2025 (5) TMI 1499 - HC - Income Tax

Procedural Flaws Invalidate Tax Assessment: Income Tax Officer Fails to Follow Due Process and Principles of Natural Justice

Hasmukhbhai Girdharilal Chopra Versus The National Faceless Assessment Centre, Govt. Of India & Anr.

Hasmukhbhai Girdharilal Chopra Versus The National Faceless Assessment Centre, Govt. Of India & Anr. - 2025:GUJHC:19642 - DB 1. ISSUES PRESENTED and CONSIDERED- Whether the Assessment Order dated 29.03.2022 passed under Section 147 read with Section 144B of the Income Tax Act, 1961, and the consequential demand notice under Section 156, are valid in light of alleged violation of principles of natural justiceRs.- Whether the petitioner's reply to the show-cause notice dated 24.03.2022 was duly considered before passing the impugned Assessment OrderRs.- Whether the objections raised by the petitioner against the reopening of assessment were disposed of by a speaking order before the issuance of the impugned Assessment OrderRs.- Whether the limited time granted to the petitioner for filing reply to the show-cause notice was adequate and consistent with principles of natural justiceRs.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Validity of the Assessment Order in light of alleged violation of principles of natural justiceRelevant legal framework and precedents: The Income Tax Act, 1961, mandates adherence to principles of natural justice during assessment proceedings, especially when reopening assessments under Section 147. The Assessing Officer is required to provide reasonable opportunity to the assessee to respond to show-cause notices and objections before finalizing the assessment. Failure to consider the reply or objections of the assessee may render the assessment order invalid.Court's interpretation and reasoning: The Court observed that the petitioner was granted only two days' time (from 24.03.2022 to 27.03.2022) to file a reply to the show-cause notice. The petitioner complied by submitting a detailed reply on 27.03.2022. However, the impugned Assessment Order dated 29.03.2022 recorded that no reply was filed by the petitioner. This indicated non-consideration of the petitioner's response.Key evidence and findings: The petitioner's letter dated 27.03.2022 containing the reply to the show-cause notice and the letter dated 28.03.2022 raising objections against reopening were on record. The impugned order's statement that no reply was filed was factually incorrect.Application of law to facts: The Court emphasized that passing an assessment order without considering the petitioner's reply violates principles of natural justice, as it deprives the petitioner of a fair opportunity to be heard.Treatment of competing arguments: The respondent did not dispute the petitioner's submission regarding the filing of the reply or the limited time granted. No justification was offered for ignoring the petitioner's response.Conclusions: The Assessment Order and demand notice were liable to be quashed on grounds of violation of natural justice due to non-consideration of the petitioner's reply.Issue 2: Disposal of objections raised against reopening of assessmentRelevant legal framework and precedents: When reopening assessment under Section 147, objections raised by the assessee challenging the validity of reopening must be disposed of by a speaking order before proceeding further, ensuring transparency and fairness.Court's interpretation and reasoning: The petitioner raised objections on 28.03.2022 against the reopening of assessment and requested the respondent not to proceed further until these objections were disposed of. The Court noted that no speaking order disposing of these objections was passed before the impugned Assessment Order dated 29.03.2022.Key evidence and findings: The petitioner's letter dated 28.03.2022 and the absence of any order addressing these objections in the record.Application of law to facts: The failure to dispose of objections before passing the assessment order further violated principles of natural justice and procedural fairness.Treatment of competing arguments: The respondent did not refute this submission or provide any explanation for non-disposal of objections.Conclusions: The impugned Assessment Order was premature and legally unsustainable for failure to address the petitioner's objections to reopening.Issue 3: Adequacy of time granted to the petitioner to file reply to the show-cause noticeRelevant legal framework and precedents: Reasonable time must be granted to the assessee to respond to show-cause notices to ensure effective exercise of the right to be heard. The adequacy of time depends on the complexity of issues and volume of material to be furnished.Court's interpretation and reasoning: The Court observed that only two days were granted for filing a detailed reply to the show-cause notice. Despite this limited time, the petitioner managed to file a reply within the stipulated deadline.Key evidence and findings: The show-cause notice dated 24.03.2022 granting time till 27.03.2022 and the petitioner's reply dated 27.03.2022.Application of law to facts: Although the time granted was short, the petitioner complied. The issue was not the adequacy of time but the non-consideration of the reply by the Assessing Officer.Treatment of competing arguments: The respondent did not contest the limited time granted or the filing of the reply within that time.Conclusions: The limited time granted did not prejudice the petitioner's right to be heard in this case, but the non-consideration of the reply was fatal.3. SIGNIFICANT HOLDINGS- 'In view of the above stated undisputed fact with regard to granting of only two days' time to file the reply to the show-cause notice as well as non-consideration of the reply in the impugned Assessment Order by categorically making a statement that the petitioner failed to file any reply in response to the show-cause notice, the Assessment Order is liable to be quashed and set aside.'- 'Without entering into merits of the matter, only on the aforesaid ground of non-consideration of the reply which was already filed by the petitioner on 27th March, 2022, the impugned Assessment Order dated 29th March, 2022 as well as the demand notice of even date are required to be quashed and set aside.'- The Court established the core principle that an assessment order passed without considering the reply to a show-cause notice violates principles of natural justice and is liable to be quashed.- The Court held that objections raised by the assessee against reopening must be disposed of by a speaking order before passing the assessment order.- The final determination was to quash and set aside the impugned Assessment Order and demand notice and remit the matter to the Assessing Officer for fresh consideration after duly considering the petitioner's reply within twelve weeks.