Reassessment set aside for breach of natural justice; taxpayer reply must be examined, fresh order after hearing within three months

HC held the reassessment order unsustainable for breach of natural justice because the taxpayer's reply and attachments were not examined. The impugned assessment order was set aside and remitted for reconsideration from the stage of the reply to the show-cause notice/draft assessment order. The tax authority must enable uploading of the reply and attachments; the taxpayer must upload its reply within two weeks of receiving the order. On receipt, the authority shall afford a reasonable opportunity, including a personal hearing via video conference, and pass a fresh order within three months.

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Issues: Challenge to assessment order for assessment year 2015-16 on grounds of breach of principles of natural justice.

Analysis:
1. The assessment order for the assessment year 2015-16 was challenged in a writ petition based on the breach of principles of natural justice. The petitioner's assessment was reopened under Section 148A(b) of the Income-tax Act, 1961, and a draft assessment order was issued along with a show cause notice. The petitioner replied to the notice by attaching several documents, but the second respondent informed that the attached documents were not in a readable form. The impugned assessment order was issued without considering the attachments to the petitioner's reply, leading to the challenge on grounds of natural justice.

2. The petitioner's counsel argued that all relevant information, including details related to the petitioner's parents' income-tax returns, was attached to the reply dated 14.03.2024. Despite the petitioner's grievance that the attached documents were in readable PDF format, the proposed variations in the assessment order were confirmed without examining these attachments. The counsel contended that this non-consideration of crucial documents violated the principles of natural justice, warranting interference with the impugned order.

3. On the other hand, the respondents' counsel highlighted that the petitioner was given multiple opportunities to explain the transaction under assessment but failed to provide the necessary documents in a readable form. The petitioner had submitted various documents, including bank statements, income sources, and acknowledgments, but the inability to submit these documents in an extractable mode led to the non-consideration of the reply and attachments. The respondents argued that the petitioner's failure to provide documents in a readable form justified the issuance of the assessment order.

4. The High Court, after considering the arguments, found that the non-consideration of the petitioner's reply and attachments due to readability issues violated the principles of natural justice. Consequently, the impugned assessment order dated 26.03.2024 was set aside, and the matter was remanded for reconsideration from the stage of the reply to the show cause notice cum draft assessment order. The respondents were directed to facilitate the petitioner in uploading the reply with relevant attachments, and the petitioner was instructed to do so within two weeks. A reasonable opportunity, including a personal hearing through video conference, was to be provided to the petitioner, with a fresh order to be issued within three months from the receipt of the reply.

5. The writ petition was disposed of without any order as to costs, and the connected miscellaneous petitions were closed, ensuring that the assessment process was to be revisited with due regard to the principles of natural justice and procedural fairness.

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