2025 (5) TMI 1961 - HC - Income Tax

Assessment order set aside for show cause notice giving less than seven days response time under Section 144 read with Section 144B

P.A. Educational Trust, Versus Assessment Unit, Income Tax Department, Rep. By Additional/Joint/Deputy/Assistant Commissioner Of Income Tax/ Income Tax Department, Delhi, The Deputy Commissioner Of Income Tax (Exemptions), Circle 1, Mangaluru.

The Karnataka HC set aside an assessment order under Section 144 read with Section 144B, finding that the show cause notice issued on 15.01.2025 at ... Assessment u/s 144 r/w Section 144B - time for response to a show cause notice ought to be 7 days HELD THAT:- A perusal of the show cause notice would indicate that the same was issued at 03.35.58 pm on 15.01.2025 calling upon the petitioner to submit its reply on or before 01.02 pm on 21.01.2025, which is less than 07 days from the date of issuance of a show cause notice and the same being violative of standard operative procedure as held impugned assessment order and further notices deserve to be set aside and the matter be remitted back to the concerned respondent for reconsideration afresh from the stage of issuing show cause notice in accordance with law. The core legal questions considered by the Court in this matter are:1. Whether the show cause notice dated 15.01.2025 issued to the petitioner complied with the procedural requirements, specifically the minimum time period for response as mandated by the applicable Standard Operating Procedure (SOP) for faceless assessments under the Income Tax Act.2. Whether the assessment order dated 06.03.2025 and subsequent notices including computation sheet, demand notice, and penalty notices issued under various provisions of the Income Tax Act are liable to be quashed on the ground of violation of principles of natural justice due to inadequate time given to the petitioner to respond to the show cause notice.3. Whether the matter requires remand for fresh consideration after affording the petitioner a reasonable opportunity to respond in accordance with law.Issue 1: Compliance with Procedural Requirements Regarding Time for Response to Show Cause NoticeThe relevant legal framework comprises the Income Tax Act, 1961, specifically Sections 144, 144B, 156, 274 read with 271AAC(1), and 274 read with 272A(1)(d), which govern assessment proceedings, demand notices, and penalty impositions. Additionally, the Standard Operating Procedure (SOP) applicable to faceless assessments mandates a minimum period of seven days for the taxpayer to respond to a show cause notice.Precedent relied upon is the decision of the Coordinate Bench in the case of Chowdapally Dattaprakash Ajay vs. Central Board of Direct Taxes, wherein it was held that issuance of a show cause notice allowing less than seven days for response violates the SOP and consequently infringes principles of natural justice. The Court therein set aside the assessment order and remanded the matter for fresh consideration.In the present case, the show cause notice was issued at 3:35:58 pm on 15.01.2025, with the petitioner required to respond by 1:02 pm on 21.01.2025. The Court observed that this period was less than the stipulated seven days under the SOP, thereby constituting a procedural irregularity.The Court interpreted the SOP as binding and emphasized the necessity of adherence to the minimum response period to ensure fairness and compliance with natural justice. The petitioner's contention that the inadequate time frame prejudiced their ability to respond effectively was accepted, as the notice did not provide sufficient opportunity.The respondents' argument that the petition lacked merit was rejected on this ground.Issue 2: Validity of Assessment Order and Subsequent Notices IssuedThe assessment order dated 06.03.2025 was passed under Section 144 read with Section 144B of the Income Tax Act, following the show cause notice. The petitioner challenged this order along with the computation sheet, demand notice under Section 156, and penalty notices under Sections 274 read with 271AAC(1) and 274 read with 272A(1)(d).The Court analyzed whether these orders and notices could stand when the foundational show cause notice was issued in violation of the SOP and principles of natural justice.Drawing from the precedent in Chowdapally's case, the Court held that since the show cause notice was defective due to insufficient time for response, the subsequent assessment order and related notices were vitiated. The principle that procedural fairness is integral to the validity of assessment proceedings was reiterated.The Court found that the Assessing Officer proceeded without a valid response from the petitioner, which compounded the violation of natural justice.The respondents' defense that the orders were valid was considered but found untenable given the procedural lapse.Issue 3: Remand for Fresh ConsiderationGiven the procedural infirmity, the Court concluded that the appropriate remedy was to set aside the impugned orders and remit the matter back to the Assessing Officer for fresh proceedings.The petitioner was granted liberty to file additional pleadings and documents. The Assessing Officer was directed to provide a reasonable and sufficient opportunity to the petitioner to respond to the show cause notice in accordance with the SOP and principles of natural justice before proceeding further.The Court emphasized that all contentions of the petitioner, including issues of limitation, remain open for consideration in the fresh proceedings.Significant HoldingsThe Court held:'The impugned show cause notice dated 15.01.2025 calling upon the petitioner to submit its reply within less than seven days is violative of the Standard Operating Procedure applicable to faceless assessments and consequently infringes the principles of natural justice.''Accordingly, the impugned assessment order dated 06.03.2025 along with the computation sheet, demand notice, and penalty notices issued pursuant thereto are set aside.''The matter is remitted back to the stage of issuance of the show cause notice with liberty to the petitioner to file additional pleadings and documents, which shall be considered after providing sufficient and reasonable opportunity to the petitioner and proceed further in accordance with law.'The core principle established is that adherence to procedural safeguards, specifically the minimum response time mandated by the SOP in faceless assessments, is essential to uphold the principles of natural justice. Failure to comply with such procedural requirements renders the assessment and related orders liable to be quashed and remanded for fresh consideration.