Assessment quashed under s.144 r.w.s.144B for denying seven-day response; AO's shorter timeline violated natural justice

HC quashed the assessment order under s.144 r.w.s.144B, finding the AO breached the Faceless Assessment SOP and principles of natural justice by granting substantially less than the seven days prescribed to respond to the Show Cause Notice. The SCN was dated 22 March 2024, yet the AO initially allowed only two days and later extended by two more, an arbitrary and inadequate timeline when seven days were available; this prejudiced the assessee. The assessment was set aside and decided in favour of the assessee.

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Issues:
1. Validity of Assessment Order passed under Section 144 of the Income Tax Act, 1961.
2. Compliance with principles of natural justice in issuing Show Cause Notice and granting time for response.

Detailed Analysis:
Issue 1: The petitioner challenged the Assessment Order dated 27 March, 2024, passed by the Assessing Officer under Section 144 of the Income Tax Act, 1961. The primary contention was that the Assessment Order was passed without giving adequate time to respond to the Show Cause Notice, thereby violating the principles of natural justice. The petitioner argued that the hurried exercise of passing the Assessment Order was arbitrary and in breach of procedural standards set by the Standard Operating Procedure (SOP) for the Faceless Assessment provisions of Section 144B of the Act. The petitioner sought to quash the Assessment Order and remand the proceedings for a fresh assessment with proper opportunity to respond.

Issue 2: The petitioner contended that the Show Cause Notice issued on 22 March, 2024, required a response by 23 March, 2024, giving less than 24 hours for compliance. The petitioner objected to this short notice period, citing a violation of natural justice principles. The petitioner relied on a decision by the High Court of Karnataka, which held that allowing less than 24 hours to respond to a Show Cause Notice is a violation of natural justice. The Assessing Officer later extended the response time to 26 March, 2024, but the petitioner could not comply within the short extended period. The court found that the Assessing Officer's actions in granting insufficient time for response were arbitrary and in breach of the SOP guidelines, resulting in prejudice to the petitioner.

Judgment: After considering the arguments and perusing the record, the court found merit in the petitioner's contentions. The court observed that the Assessment Order was passed without adhering to the SOP guidelines, which mandated a response time of seven days from the issuance of the Show Cause Notice. The court held that the Assessing Officer's actions were in breach of natural justice principles and ordered the Assessment Order dated 27 March, 2024, to be quashed and set aside. The court remanded the proceedings for a fresh Assessment Order to be passed within specified timelines, ensuring the petitioner's right to a fair opportunity to respond. Additionally, the court quashed the consequential Computation Sheet and Notice of demand dated 27 March, 2024, while keeping all contentions of the parties on the assessment open for further consideration.

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