2025 (11) TMI 927 - HC - Income Tax

Assessment under s.147 read with s.144C(3) quashed for gross natural justice violation; matter remitted for fresh consideration

Bindu Nair Versus Income Tax Officer (IT and TP) International Taxation (IT and TP), Income Tax Officer Non Corporate Ward 1 (2) Chennai, Dispute Resolution Panel 2, Mumbai

The HC found a gross violation of natural justice in the impugned assessment proceedings, noting the taxpayer's cooperation from issuance of notices and ... Validity of order passed u/s 148A (d) - challenge on the ground that there is gross violation of the principles of natural justice and failing to take note that the petitioner has approached the Dispute Resolution Panel, despite copy of the same being marked to the office of the first respondent as is required under Section 144 C of the Income Tax Act, 1961. HELD THAT:- As it is evident that there has been a gross violation of the principles of natural justice while passing the impugned Assessment Order. The petitioner has cooperated with the respondent right from the stage of issuance of the notices on 12.03.2024, which was followed by various notices including notice dated 19.03.2024 issued under Section 148A(b) to Order dated 28.03.2024 passed under Section 144A(d) and Draft Assessment Order dated 11.03.2025 under Section 144C(1) of the Act. In fact, the petitioner had also filed an objection under Section 144C(2) before the third respondent, Dispute Resolution Panel, Mumbai by marking a copy of the same through email to the office of the first respondent. However, the respective impugned orders have been passed and the relevant portion of the same as detailed above. Considering the same, the Impugned Assessment order passed by the First respondent under Section 147 read with Section 144C(3) and order passed by the third respondent, Dispute Resolution Panel, Mumbai on 25.06.2025 are quashed and the cases are remitted back to the respondents to pass fresh orders. ISSUES PRESENTED AND CONSIDERED 1. Whether completion of assessment under Section 147 read with Section 144C(3) of the Income Tax Act, 1961 was valid where the assessee had purportedly filed objections under Section 144C(2) before the Dispute Resolution Panel but there were contested facts as to timing and mode of filing, and whether principles of natural justice were observed. 2. Whether the Dispute Resolution Panel's finding under Section 144C(5) that objections were not received within the time and thereby directing completion of assessment under Section 144C(3)(b) was legally sustainable, in light of the electronic filing (e-mail) of Form 35A and a copy having been marked to the Assessing Officer. 3. Whether physical filing requirements (or practice) for objections under Section 144C(2) can be treated as jurisdictional/mandatory such that the failure to file a physical copy defeats the electronic filing and whether such failure amounted to an unintentional/misguided lapse excusing non-compliance. 4. Whether quashing the assessment order and remitting the matter for fresh consideration and disposal of objections by the DRP is warranted where procedural irregularities and breach of natural justice are shown. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of assessment completed under Section 147 read with Section 144C(3) where objections before DRP were contested Legal framework: Section 144C prescribes issuance of a draft assessment (144C(1)), filing of objections before the Dispute Resolution Panel within the stipulated period (144C(2)), and completion of assessment by the AO if objections are not filed or not received in time (144C(3)); Section 147 governs reassessment. Principles of natural justice obligate that an assessee be given a fair opportunity to submit objections and be heard before a prejudicial order is passed. Precedent Treatment: The judgment contains no discussion of judicial precedents; the Court relied on statutory text and facts to determine procedural fairness. Interpretation and reasoning: The Court examined the chronology: draft order dated 11.03.2025; an e-mailed filing of Form 35A forwarded by a third party on 04.04.2025 and marked to the Assessing Officer; an assessment completed on 19.05.2025 under Section 147 r.w.s. 144C(3). The Court found that despite attempts by the petitioner to participate and to mark the DRP filing to the AO, there was a material dispute whether the statutory procedure for objections under Section 144C(2) was respected and whether the AO and DRP thereby denied the assessee effective opportunity. The Court concluded that the impugned assessment manifested gross violation of principles of natural justice because the petitioner had cooperated and had attempted to file objections yet the assessment proceeded as if no objections had been received. Ratio vs. Obiter: Ratio - where there is a demonstrable procedural failure that results in denial of an opportunity to avail the statutory objection mechanism under Section 144C(2), completion of assessment under Section 144C(3) will be quashed and matter remitted for fresh consideration. Obiter - observations on the precise sufficiency of an e-mail forwarding by a third party as constituting valid filing. Conclusion: The assessment under Section 147 r.w.s. 144C(3) was quashed on grounds of violation of natural justice and inadequate consideration of the assessee's objection filing attempts; matter remitted for fresh orders after proper disposal of objections. Issue 2 - Validity of DRP's disposal under Section 144C(5) where dates and mode of filing were contested Legal framework: Section 144C(2) sets the time-limit and procedure for filing objections before the DRP; Section 144C(5) deals with action by the DRP when objections are not received as per Section 144C(2). Administrative practice may require both soft and physical copies but statutory compliance governs validity. Precedent Treatment: No precedent was cited or applied in the decision; the Court assessed the DRP order on its face against statutory requirements and documentary record. Interpretation and reasoning: The DRP's order recorded that the objection was filed on 17.04.2025 whereas the statutory timeline expired on 10.04.2025 (and contained internal inconsistencies). The DRP concluded there was an unintentional/misguided failure on the applicant's part and therefore directed completion of assessment. The Court noted contradiction in dates within the DRP order and the existence of an e-mail forwarding (04.04.2025) marking a copy to the AO. The Court held that the DRP's conclusion that the objection was not received as per Section 144C(2) did not withstand scrutiny in the face of the record showing attempts at electronic filing and marking to the AO, and that the DRP had not properly considered whether the communicated filing satisfied the statutory requirement. Ratio vs. Obiter: Ratio - the DRP must correctly ascertain and record the facts relating to receipt/timing/mode of objections under Section 144C(2) and cannot mechanically treat alleged non-receipt as entitlement to invoke Section 144C(3) when records show attempts to comply; failure to do so warrants judicial intervention. Obiter - characterization of the lapse as 'unintentional/misguided' without adequate factual basis. Conclusion: The DRP order under Section 144C(5) was quashed for failure to properly evaluate the contested filing history and for internal inconsistencies; DRP directed to first dispose of the objection within statutory time on remand. Issue 3 - Requirement of physical filing/practice versus electronic filing and consequences of non-compliance Legal framework: Statutory scheme requires that objections under Section 144C(2) be submitted within the prescribed time; administrative practices may require both soft and physical copies but statutory compliance is determinative of validity. Precedent Treatment: None discussed in the judgment. Interpretation and reasoning: Respondents relied on a practice that soft copy should be accompanied by a physical copy and contended that a physical copy was filed only on 17.04.2025, hence beyond limitation. The Court emphasized the actual documentary record showing an e-mail forwarded on 04.04.2025 marking a copy to the AO and observed inconsistencies in the DRP's timeline. Given the petitioner's cooperation and marking of the filing to the AO, the Court treated the procedural dispute as raising a triable question of compliance and fairness rather than an automatic jurisdictional bar; consequently, the DRP was directed to examine whether physical filing was a mandatory jurisdictional requirement in the circumstances and to accept the physical copy if not yet filed within thirty days of remand. Ratio vs. Obiter: Ratio - administrative practice cannot be used to defeat the statutory right to file objections; where electronic filing and marking to the Assessing Officer are shown, the authority must assess whether statutory requirements have been met before invoking Section 144C(3). Obiter - guidance that petitioner should supply physical copy within thirty days if not already filed. Conclusion: Physical filing practice will not automatically validate a conclusion of non-compliance; on remand the DRP shall first determine validity of the objection filing, and the petitioner is afforded an opportunity to file a physical copy within thirty days if absent. Issue 4 - Appropriateness of quashing assessment and remitting for fresh orders and availability of alternate remedies Legal framework: Judicial review is available to correct breaches of natural justice and procedural infirmities; statutory appellate remedies (e.g., appeal/representation before Commissioner/Tribunal) exist but do not preclude intervention where fundamental procedural rights are violated. Precedent Treatment: No case law was cited; the Court balanced judicial correction of procedural breach against existence of alternate remedies. Interpretation and reasoning: Although respondents pointed to alternate remedies before the Commissioner/Tribunal, the Court found a 'gross violation of the principles of natural justice' in the impugned assessment and DRP order. Given the demonstrated cooperation of the petitioner and disputed record regarding receipt of objections, the Court determined that quashing and remittal was the appropriate remedy to ensure the statutory objection mechanism is properly and fairly applied before any assessment is finalized. Ratio vs. Obiter: Ratio - where denial of opportunity to be heard under the statutory objection procedure is established, quashing the impugned orders and remitting for fresh consideration is appropriate notwithstanding existence of alternate remedies. Obiter - no costs were ordered; procedural directions on sequencing of DRP disposal followed by AO action. Conclusion: Both the assessment order under Section 147 r.w.s. 144C(3) and the DRP order under Section 144C(5) were quashed and remitted. The DRP must first dispose of the objection within statutory time; thereafter the Assessing Officer shall pass appropriate orders on merits. If a physical copy has not been filed, the petitioner shall file it within thirty days of receipt of the remand order.