2018 (5) TMI 701 - HC - Income Tax

Revision u/s 263 - denial of principle of natural justice - appellant had not been served any notice prior to such order being made and that the appellant was not afforded any opportunity of hearing before the commissioner passed the relevant order - addressed to a defunct entity and not to successor-in-interest - Held that - It was imperative for the appellate tribunal to address the issue since a previous opportunity of hearing is necessary to be afforded to an assessee before an order under Section 263 can be made by a commissioner. On the limited aspect as to the violation of the principles of natural justice, the order impugned cannot be sustained in so far as it pertains to company Brolly Dealcom Pvt. Ltd. which has been taken over as a going concern by the appellant herein. Appellate tribunal has to satisfy itself as to whether the appellant herein as the successor-in-interest of Brolly Dealcom Pvt. Ltd. had notice of the hearing under Section 263 of the Act. If there is sufficient material that the original assessee and the present appellant carried on business at the same premises and notice was served at such premises, it will not do for the appellant to feign ignorance by merely stating that the notice was erroneously addressed to a defunct entity.

Issues: Jurisdiction of arbitral tribunal to uphold commissioner's order under Section 263 of Income Tax Act without addressing appellant's challenge due to lack of notice and hearing opportunity.

Analysis:
The High Court considered the primary issue of whether the arbitral tribunal could uphold the commissioner's order under Section 263 of the Income Tax Act without addressing the appellant's challenge regarding the lack of notice and opportunity of hearing. The Court acknowledged that technical points raised were not significant for consideration. It was established that the commissioner's order related to an assessment of a limited liability company for the year 2008-09, which was later dissolved, with its assets and liabilities taken over by the present appellant as a limited liability partnership. The Court emphasized that liabilities of the original entity transfer to the subsequent entity upon such a takeover, and authorities retain jurisdiction to reopen matters from previous assessment years. However, the crucial aspect was the appellant's right to a hearing, especially after informing authorities of the company's dissolution and takeover.

The Court noted that while a previous notice under Section 263 was not mandatory for the commissioner's jurisdiction, the provision necessitated affording the assessee an opportunity of hearing. The appellant, in this case, claimed lack of prior knowledge regarding the commissioner's actions, as evidenced by a letter to the commissioner. The Court highlighted the importance of ensuring the appellant was served notices and informed of hearing dates, particularly since the appellant succeeded the original assessee. The tribunal's failure to address this specific point raised by the appellant regarding the lack of opportunity before the commissioner's order was a critical flaw.

Consequently, the Court held that the order under challenge could not be sustained concerning the company taken over by the appellant, emphasizing the violation of natural justice principles. The Court directed the appellate tribunal to reevaluate the issue of whether the appellant, as the successor-in-interest, was aware of the hearing under Section 263. It stressed that if evidence showed the original assessee and the appellant operated from the same premises and notices were served there, the appellant could not claim ignorance merely by citing incorrect addressing to a defunct entity. The Court set aside the impugned order and instructed the appellate tribunal to issue a fresh reasoned order after considering the highlighted issue.

In conclusion, the Court disposed of the relevant appeals, emphasizing the critical importance of ensuring natural justice principles and the right to a fair hearing in matters concerning tax assessments and jurisdiction under the Income Tax Act.

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