2025 (6) TMI 905 - HC - Income Tax

Tax Assessment Voided: Procedural Fairness Demands Proper Notice and Opportunity to Be Heard in Challenging Proceedings

Manoj Kiron Kumar Lulla Versus Assessment Unit, Income Tax Officer, Corp. Ward 2 (1), Chennai

HC found a violation of natural justice in tax assessment proceedings. The assessment order was set aside due to denial of adequate opportunity to respond ... Validity of assessment order passed - denial of principles of natural justice - As alleged granted no time for filing the reply or opportunity of personal hearing to the petitioner prior to the passing of impugned order - HELD THAT:- Normally, when an Assessee requests for time extension to file their reply, the respondents are supposed to have duly considered the said request and granted sufficient time to the petitioner. In this case, according to the petitioner, due to the ill-health of their Authorised Representative, they were unable to file their reply along with all the supporting documents. When such being the case, the reason provided by the petitioner, for seeking extension of time to file their reply, appears to be genuine. However, without considering the said genuine reason assigned by the petitioner, the respondents had refused to extend the time limit for filing the reply and passed the impugned order on 10.03.2025. The impugned order was passed in violation of principles of natural justice since it is just and necessary to provide an opportunity to the petitioner to establish their case on merits. The core legal questions considered by the Court include: (1) Whether the impugned assessment order was passed in violation of the principles of natural justice due to denial of adequate opportunity to the petitioner to file a reply and to be heard; (2) Whether the respondent was justified in refusing the petitioner's request for extension of time to file their reply; (3) Whether the absence of a personal hearing before passing the assessment order renders the order invalid; and (4) The appropriate remedy in light of procedural lapses, including whether the matter should be remanded for fresh consideration.Regarding the first issue on violation of natural justice, the relevant legal framework involves the fundamental principle that an order affecting a party's rights cannot be passed without affording that party a reasonable opportunity to present their case. Precedents emphasize that denial of opportunity to file replies or to be heard in a personal hearing constitutes breach of natural justice. The Court examined the timeline of events: the show cause notice was issued on 16.02.2025 directing the petitioner to respond by 21.02.2025; the petitioner sought extension till 08.03.2025 citing hospitalization of their Authorized Representative; the respondent granted time only till 27.02.2025 and scheduled a personal hearing on 03.03.2025; the petitioner was unable to appear due to health reasons and requested adjournment, which was denied; and ultimately, the assessment order was passed on 10.03.2025 without granting further opportunity. The Court found that the petitioner's reasons for seeking extension were genuine and that the refusal to grant adequate time and hearing amounted to violation of natural justice. The respondent's failure to provide a personal hearing prior to the impugned order was a critical procedural lapse.On the second issue concerning the refusal of extension, the Court noted that ordinarily, requests for time extension to file replies should be considered sympathetically, especially when supported by valid reasons such as ill-health. The petitioner's Authorized Representative's hospitalization was a legitimate ground. The respondent's rigid refusal to extend time beyond 27.02.2025, despite the petitioner's repeated requests, was found unjustified. The Court underscored that procedural fairness requires flexibility in such circumstances to ensure the petitioner's right to be heard is not curtailed.Addressing the third issue of absence of personal hearing, the Court reiterated that personal hearing is a vital component of the assessment process under the Income Tax Act, ensuring that the assessee's objections and explanations are duly considered. The respondent conceded that no personal hearing was granted before passing the impugned order. The Court emphasized that passing an order without affording personal hearing violates statutory and constitutional mandates, rendering the order liable to be set aside.Regarding the fourth issue on remedy, the Court considered the submissions from both parties. The respondent contended that a detailed reply had been filed earlier in response to a prior notice under Section 142(1) of the Income Tax Act and that the impugned order was well-considered. However, the Court found that reliance on an earlier reply could not substitute for the opportunity to respond to the specific show cause notice dated 16.02.2025 or for a personal hearing. The Court held that the appropriate remedy was to set aside the impugned order and remit the matter for fresh consideration, directing the respondent to provide the petitioner with a reasonable opportunity to file a reply and to be heard through a personal hearing.The Court's conclusions on each issue are as follows: (i) The impugned assessment order dated 10.03.2025 was passed in violation of natural justice principles due to denial of adequate time and hearing; (ii) The petitioner's request for extension on grounds of ill-health was genuine and ought to have been granted; (iii) The absence of personal hearing before passing the order was a procedural defect rendering the order unsustainable; and (iv) The matter must be remanded to the respondent for fresh consideration after affording the petitioner a fair opportunity to present their case.Significant holdings include the Court's explicit statement that 'the impugned order was passed in violation of principles of natural justice since it is just and necessary to provide an opportunity to the petitioner to establish their case on merits.' The Court mandated that upon remand, the petitioner shall file their reply within three weeks of payment of any stipulated amount, and the respondent shall issue a clear 14 days' notice fixing the date of personal hearing before passing any fresh order. This establishes the core principle that procedural fairness and the right to be heard are indispensable in tax assessment proceedings.In sum, the Court set aside the impugned assessment order and remanded the matter with detailed directions to ensure compliance with natural justice, emphasizing that assessment orders passed without providing adequate opportunity to respond and be heard cannot stand. The Court's reasoning reinforces the necessity of balancing procedural rigor with fairness to the assessee in administrative tax proceedings.