Notice under Section 148A(b) Violating Natural Justice for Less Than Seven Days to Respond Quashed

The ITAT Raipur held that the notice issued under section 148A(b) providing less than seven days to respond violated principles of natural justice. The notice dated 20.03.2022 required compliance by 26.03.2022, which did not allow the full seven-day period excluding the date of issuance and compliance. Following the Chhattisgarh HC's observation in a similar case, the tribunal quashed the assessment order and notice under sections 148A(b) and 148, respectively. The matter was remanded to the AO for fresh consideration after affording the assessee a proper opportunity of hearing. The decision favored the assessee.

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ISSUES:

Validity of notice issued under Section 148A(b) of the Income Tax Act, 1961, specifically whether the minimum statutory period of 7 clear days for compliance was provided.Whether an ex-parte order passed under Section 147 read with Section 144 of the Income Tax Act, 1961, without considering the assessee's reply, is sustainable.Applicability of exemption under Section 10(23C)(iiiad) of the Income Tax Act, 1961, to surplus/profit of a charitable institution running an educational institution.Whether the Assessing Officer (AO) was justified in making additions on estimated business income and bank interest without proper verification and consideration of documents.

RULINGS / HOLDINGS:

Notice issued under Section 148A(b) of the Act dated 20.03.2022, requiring compliance by 26.03.2022, did not provide the mandatory "clear 7 days" for filing a reply excluding the date of issuance and the date of compliance sought, and is therefore held to be "invalid and void ab initio" and quashed.The ex-parte order passed under Section 147 read with Section 144 without considering the assessee's reply and without affording a reasonable opportunity of hearing is not sustainable in law.The surplus/profit from the educational activities of the charitable institution is exempt under Section 10(23C)(iiiad) of the Income Tax Act, 1961.The Assessing Officer's additions on estimated business income and bank interest without proper enquiry and verification of documents furnished at the appellate stage are not justified; the matter requires fresh assessment after verification and opportunity to the assessee.

RATIONALE:

The Court applied the provisions of Section 148A(b) of the Income Tax Act, 1961, which mandates that the assessee must be given a notice to show cause with a time period "not less than seven days" excluding the date of issuance and the date on which compliance is sought, to ensure adherence to principles of natural justice.Judicial precedents from the jurisdictional High Courts and ITAT were relied upon, including rulings that interpret "not less than seven days" as requiring "clear seven days" excluding terminal days, citing the Apex Court's decision in Pioneer Motors (Private) Ltd. vs. Municipal Council, Nagercoil.The Court recognized that failure to provide the mandatory period violates the principles of natural justice and renders the notice and consequent proceedings null and void.The Court referred to the amendment by the Finance (No.2) Act, 2024, effective from 01.10.2024, which emphasizes procedural safeguards in reassessment proceedings under Sections 147 and 148A.The exemption under Section 10(23C)(iiiad) was acknowledged as applicable to the charitable institution's educational activities, supported by audit reports and documentary evidence submitted during appellate proceedings.On the issue of additions without enquiry, the Court emphasized the requirement of verifying documents and allowing the assessee to explain before making additions, consistent with principles of fair assessment and natural justice.Since the notice under Section 148A(b) was quashed, all subsequent proceedings based on such notice were held to be non est in the eyes of law, rendering other grounds academic.

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