2025 (7) TMI 523 - HC - Income Tax

Assessment orders set aside for inadequate opportunity to reply despite limitation period concerns

The Madras HC set aside assessment orders dated 29.03.2025 after finding that the respondent failed to provide adequate opportunity to the petitioner to ... Validity of assessment orders - as alleged no ample opportunity as provided to the petitioner to file their reply - limitation period - HELD THAT:- According to the petitioner the 1st respondent issued show cause notice dated 24.03.2025 granting only two days time to file a reply. Despite the petitioner's request to grant four weeks time to furnish their reply, the respondent again issued a notice dated 28.03.2025 to show cause certain queries by 29.03.2025 (5 PM) itself and proceeded to pass the impugned assessment order dated 29.03.2025. However, the respondent's main reason for passing an assessment orders dated 29.03.2025 is that if the final orders were not passed on or before 31.03.2025, the entire proceedings will be barred by limitation. Upon consideration, this Court unable to accept the submission made by the learned Senior Standing Counsel for the respondents for a simple reason that if limitation was a real intention for not granting time to the petitioner as requested by them to file their reply, the respondents must have initiated the proceeding much earlier. Therefore, this Court finds fault in the decision making process of the 1st respondent in not granting time to the petitioner to file their reply and passing the assessment order within 5 days from the date of issuance of show cause notice on the ground of limitation. Thus, this Court finds that there is a lack of opportunities being provided to the petitioner. This Court is inclined to set-aside the impugned orders with terms back to the 1st respondent for fresh consideration on conditions that the petitioner deposits a sum of Rs. 2 Lakhs (Rupees Two Lakhs only) to The Principal Government Naturopathy Medical College and Hospital. The petitioner shall file their reply/objection along with the required documents, if any, within a period of six weeks thereafter. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court are:Whether the 1st respondent (assessing authority) provided adequate opportunity to the petitioner to file replies to the show cause notices before passing the impugned assessment orders for the Assessment Years 2018-2019 and 2019-2020.Whether the limitation period justification relied upon by the 1st respondent for denying extension of time to the petitioner is valid and sustainable.Whether the impugned assessment orders dated 29.03.2025, which were passed shortly after issuance of show cause notices, are liable to be set aside for lack of adequate opportunity and procedural fairness.What directions, if any, should be issued regarding remand, costs, and further proceedings.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Adequacy of Opportunity to the Petitioner to File RepliesRelevant Legal Framework and Precedents: Principles of natural justice mandate that a party should be given a reasonable opportunity to be heard before adverse orders are passed. This includes sufficient time to file replies to show cause notices. The right to be heard is a fundamental procedural safeguard in quasi-judicial proceedings.Court's Interpretation and Reasoning: The petitioner contended that the 1st respondent issued a show cause notice on 24.03.2025 requiring a reply by 26.03.2025, which was only two days. The petitioner requested an extension of four weeks on 28.03.2025, but the respondent issued another show cause notice on the same day demanding a reply by 29.03.2025 (5 PM) and proceeded to pass the assessment order on 29.03.2025 itself. The Court found this timeline to be insufficient for the petitioner to prepare a detailed reply, especially considering the petitioner needed to collect data from 72 units across the state.The respondent argued that ample opportunity was given starting from 07.03.2025 with multiple notices and reminders, and that the petitioner repeatedly sought extensions instead of furnishing complete replies. However, the Court noted that the final show cause notices demanding replies within two days were issued very late in the process, and the petitioner's request for more time was not considered.Key Evidence and Findings: The sequence of notices issued by the respondent beginning 07.03.2025, partial replies filed by the petitioner, and the short deadlines for replies to the last show cause notices were crucial. The Court found that the petitioner was not afforded adequate time to respond to the final show cause notices.Application of Law to Facts: The Court applied the principle of natural justice requiring reasonable opportunity and found that the 1st respondent failed to provide such opportunity before passing the impugned orders.Treatment of Competing Arguments: The Court rejected the respondent's contention that the petitioner's repeated requests for extension justified denial of time, emphasizing that the short notice period itself was unreasonable and that the respondent's delay in initiating proceedings was the root cause.Conclusion: The Court concluded that the petitioner was denied adequate opportunity to file replies, violating principles of natural justice.Issue 2: Validity of Limitation as a Ground for Passing Orders Without Adequate OpportunityRelevant Legal Framework and Precedents: Limitation periods prescribed by law are mandatory and bar proceedings if exceeded. However, procedural fairness requires that limitation should not be used as a pretext to deny reasonable opportunity.Court's Interpretation and Reasoning: The 1st respondent justified the short timelines and passing of orders on the ground that the limitation period would expire on 31.03.2025. The Court scrutinized this justification and held that if limitation was a genuine concern, the respondent should have initiated proceedings much earlier to allow sufficient time for the petitioner to respond.Key Evidence and Findings: The Court noted that the first notice was issued only on 07.03.2025, less than a month before the limitation expiry date, which was insufficient time for comprehensive replies.Application of Law to Facts: The Court found that the respondent's delay in initiating proceedings was the cause of the time crunch, and the limitation argument could not justify denial of adequate opportunity.Treatment of Competing Arguments: The Court rejected the respondent's reliance on limitation as a valid reason for denying extension and passing orders hastily.Conclusion: The Court held that limitation cannot be used as a ground to circumvent the petitioner's right to be heard and adequate opportunity.Issue 3: Legality and Validity of the Impugned Assessment OrdersRelevant Legal Framework and Precedents: Assessment orders passed without affording reasonable opportunity to the assessee are liable to be set aside as violative of natural justice and hence illegal.Court's Interpretation and Reasoning: Given the findings on inadequate opportunity and invalid limitation justification, the Court found the impugned orders passed on 29.03.2025 to be unsustainable. The Court emphasized that the assessment orders were passed within 5 days of the show cause notice, which is too short a period for effective participation.Key Evidence and Findings: The timeline of notices and orders, the petitioner's requests for extension, and the respondent's refusal to grant adequate time were determinative.Application of Law to Facts: The Court applied the principle that procedural fairness is a prerequisite for valid assessment orders and found the impugned orders defective.Treatment of Competing Arguments: The Court did not accept the respondent's contention that the petitioner's delay justified passing orders without hearing.Conclusion: The impugned assessment orders were set aside and remanded for fresh consideration.Issue 4: Directions Regarding Remand, Costs, and Further ProceedingsCourt's Reasoning and Directions: The Court, while setting aside the impugned orders, imposed conditions on the petitioner to deposit Rs. 5 Lakhs in specified charitable trusts within two weeks. The petitioner was directed to file their reply/objection within six weeks thereafter. The 1st respondent was directed to consider the reply, issue a 14-day clear notice fixing a personal hearing, and pass appropriate orders on merits and in accordance with law without being influenced by the observations in the present order. The Court declined to impose costs on the parties.3. SIGNIFICANT HOLDINGS'If limitation was a real intention for not granting time to the petitioner as requested by them to file their reply, the respondents must have initiated the proceeding much earlier.''There is a lack of opportunities being provided to the petitioner.''The orders impugned herein are set aside and the matters are remanded back to the 1st respondent for fresh consideration on conditions that the petitioner deposits a sum of Rs. 2 Lakhs ... and a sum of Rs. 3 Lakhs ... as agreed by the petitioner.''The petitioner shall file their reply/objection along with the required documents, if any, within a period of six weeks thereafter.''On filing of such reply/objection by the petitioner, the 1st respondent shall consider the same and issue a 14 days clear notice by fixing the date of personal hearing to the petitioner and thereafter, pass appropriate orders on merits and in accordance with law.'The Court established the core principle that procedural fairness and adequate opportunity to be heard cannot be sacrificed on the pretext of limitation, especially where the assessing authority itself delayed initiating proceedings.The final determination was that the impugned assessment orders were invalid due to denial of reasonable opportunity and were set aside with directions for fresh consideration following due process.