Income tax assessment u/s143(3) r/w s.144B challenged for ignoring taxpayer's reply; order quashed as arbitrary.

The dominant issue was whether an assessment order under s.143(3) r/w s.144B of the IT Act was vitiated for non-application of mind to the assessee's reply and supporting material. The HC held that the assessing authority failed to consider the reply explaining the assessee's income, rendering the order arbitrary and unsustainable in law. Consequently, the impugned assessment order was quashed and set aside.

---

---

ISSUES PRESENTED AND CONSIDERED

1. Whether the assessment order was vitiated for breach of the principles of natural justice because the authority did not consider the assessee's reply submitted in response to the show cause notice before finalising the assessment and raising a consequential demand.

2. Whether the admitted non-availability/non-consideration of the assessee's reply due to asserted technical glitches could sustain the assessment order, or whether the proper course was to set aside the order and remand for a fresh decision after hearing.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Non-consideration of reply and violation of natural justice

Legal framework (as discussed by the Court): The Court treated compliance with the principles of natural justice-particularly the requirement of a reasonable opportunity of hearing before passing an adverse order-as governing the validity of the impugned assessment order.

Interpretation and reasoning: The Court proceeded on the undisputed factual position that a detailed reply dated 25.03.2024 to the show cause notice had been submitted, but the assessment order dated 26.03.2024 did not take that reply into account. The Court treated this non-consideration of the reply as a material lapse affecting the decision-making process, since the reply was meant to address the proposed adverse addition and explain the relevant transactions.

Conclusion: The Court held that, in view of the admitted non-consideration of the reply, the assessment order could not stand and was liable to be quashed and set aside for violation of the principles of natural justice.

Issue 2: Effect of asserted technical glitches on validity of the assessment order; appropriate relief

Legal framework (as discussed by the Court): The Court assessed the consequence of the authority's admitted inability to access the reply, in light of the obligation to pass an order consistent with natural justice and after hearing the assessee.

Interpretation and reasoning: The authority's explanation was that technical glitches between the internal system and the e-filing portal prevented the reply from being visible and therefore from being considered. The Court did not treat this explanation as curing the defect, because the operative fact remained that the reply was not considered while determining the assessment and raising the demand. Since the defect went to the fairness of the decision-making process, the Court considered remand appropriate so that the authority could decide afresh on a complete record after hearing.

Conclusion: The Court set aside the assessment order and remanded the matter to the authority to pass a fresh order after considering the reply, complying with the principles of natural justice, and hearing the assessee. The fresh order was directed to be passed within 12 weeks from receipt of the Court's order.

---