2025 (8) TMI 1692 - HC - Income Tax

AYs 2016-17 & 2017-18 assessments quashed for lack of reasons and drafts; s.148A(d) order/notice for AY 2018-19 invalid, denying adjournment

Manish Kumar Versus Income Tax Officer, Ward 1, Narnaul & Anr.

HC held that assessments for AY 2016-17 and 2017-18 breached principles of natural justice because reasons for reopening were not furnished and draft ... Reopening of assessment w/o issuance of draft assessment order - HELD THAT:- Undisputed fact that the respondents have not provided the reasons recorded for reopening of AY 2016-2017 and 2017-2018 and even without issuance of draft assessment order, the impugned assessment orders are passed and therefore, there is a clear breach of principles of natural justice as well as against the ratio laid down in the decision of GKN Driveshafts India Ltd. [2002 (11) TMI 7 - SUPREME COURT] Assessment Year 2018-2019 is concerned, the respondent has passed the impugned order under section 148A(d) of the Act without granting adjournment resulting into breach of principles of natural justice as well as provision of section 148A(c) of the Act. Assessment Year 2018-2019 is concerned, the impugned order under section 148A(d) of the Act and notice under section 148 of the Act are hereby quashed and set aside and the matter is remanded back to the Assessing Officer to grant an opportunity to the petitioner to file reply to the notice under section 148A(b) of the Act and thereafter pass the order under section 148A(d) of the Act in accordance with law. Such exercise shall be completed preferably within 12 weeks from the date of receipt of a copy of this order. ISSUES PRESENTED AND CONSIDERED 1. Whether reopening of assessment under section 147 of the Income Tax Act without providing the taxpayer with the reasons recorded for reopening and without issuance of draft assessment under section 144B violates principles of natural justice and is liable to be quashed. 2. Whether issuance of order under section 148A(d) and notice under section 148 without granting an adjournment requested by the taxpayer in response to a notice under section 148A(b) (and without considering the taxpayer's request for time to file reply) breaches principles of natural justice and the statutory procedure under section 148A(c)/(d). 3. Appropriate judicial remedy and directions where procedural defects (non-supply of reasons recorded; absence of draft assessment; denial of adjournment under section 148A process) are established. ISSUE-WISE DETAILED ANALYSIS Issue 1: Reopening under section 147 without supply of reasons recorded and without issuing draft assessment under section 144B - Legal framework Legal framework: Reopening under section 147/148 requires that reasons recorded for reopening be disclosed to the assessee so that the assessee may object; where section 144B applies, a draft assessment must be served to afford an opportunity to respond before final assessment is framed. Principles of natural justice (audi alteram partem) require meaningful opportunity to be heard against reopening and proposed additions. Precedent treatment: The Court relied on the binding principle in GKN Driveshafts that reasons recorded must be furnished and objections adjudicated before final assessment is framed; other decisions were pressed by the petitioner but the Court expressly anchored its approach on the ratio in GKN. Interpretation and reasoning: The Court found as an undisputed fact that for the assessment years in question the Assessing Officer did not provide the reasons recorded for reopening, and final assessment orders were passed without issuance of the draft assessment as mandated under section 144B. This omission constituted a denial of a statutory and constitutional right to be heard. The Court treated the non-supply of reasons and absence of draft assessment as a clear breach of both the statutory scheme and the principles of natural justice, rendering the reopening and resulting assessments legally unsustainable. Ratio vs. Obiter: Ratio - Where reasons for reopening are not furnished and draft assessment (where statutorily required) not issued, the reopening/assessment is vitiated by breach of natural justice and must be quashed; the Assessing Officer must supply reasons, decide objections in accordance with law (including GKN), and then proceed afresh if justified. Obiter - references to other authorities relied on by parties were noted but the operative legal proposition stems from the GKN ratio applied to the facts. Conclusions: The Court quashed and set aside the assessment orders for the affected assessment years and remanded the matter to the Assessing Officer with directions to (a) supply the reasons recorded for reopening, (b) permit the assessee to file objections, (c) decide those objections in accordance with law and the GKN principle, and (d) thereafter proceed to frame assessment, if warranted, complying with statutes and natural justice. Issue 2: Procedure under section 148A - Denial of adjournment/consideration of request to extend time to reply to notice under section 148A(b) Legal framework: Section 148A(b) requires that the assessee be given notice and an opportunity to reply as to why a notice under section 148 should not be issued; section 148A(c)/(d) prescribes consideration of that reply before issuance of an order under 148A(d) and the consequential section 148 notice. Natural justice requires that reasonable applications for time to respond be considered before adverse administrative action is taken. Precedent treatment: The Court treated the statutory requirement and natural justice in accordance with established principles; while other precedents were cited by counsel, the decision turned on the statutory mandate in section 148A and the facts showing failure to consider the request for adjournment. Interpretation and reasoning: The Court accepted the candid admission by the Revenue's counsel that the assessee had sought time to file a reply to the 148A(b) notice, and that the Assessing Officer nevertheless passed the 148A(d) order and issued a 148 notice without considering that request. This truncated the statutory 148A process and denied the assessee the opportunity to be heard, amounting to breach of section 148A(c)/(d) and principles of natural justice. Ratio vs. Obiter: Ratio - Where an assessee seeks time to file reply to a section 148A(b) notice and the Assessing Officer proceeds under section 148A(d) without considering or granting the requested time, the order is procedurally unsound and liable to be quashed; the matter must be remanded for fresh consideration allowing the assessee to reply. Obiter - procedural timelines recommended by the Court for disposal on remand (preferably within 12 weeks) are practical directions ancillary to the principal ratio. Conclusions: The Court quashed the order under section 148A(d) and the consequent notice under section 148 for the relevant assessment year, and remanded the matter directing the Assessing Officer to allow the assessee to file the reply to the 148A(b) notice and thereafter decide the matter afresh in accordance with law. Issue 3: Remedy and directions where procedural violations are established Legal framework: The remedial power of the Court in judicial review/constitutional writ jurisdiction permits quashing of assessments/orders infected by procedural illegality and remanding for fresh exercise of statutory power in conformity with law and natural justice. Precedent treatment: The Court implemented the established remedy of setting aside tainted orders and remanding for fresh consideration with directions to comply with statutory safeguards and GKN; other authorities cited by counsel were noted but the remedial course followed established GKN-based jurisprudence. Interpretation and reasoning: Given the admitted or established procedural defects (non-supply of reasons, absence of draft assessment, failure to consider adjournment), the Court declined to enter upon merits of the assessments and directed remand for compliance with statutory procedure and natural justice. The Court emphasized that after supply of reasons and decision on objections, the Assessing Officer may proceed to frame assessment if legally permissible. Ratio vs. Obiter: Ratio - Quashment of procedurally defective orders and remand with directions to follow statutory process and principles of natural justice is the appropriate remedy; the Court will not decide merits while procedural infirmity persists. Obiter - the Court's clarification that it has not entered into merits is explanatory, not determinative of substantive tax liability. Conclusions: The Court disposed the petitions by quashing the impugned assessments/orders for the respective assessment years, remanding the matters to the Assessing Officer with clear directions to (i) supply reasons recorded, (ii) permit and consider objections in accordance with law (including the GKN principle), (iii) allow the assessee to file reply to any 148A(b) notice and consider adjournment requests reasonably, and (iv) thereafter proceed to assess, adhering to statutory mandates and natural justice; timelines for completion of the exercise were suggested but the Court did not adjudicate substantive tax issues.