2024 (5) TMI 862 - HC - Income Tax

Ex parte scrutiny assessment order u/s 143(3) r.w.s. 144B - specific request to grant opportunity of personal hearing - HELD THAT - As decided in Satish Kumar Bansal Huf 2024 (5) TMI 786 - ALLAHABAD HIGH COURT in absence of power to remit the matter to the assessing authority to make a fresh assessment, in the case of an ex parte order wrongly drawn on ex parte basis, the appeal power would remain seriously restricted. The appeal authority would be forced to entertain the appeal on all merit issues and exercise the powers of the AO. While it is not in doubt that the appeal authority has all powers of AO, at the same time, it is not the Scheme of the Act to require the job of the Assessing Authority to be routinely performed by the First Appeal Authority. If the opportunity of personal hearing is to be declined by the AO by way of a normal practice, we foresee such situations are bound to arise in the normal course of things. In any case, the assessee would have lost one opportunity and tier of appeal, for no fault on its part. Therefore, the word request used under Section 144B(6)(vii) and (viii) only imply, where an assessee may furnish his written reply to the show-cause notice but not opt to avail opportunity of personal hearing, it may not be mandatory for the Assessing Officer to grant such opportunity of personal hearing if he intends to accept the explanation furnished. He may pass appropriate ex parte order accepting the explanation furnished by the assessee. If however, on reading the explanation furnished, the Assessing Officer maintains his tentative opinion to pass the assessment order as proposed, that may be adverse to the assessee, he would necessarily fix a date for personal hearing and communicate the same to the assessee, through electronic mode (as provided under the Act). Thereafter, it would be for the assessee to avail that opportunity. If the assessee fails to avail that opportunity, the Assessing Officer may proceed in accordance with law.

Summary

Issues Involved:
The judgment involves the legality of an ex parte scrutiny assessment order passed by the National Faceless Assessment Centre (NAFAC) under section 143(3) read with Section 144B of the Income Tax Act for the Assessment Year 2022-23. The main issue is the denial of the opportunity of personal hearing to the petitioner.

Denial of Opportunity of Personal Hearing:
The court noted that the impugned assessment order was passed without considering the petitioner's request for a personal hearing, which was fallacious as the reply furnished was pending consideration. The court emphasized that Section 144B mandates the opportunity of hearing to be given to the petitioner upon a show-cause notice, and if the assessee requests a personal hearing, it must be provided. The court clarified that the grant of the opportunity of personal hearing is not optional but necessary under the Act.

Importance of Personal Hearing:
The court highlighted the importance of oral hearing in assessment proceedings, stating that it is essential for an effective discussion and a reasoned conclusion by the Assessing Officer. It was emphasized that assessment orders should be passed after giving the assessee an opportunity to present their case, and oral hearing remains a near-mandatory requirement to ensure a just and proper order.

Recording Reasons and Appeal Authority's Powers:
The judgment stressed the need for recorded reasons in assessment orders to allow the assessee to understand the basis for any tax adjustments. It also discussed the limitations on the first appeal authority's powers, noting that the authority can confirm, reduce, enhance, or annul an assessment order but cannot remit the matter for a fresh assessment. The court expressed concerns about restricted appeal powers in cases of ex parte orders and the potential impact on the appeal process.

Decision and Directions:
The court allowed the writ petition, setting aside the impugned assessment order. The petitioner was directed to treat the order as a final show-cause notice and submit a reply within a week. If the Assessing Officer intends to accept the explanation furnished by the petitioner, he may pass the order without a further hearing. However, if the explanation is to be rejected, a date for a hearing must be fixed with prior notice. The petitioner was required to appear before the Assessing Authority as prescribed, and the assessment proceedings were to continue in accordance with the law.