2023 (1) TMI 1498 - AT - Income Tax

Assessments under s.143(3) r.w.s.153C set aside for denial of natural justice; remanded for fresh AO adjudication

ITAT CHENNAI - AT held that assessments completed under s.143(3) r.w.s.153C were vitiated by denial of natural justice and haste; CIT(A)'s disposal ... Assessment u/s. 143(3) r.w.s. 153C - denial of principles of natural justice and completing the assessments within ‘26 days’ from the date of issuance of notices u/s. 153C of the Act for calling of returns of income - HELD THAT:- The issue raised is exactly identical in all the twelve appeals, hence we will take the facts and grounds of appeal from assessment year 2012-13 as held action of CIT (A) in disposing of the appeal without adverting to the detailed submissions of the Assessee in a proper perspective is bad in law and is in gross violation of principles of Natural Justice. CIT (A) ought to have noted that the Assessment has been rushed through in haste denying a fair opportunity and ought to have seen that the assessment proceedings having been completed in haste without providing adequate opportunity to represent the case; the assessment is liable to be set aside. Thus we set aside the assessment orders and the orders of CIT (A) in these 12 appeals and remand the matter back to the file of the AO, who will adjudicate the issue after allowing reasonable opportunity of being heard to the assessee and will provide all the seized material including the satisfaction note as well as sworn statements recorded which form the basis of assessment. In term of the above, all these appeals are set aside to the file of the AO and allowed for statistical purposes. ISSUES PRESENTED AND CONSIDERED 1. Whether delay in filing statutory appeals during the pandemic period should be condoned where the appeal was filed 23 days late. 2. Whether assessment orders framed under section 143(3) read with section 153C of the Income Tax Act were vitiated for violation of principles of natural justice by (a) completing assessments hurriedly near the perceived limitation date, (b) failing to furnish the satisfaction note and seized material to the assessee, and (c) denying opportunity to confront or cross-examine persons whose recorded statements were relied upon. 3. Whether an appellate authority can cure the first-instance denial of an opportunity of hearing, or whether the proper remedy is to set aside the assessment and remit to the Assessing Officer for fresh proceedings with adequate opportunity. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Condonation of delay in filing appeals during pandemic period Legal framework: Rules governing limitation and statutory power to condone delay in filing appeals where sufficient cause exists; recognition of exceptional measures during the Covid-19 period by higher courts. Precedent treatment: The Court relied on orders by higher judicial authorities that directed condonation of delays falling within the pandemic window and extended relief dates, treating those directions as applicable guidance. Interpretation and reasoning: The Tribunal observed that the appeals were filed 23 days after the due date falling within the pandemic-affected period during which higher courts had issued directions to condone delays. Following those directions, the Tribunal exercised authority to condone the delay. Ratio vs. Obiter: Ratio - delay condoned where higher court directions cover the relevant pandemic period and the applicant invokes those directions; Obiter - none on alternative grounds for condonation. Conclusion: Delay of 23 days was condoned and appeals were admitted. Issue 2 - Violation of principles of natural justice in assessments under section 153C Legal framework: Procedural safeguards embedded in principles of natural justice applicable to assessments under sections 132 (search/seizure), 153C (assessment where material relates to person other than searched person), and related provisions requiring the Assessing Officer to provide opportunity, to place seized material and satisfaction notes before the assessee, and to allow response before final adjudication. Precedent treatment: The Tribunal relied on higher court authorities addressing similar fact patterns where assessments were completed hurriedly at the fag end of limitation, and where failure to furnish valuation reports, satisfaction notes or to provide a proper opportunity led to setting aside assessments and remanding for fresh proceedings. The Tribunal also relied on the principle that an appellate hearing cannot substitute for the original opportunity before the Assessing Officer. Interpretation and reasoning: The Tribunal examined the chronology: long delay between search and centralization; issuance of notices under section 153C and subsequent rapid progression to show-cause, limited adjournment requests, and ex-parte finalization within a short window. The Tribunal found that the department had misconceived the limitation date and had been dormant for a long period before rushing to complete assessments. Critical seized materials relied upon (satisfaction note, sworn statements, and valuation inputs) were not furnished to the assessee nor was an opportunity given to confront or cross-examine witnesses or to respond to valuation reports. The Tribunal emphasized that where investigative reports or valuation reports are relied upon, those must be put to the assessee and the assessee must be given full and complete response opportunity before such material is used against him. The Tribunal also applied the principle that the appellate authority cannot cure deficiencies in the first-instance opportunity; the Assessing Officer must afford the statutory opportunity initially, and if that was denied, the assessment should be set aside and remitted for fresh adjudication. Ratio vs. Obiter: Ratio - assessments completed hurriedly without furnishing satisfaction notes, seized material and recorded statements, and without providing a meaningful opportunity to the assessee, are vitiated for violation of principles of natural justice and must be set aside and remitted for fresh assessment; appellate authority cannot perform the role of providing the first-instance hearing required by law. Obiter - observations on departmental delay and misconceived limitation date as aggravating factors. Conclusion: There was a gross violation of natural justice in the assessments under section 153C; the Tribunal set aside the assessment orders and appellate orders and remanded the matters to the Assessing Officer for fresh proceedings with directions to furnish all seized material (including satisfaction note and sworn statements), to provide reasonable time and opportunity to the assessee to make submissions (and to address valuation reports, if any), and to adjudicate issues on merits. Issue 3 - Appropriate remedy and locus of fresh adjudication Legal framework: Principles governing remedies where procedural irregularity vitiates assessment; distinction between appellate correction and remand for fresh primary adjudication; requirement that Assessing Officer conduct original proceedings in accordance with natural justice. Precedent treatment: The Tribunal followed higher court pronouncements that the appellate forum cannot substitute for the original hearing that the Assessing Officer is duty-bound to give, and that where such initial opportunity was denied, the correct course is to quash and remit for fresh proceedings rather than deciding merits on appeal. Interpretation and reasoning: Given the factual finding that the Assessing Officer had not furnished critical material nor provided an opportunity to confront statements or valuation inputs, the Tribunal held that the proper remedy is to remand for fresh assessment. The Tribunal directed the Assessing Officer to issue fresh notices, provide seized material and satisfaction notes, invite objections and allow adequate time for submissions, then pass fresh orders within a reasonable timeframe. Ratio vs. Obiter: Ratio - remand for fresh adjudication to the Assessing Officer with directions to comply with natural justice is the appropriate remedy where the original procedure was flawed; Obiter - procedural timeline observations regarding departmental delay. Conclusion: Orders of the Assessing Officer and the first appellate authority were set aside and the matters remitted to the Assessing Officer for fresh assessment after providing full opportunity and compliance with procedural fairness; appeals were allowed for statistical purposes.