2025 (7) TMI 604 - HC - Income Tax

Income Tax Officer must reconsider Section 264 revision despite taxpayer's non-participation in assessment proceedings

The Madras HC allowed a revision petition challenging rejection under Section 264. The petitioner failed to participate in assessment proceedings due to ... Revision Petition u/s 264 rejected - petitioner had failed to file any reply or produce any documentary evidences to demonstrate the case before the AO - reason given by the petitioner for not participating in the assessment proceedings was because of change in the name of the Management and the notices were served in the Old PAN Number instead of New PAN Number, hence, he was not aware of the notices and therefore, he could not participate in the proceedings. HELD THAT:- This Court is of the considered opinion that, merely because of non participation of the assessment proceedings, the valuable right of the petitioner would not be deprived of to prosecute a case u/s 264. Initially, the petitioner's society had been registered as a Trust and subsequently, it has been converted into a society. So therefore, some practical difficulties were aroused in the management of the society, due to the change in the name of the management. Considering this aspect, in the interest of justice, to give one more opportunity to the petitioner, this Court is inclined to set aside the impugned order passed u/s 264 along with the best judgment assessment order passed under Section 147 and remand the matter to the AO/ 2nd respondent for fresh consideration. Accordingly, this Court is inclined to pass the following orders/directions:- (i) The impugned order dated 29.09.2023 passed by the 2nd respondent, and consequential order dated 24.09.2024 passed by the 1st respondent, are hereby set aside. (ii) Consequently, the matter is remanded to the 2nd respondent / Assessing Officer, for fresh consideration. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court in this matter are:(a) Whether the impugned assessment order dated 29.09.2023, passed without hearing the petitioner due to non-participation in the assessment proceedings, is valid and sustainable.(b) Whether the petition filed under Section 264 of the Income Tax Act, seeking revision of the assessment order, was rightly rejected on the ground of non-participation and failure to produce documentary evidence before the Assessing Officer.(c) Whether the petitioner's explanation of non-participation, based on the change of PAN Number and management status from a Trust to a Society, is a valid ground to grant relief and reconsideration of the assessment order.(d) Whether the Court can exercise its discretion to set aside the impugned assessment and revision orders and remand the matter for fresh consideration, subject to conditions including payment of costs.2. ISSUE-WISE DETAILED ANALYSISIssue (a): Validity of the impugned assessment order passed without hearing the petitioner.Relevant legal framework and precedents: The Income Tax Act mandates that the Assessing Officer shall provide an opportunity of hearing before passing an assessment order. Principles of natural justice require that a party should not be condemned unheard.Court's interpretation and reasoning: The Court noted that the impugned assessment order was passed without hearing the petitioner due to non-participation in the proceedings. The petitioner's non-participation was attributed to non-receipt of notices, as notices were sent to the Old PAN Number, which was no longer operative after conversion of the Trust into a Society and issuance of a new PAN Number.Key evidence and findings: The petitioner had originally filed returns under the old PAN Number issued in the name of the Trust. Subsequently, a new PAN Number was issued under the status of Society. The petitioner claimed ignorance of notices sent to the old PAN Number. The respondents contended that all transactions were under the old PAN Number and the petitioner failed to produce documentary evidence of filing returns under the new PAN Number.Application of law to facts: The Court observed that the failure to participate in the assessment proceedings due to administrative and procedural difficulties arising from the conversion of the Trust into a Society and consequent change of PAN Number was a practical difficulty. The Court recognized that procedural lapses should not deprive the petitioner of the right to be heard.Treatment of competing arguments: The respondents emphasized the petitioner's failure to produce documents and participate, justifying the passing of the assessment order without hearing. The Court balanced this with the petitioner's explanation of non-receipt of notices and recognized the practical challenges faced.Conclusion: The Court found that the impugned assessment order passed without hearing was not sustainable in the interest of justice.Issue (b): Legitimacy of rejection of the petition under Section 264 for revision of assessment.Relevant legal framework and precedents: Section 264 of the Income Tax Act empowers the Commissioner to revise an assessment order if it is erroneous or prejudicial to the interests of the revenue. However, the petitioner must participate and produce evidence to justify revision.Court's interpretation and reasoning: The petition under Section 264 was rejected on the ground that the petitioner failed to participate or produce documentary evidence before the Assessing Officer. The Court noted that the petitioner's failure to participate was due to non-receipt of notices consequent to change in PAN Number and management.Key evidence and findings: The petitioner did not produce documents before the Assessing Officer to substantiate claims of filing returns under the new PAN Number. The respondents relied on this to reject the revision petition.Application of law to facts: The Court considered whether procedural non-compliance should bar the petitioner from seeking revision. It held that the right to seek revision should not be defeated merely due to non-participation caused by administrative difficulties.Treatment of competing arguments: The respondents insisted on strict compliance and non-participation as grounds for rejection. The Court, however, leaned in favor of granting an opportunity to the petitioner to rectify procedural lapses.Conclusion: The rejection of the Section 264 petition solely on non-participation was set aside to allow the petitioner to participate and produce evidence.Issue (c): Validity of petitioner's explanation regarding change of PAN Number and management status.Relevant legal framework and precedents: The law recognizes that changes in organizational status and consequent administrative changes may cause procedural difficulties. Courts have often shown leniency in such cases to prevent miscarriage of justice.Court's interpretation and reasoning: The Court accepted the petitioner's explanation that the Trust was converted into a Society, resulting in issuance of a new PAN Number. This change led to notices being sent to the old PAN Number, which the petitioner did not receive, causing non-participation.Key evidence and findings: The petitioner's submissions and the sequence of events regarding PAN Number issuance were considered. The respondents did not dispute the conversion but emphasized transactions under the old PAN Number.Application of law to facts: The Court found that the petitioner's explanation was reasonable and constituted a valid ground to grant relief and allow fresh opportunity.Treatment of competing arguments: While the respondents pointed to the petitioner's failure to produce documentary proof of filing returns under the new PAN Number, the Court prioritized the interest of justice and practical difficulties over procedural rigidity.Conclusion: The petitioner's explanation was accepted as a valid ground to set aside the orders and remand the matter.Issue (d): Discretion of the Court to set aside impugned orders and remand for fresh consideration subject to conditions.Relevant legal framework and precedents: Courts have inherent jurisdiction to set aside orders passed in violation of principles of natural justice and remand matters for fresh consideration. Imposition of costs is a recognized tool to balance interests and discourage procedural lapses.Court's interpretation and reasoning: The Court exercised its discretion to set aside both the impugned assessment order and the consequential order rejecting revision under Section 264. The Court remanded the matter to the Assessing Officer for fresh consideration, subject to payment of costs by the petitioner.Key evidence and findings: The Court relied on the petitioner's explanation, the absence of opportunity to be heard, and the respondents' willingness to consider the matter on payment of costs.Application of law to facts: The Court balanced the petitioner's right to be heard and the respondents' interest in procedural compliance by imposing a cost of Rs.10,000/- to be paid to a government institution. The Court also laid down a timeline for filing of reply, production of documents, and opportunity of personal hearing.Treatment of competing arguments: The respondents' submission that the petitioner should be penalized for non-participation was accommodated through the cost imposition, while the petitioner's right to be heard was preserved.Conclusion: The Court's order set aside the impugned orders, remanded the matter for fresh consideration, and imposed costs as a condition for reopening the matter.3. SIGNIFICANT HOLDINGS'Merely because of non participation of the assessment proceedings, the valuable right of the petitioner would not be deprived of to prosecute a case under Section 264.''Considering this aspect, in the interest of justice, to give one more opportunity to the petitioner, this Court is inclined to set aside the impugned order passed under Section 264 along with the best judgment assessment order passed under Section 147 and remand the matter to the Assessing Officer for fresh consideration.'The Court established the principle that procedural non-compliance arising from genuine administrative difficulties, such as change in organizational status and PAN Number, cannot be a ground to deprive a party of the right to be heard and seek revision under Section 264.Final determinations on each issue:(i) The impugned assessment order passed without hearing is set aside as unsustainable.(ii) The rejection of the revision petition under Section 264 solely on grounds of non-participation is set aside.(iii) The petitioner's explanation regarding change from Trust to Society and consequent PAN Number change is accepted as a valid ground for relief.(iv) The matter is remanded to the Assessing Officer for fresh consideration after the petitioner deposits costs and participates by filing replies and producing documents.