Ex parte assessment order set aside for denying mandatory personal hearing before rejecting assessee's explanation under Section 143(3)

The HC set aside an ex parte assessment order u/s 143(3) r.w.s. 144B where the AO failed to provide adequate hearing opportunity to the assessee. The court held that while written replies may suffice for assessment proceedings, when the AO intends to reject the assessee's explanation and pass an adverse order, personal hearing becomes mandatory. The AO cannot proceed ex parte without first offering a hearing opportunity when rejecting the assessee's contentions. The matter was remanded with directions for the assessee to file written reply within one week, and if the AO proposes rejection, to provide 15 days' notice for personal hearing.

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Issues:
Challenge to ex parte assessment order under Income Tax Act for A.Y. 2022-23 without proper opportunity of hearing.

Analysis:

1. Existence of Statutory Alternative Remedy of Appeal:
- The petitioner challenged an ex parte assessment order dated 23.03.2024 under Section 143(3) read with Section 144B of the Income Tax Act, 1961 for A.Y. 2022-23.
- The petitioner argued that the assessment order was passed without providing a reasonable opportunity of hearing, as the Assessing Officer did not allow sufficient time for response and scheduled the final hearing on a Sunday.
- The revenue contended that the petitioner did not cooperate towards the end of the assessment proceedings, leading to the finalization of the assessment order.
- The court emphasized that Section 144B mandates an opportunity of hearing to be given to the assessee, especially if a request for personal hearing is made, and this opportunity should not be discretionary but a rule to be followed by the Assessing Officer.

2. Opportunity of Personal Hearing:
- The court highlighted that assessment proceedings often involve disputed questions of facts and law, which may not be adequately addressed through written replies alone.
- It was noted that oral hearing is essential to ensure a just and proper judicial or quasi-judicial order and to maintain faith in the adjudicatory authorities.
- The court emphasized that if an assessee is to be taxed at a higher rate than reported, they deserve to know the reasons for such a decision, which should be recorded in the assessment order to allow informed decision-making and potential appeal.

3. Impact of First Appeal Authority's Powers:
- The judgment discussed the impact of an earlier amendment to Section 251 of the Act, which limited the first appeal authority's power to set aside a defective assessment order and remit the matter to the Assessing Officer.
- The court expressed concerns that without the power to remit, the first appeal authority would be forced to address all merit issues, potentially restricting the appeal process and burdening the appellate authority with the Assessing Officer's duties.

4. Conclusion and Directions:
- The court set aside the ex parte assessment order dated 23.03.2024 and directed the petitioner to treat it as a final show-cause notice, allowing one week to submit a written reply.
- If the Assessing Officer intends to accept the explanation without a personal hearing, a consequential order may be passed promptly.
- However, if the explanation is rejected, a date for a hearing must be fixed with sufficient notice, and the petitioner must appear as prescribed.
- The judgment emphasized the importance of natural justice and ensuring proper opportunity for hearing in assessment proceedings to maintain fairness and transparency.

5. Final Decision:
- The court allowed the petition, setting aside the assessment order and providing clear directions for further proceedings, emphasizing the importance of procedural fairness and adherence to statutory requirements for opportunity of hearing in tax assessments.

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