2025 (11) TMI 730 - AT - Income Tax

Order setting aside ex parte reassessment; AO to redo assessment afresh after affording reasonable opportunity of hearing under s.148

ITAT HYDERABAD - AT upheld the CIT(A)'s order setting aside an ex parte reassessment and directing the AO to redo the assessment afresh after affording ... Reassessment proceedings before the AO as ex parte - assessee neither filed the return of income in response to the notice issued u/s 148 nor filed any details in response to various notices issued u/s 142(1) of the Act to explain the source for cash deposits in the bank account - HELD THAT:- Since the assessment proceedings before the A.O. are ex parte, the Ld. CIT(A) has rightly set aside the assessment proceedings to the file of the A.O. with a direction to redo the assessment afresh in accordance with law after providing a reasonable opportunity of being heard to the assessee. Insofar as the arguments of the learned counsel for the assessee in light of the decision of Prakash Pandurang Patil (2024 (8) TMI 1625 - BOMBAY HIGH COURT) is concerned, in our considered view, once the proceedings before the A.O. are ex parte and the assessee has not availed the opportunity of hearing, the order passed by the CIT(A) setting aside the issue to the file of the A.O. to give another opportunity of hearing to the assessee is in accordance with law. 10. Further, the assessee can very well challenge the proceedings initiated under Section 147 of the Act by issuing notice under Section 148A(b), order passed under Section 148A(d), and the subsequent notice issued under Section 148 of the Act, in the consequent proceedings before the A.O. Therefore, in our considered view, at this stage, there is no grievance for the assessee to agitate the order passed by the Ld. CIT(A) setting aside the issue to the file of the A.O. Therefore, we are inclined to uphold the order of the Ld. CIT(A) and reject the grounds taken by the assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether setting aside an ex parte reassessment under Section 147 read with Section 144 of the Income Tax Act and directing the Assessing Officer to redo the assessment after affording a reasonable opportunity of hearing is legally sustainable. 2. Whether an assessee who has not filed a return in response to a reopening notice under Section 148 and has remained non-responsive to subsequent notices under Section 142(1) can, at the present stage, challenge the validity of the notice(s) issued under Sections 148A(b), 148A(d) and 148 in light of statutory faceless/mandatory procedure arguments based on higher court precedent. 3. Whether remitting the matter back to the Assessing Officer for fresh adjudication keeps open the assessee's right to challenge the validity of reassessment proceedings at an appropriate subsequent stage. ISSUE-WISE DETAILED ANALYSIS Issue 1: Legality of setting aside ex parte reassessment and directing fresh assessment with opportunity of hearing Legal framework: Reassessment may be initiated under Section 147 read with Section 148 when income has escaped assessment. Where proceedings proceed ex parte (assessee unresponsive to notices under Sections 148 and 142(1)), the Assessing Officer may proceed to make assessment to the best of his knowledge under Section 144. Appellate authority has power to examine whether proper opportunity of hearing was afforded and to set aside for fresh adjudication. Precedent treatment: The Tribunal examined the appellate order which set aside the ex parte assessment and directed the AO to redo assessment after affording a reasonable opportunity; no prior authority was overruled or altered by the Tribunal on this point. Interpretation and reasoning: The Tribunal observed undisputed facts that the assessment before the AO was ex parte because the assessee neither filed the return in response to the Section 148 notice nor responded to Section 142(1) notices. Given the ex parte nature, the appellate authority's direction to afford a reasonable opportunity and to redo the assessment was held to be in accordance with principles of natural justice and statutory scheme. Ratio vs. Obiter: Ratio - where reassessment has been completed ex parte because of non-response, appellate authority is entitled to remit the matter for de novo adjudication after directing that the assessee be given a reasonable opportunity of hearing. Conclusion: The Tribunal upheld the CIT(A)'s order setting aside the ex parte reassessment and directing the AO to redo the assessment with a reasonable opportunity to the assessee. Issue 2: Competence to challenge validity of reopening notices and faceless/procedure objections at present stage Legal framework: The validity of notices issued under Sections 148A(b), 148A(d) and Section 148 may be challenged on legal grounds (including procedural compliance) before appropriate forums at appropriate stages of proceedings. Higher court pronouncements on mandatory procedural requirements (e.g., faceless mechanism) can inform such challenges. Precedent treatment: The assessee relied on a recent Supreme Court decision (challenging reopening issued without mandatory faceless mechanism), arguing the reassessment is unsustainable. The Tribunal considered the existence of that precedent but did not decide the validity of the notice itself at this appellate stage. Interpretation and reasoning: The Tribunal reasoned that because the proceedings before the AO were ex parte and the appellate authority remitted the matter for a fresh opportunity of hearing, it was appropriate to allow the assessee to agitate procedural validity issues in the consequent proceedings before the AO. The Tribunal emphasized procedural propriety and that setting aside does not preclude future challenges; it is premature to quash the reassessment on procedure when the assessee did not participate in AO proceedings. Ratio vs. Obiter: Ratio - where reassessment has been set aside for absence of opportunity to the assessee, challenge to the initiation/validity of reassessment is better adjudicated in the consequent proceedings after the assessee has had an opportunity to be heard. Obiter - reference to the Supreme Court decision was noted but not applied to invalidate the impugned notices at this stage. Conclusion: The Tribunal declined to quash the reassessment on the faceless/procedural ground at this interlocutory stage, holding it open to the assessee to raise those objections in the re-opened proceedings before the AO. Issue 3: Effect of remand on the assessee's right to litigate procedural and substantive objections Legal framework: Remand to the AO for fresh adjudication ordinarily preserves parties' rights to raise procedural and substantive objections in subsequent proceedings; appellate authorities may keep issues open for adjudication at appropriate stages. Precedent treatment: The Tribunal followed the principle that a remand for fresh hearing does not extinguish the right to raise legal challenges later; it did not purport to foreclose any future legal remedies. Interpretation and reasoning: The Tribunal explicitly stated that the assessee remains at liberty to challenge the legality of reassessment proceedings initiated by the AO, including notices under Sections 148A(b), 148A(d) and 148, in the consequent assessment proceedings. The Tribunal framed the remand as maintaining procedural fairness without adjudicating the merits of those challenges. Ratio vs. Obiter: Ratio - remanding for fresh adjudication while preserving the assessee's right to challenge proceedings in appropriate forums is proper where ex parte assessment occurred. Obiter - none beyond reinforcing the open-door to future challenges. Conclusion: The remand was held not to prejudice the assessee's ability to challenge procedural or substantive defects later; all issues are kept open for adjudication at the appropriate level and stage. Overall Disposition Given the ex parte nature of the original assessment, the appellate direction to remit the matter for fresh adjudication after affording a reasonable opportunity of hearing was upheld. The Tribunal dismissed the present appeal against that appellate direction while expressly preserving the assessee's right to raise challenges to the validity of reopening notices and related procedural objections in the consequent proceedings.