2024 (8) TMI 884 - HC - Income Tax

Validity of assessment order passed u/s 144 r.w.s.144B - Petitioner being granted less than 24 Hours to respond the Show Cause Notice - breach of the principles of natural justice - HELD THAT - Standard Operating Procedure (SOP) for the Faceless Assessment provisions of Section 144B clearly provides a response time of seven days from the issuance of the Show Cause Notice to the assessee to submit his reply. In the present case, the Show Cause Notice was issued on 22 March, 2024. It is also clear that sufficient time was available to the Assessing Officer to pass an assessment order even if he was to grant seven days time to the Petitioner to file reply to the Show Cause Notice. AO granted only two days time at the first instance and thereafter extended the same by another two days, which apart from being not sufficient, was certainly, not in accordance with the time to respond the Show Cause Notice, as prescribed under the SOP (supra). AO appears to have arbitrarily exercised jurisdiction by granting an extension of only two days. In our opinion, such approach on the part of the Respondents was clearly in breach of the SOP, which has also resulted in breach of the principles of natural justice, which guaranteed to the Petitioner a fair and reasonable opportunity to respond to the Show Cause Notice under the procedure prescribed, in undertaking the assessment proceedings. This has surely caused a prejudice to the Petitioner. Assessment order quashed - Decided in favour of assessee.

Summary

Issues:
1. Validity of Assessment Order passed under Section 144 of the Income Tax Act, 1961.
2. Compliance with principles of natural justice in issuing Show Cause Notice and granting time for response.

Detailed Analysis:
Issue 1: The petitioner challenged the Assessment Order dated 27 March, 2024, passed by the Assessing Officer under Section 144 of the Income Tax Act, 1961. The primary contention was that the Assessment Order was passed without giving adequate time to respond to the Show Cause Notice, thereby violating the principles of natural justice. The petitioner argued that the hurried exercise of passing the Assessment Order was arbitrary and in breach of procedural standards set by the Standard Operating Procedure (SOP) for the Faceless Assessment provisions of Section 144B of the Act. The petitioner sought to quash the Assessment Order and remand the proceedings for a fresh assessment with proper opportunity to respond.

Issue 2: The petitioner contended that the Show Cause Notice issued on 22 March, 2024, required a response by 23 March, 2024, giving less than 24 hours for compliance. The petitioner objected to this short notice period, citing a violation of natural justice principles. The petitioner relied on a decision by the High Court of Karnataka, which held that allowing less than 24 hours to respond to a Show Cause Notice is a violation of natural justice. The Assessing Officer later extended the response time to 26 March, 2024, but the petitioner could not comply within the short extended period. The court found that the Assessing Officer's actions in granting insufficient time for response were arbitrary and in breach of the SOP guidelines, resulting in prejudice to the petitioner.

Judgment: After considering the arguments and perusing the record, the court found merit in the petitioner's contentions. The court observed that the Assessment Order was passed without adhering to the SOP guidelines, which mandated a response time of seven days from the issuance of the Show Cause Notice. The court held that the Assessing Officer's actions were in breach of natural justice principles and ordered the Assessment Order dated 27 March, 2024, to be quashed and set aside. The court remanded the proceedings for a fresh Assessment Order to be passed within specified timelines, ensuring the petitioner's right to a fair opportunity to respond. Additionally, the court quashed the consequential Computation Sheet and Notice of demand dated 27 March, 2024, while keeping all contentions of the parties on the assessment open for further consideration.