated 22.03.2023 issued u/s 148-A(b) of the Act. Since the petitioner is now aware of the contents of the notice dated 22.03.2023, he may furnish reply thereto within a period of three weeks from today. Considering that reply and keeping in mind the observations made above, the reassessment proceedings, if any may arise, be continued and concluded accordingly, without (the petitioner) raising any objection as to limitation. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment are: Whether the reassessment proceedings initiated under Section 148-A of the Income Tax Act, 1961, for the Assessment Year 2016-17, were valid given the procedural irregularities alleged by the petitioner. Whether the petitioner was denied the opportunity of a fair hearing, thus violating principles of natural justice. Whether the reassessment order dated 21.03.2024 and the order dated 31.03.2023 should be set aside due to procedural lapses.ISSUE-WISE DETAILED ANALYSIS1. Validity of Reassessment ProceedingsRelevant legal framework and precedents: The reassessment proceedings were initiated under Section 148-A of the Income Tax Act, 1961. The procedural requirements for such proceedings include serving notice to the assessee, allowing them to respond, and providing an opportunity for a hearing.Court's interpretation and reasoning: The Court observed that the first notice under Section 148-A(b) was issued manually on 22.03.2023 but was not served on the petitioner nor uploaded on the revenue's web portal. The subsequent order under Section 148-A(d) was also not initially served and was uploaded only nine months later.Key evidence and findings: The Court noted the lack of proper service of notice and the delayed communication of the order, which led to the petitioner being unaware of the proceedings until much later.Application of law to facts: The Court applied the principles of procedural fairness and natural justice, emphasizing that the petitioner was not given a fair opportunity to respond to the notice or participate in the proceedings.Treatment of competing arguments: The revenue's argument that the petitioner was eventually notified was insufficient to counter the procedural lapses identified by the Court.Conclusions: The Court concluded that the reassessment proceedings were procedurally flawed and invalid due to the failure to serve notice and provide a fair hearing.2. Denial of Fair Hearing and Violation of Natural JusticeRelevant legal framework and precedents: The principles of natural justice require that a person must be given an opportunity to be heard before any adverse action is taken against them. This includes being informed of the case against them and having the chance to present their case.Court's interpretation and reasoning: The Court emphasized that the opportunity of hearing is a fundamental aspect of procedural law and cannot be treated as a mere formality. It highlighted the importance of confronting the noticee with adverse material and allowing sufficient time for response.Key evidence and findings: The Court found that the petitioner was not given a reasonable opportunity to respond to the adverse material, and the reassessment order was passed without issuing further notice under Section 142(1).Application of law to facts: The Court applied the principles of natural justice and found that the petitioner was denied a fair hearing, as the procedural steps necessary to ensure a just decision-making process were not followed.Treatment of competing arguments: The Court rejected the notion that the opportunity for personal hearing is optional, asserting that it is a near-mandatory requirement for effective adjudication.Conclusions: The Court concluded that the rules of natural justice were completely violated, warranting the setting aside of the reassessment order.SIGNIFICANT HOLDINGSPreserve verbatim quotes of crucial legal reasoning: The Court stated, 'It is fundamental to procedural law that opportunity of hearing be necessarily given to the noticee against whom an adverse order is proposed to be passed.'Core principles established: The judgment reaffirmed the necessity of adhering to procedural fairness and the principles of natural justice in quasi-judicial proceedings. It emphasized that the opportunity for a hearing is integral to the decision-making process and cannot be bypassed.Final determinations on each issue: The Court set aside the reassessment order dated 21.03.2024 and the order dated 31.03.2023, remitting the matter to the stage of reply to the notice dated 22.03.2023. The petitioner was given three weeks to furnish a reply, and the reassessment proceedings, if any, were to be continued without raising objections as to limitation.