2025 (2) TMI 307 - HC - Income Tax

Validity of reassessment proceedings - reply filed by the petitioner is not considered while passing the impugned order holding that it is a fit case to reopen the assessment - denial of the adjournment requested by the petitioner HELD THAT - It is clear that the AO which could not have rejected the adjournment sought for by the petitioner as provided in the said provision and could have granted the time to the petitioner as the last date for issuance of notice u/s 148 was on 31.3.2022. Petitioner had already filed the detailed reply on 22nd March 2022 could also have been considered by the respondent while passing the impugned order holding that it is a fit case to reopen the assessment without considering the reply filed by the petitioner containing more than 500 pages. The impugned order passed u/s 148A (d) of the Act dated 30th March 2022 and the notice issued u/s 148 of the Act dated 31st March 2022 are hereby quashed and set aside. The matter is remanded back to the AO to furnish the information in his possession which is the basis for issuance of the notice under Section 148A (b) of the Act so as to enable the petitioner to file further reply if required in addition to the reply filed on 22nd March 2022. After considering the reply dated 22nd March 2022 and further reply which may be filed by the petitioner on receipt of the information from AO the fresh denovo order u/s 148A (d) of the Act shall be passed in accordance with law.

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are:

Whether the Assessing Officer (AO) violated principles of natural justice by not considering the petitioner's reply filed on 22nd March 2022 before passing the order under Section 148A (d) of the Income Tax Act, 1961.
Whether the AO was required to provide the information and documents requested by the petitioner to enable an effective reply to the notice under Section 148A (b) of the Act.
Whether the denial of the adjournment requested by the petitioner was justified under the circumstances.

ISSUE-WISE DETAILED ANALYSIS

1. Violation of Principles of Natural Justice

Relevant Legal Framework and Precedents: The legal framework involves Section 148A of the Income Tax Act, 1961, which mandates providing an opportunity to the assessee to be heard. The petitioner relied on precedents from the Gujarat High Court and Bombay High Court, emphasizing the necessity of considering replies before making decisions.
Court's Interpretation and Reasoning: The Court observed that the AO failed to consider the petitioner's detailed reply filed on 22nd March 2022, which constituted a breach of the principles of natural justice. The AO's action of ignoring the reply was deemed unjustified.
Key Evidence and Findings: The petitioner had filed a comprehensive reply of 500 pages, which was not considered by the AO. The AO proceeded with the order based on the absence of a reply within the stipulated time, disregarding the subsequent submission.
Application of Law to Facts: The Court applied the principles of natural justice, emphasizing the necessity for the AO to consider all submissions before making a decision. The failure to consider the reply was a procedural lapse.
Treatment of Competing Arguments: The respondent argued that the petitioner failed to file a reply within the stipulated time and sought adjournment without sufficient cause. The Court found this argument insufficient to justify the non-consideration of the subsequent reply.
Conclusions: The Court concluded that the AO's failure to consider the petitioner's reply constituted a violation of natural justice, necessitating the quashing of the impugned order.

2. Requirement to Provide Information and Documents

Relevant Legal Framework and Precedents: Section 148A (b) of the Act requires the AO to provide an opportunity to the assessee to respond to the information suggesting income has escaped assessment.
Court's Interpretation and Reasoning: The Court interpreted that the AO should have provided the information and documents requested by the petitioner to enable an effective reply.
Key Evidence and Findings: The petitioner requested specific documents and information, which were not provided by the AO, impacting the petitioner's ability to respond effectively.
Application of Law to Facts: The Court applied the requirement of providing necessary information to the assessee, finding that the AO's failure to do so was a procedural deficiency.
Treatment of Competing Arguments: The respondent contended that the petitioner's request for information was a tactic to delay proceedings. The Court found that providing the requested information was essential for a fair opportunity to respond.
Conclusions: The Court concluded that the AO should have furnished the requested information to the petitioner, and the failure to do so warranted setting aside the order.

3. Justification for Denial of Adjournment

Relevant Legal Framework and Precedents: Section 148A (b) provides the AO with discretion to extend the time for filing a reply based on an application by the assessee.
Court's Interpretation and Reasoning: The Court found that the AO should have considered the petitioner's request for adjournment, especially since the final notice under Section 148 could be issued until 31st March 2022.
Key Evidence and Findings: The petitioner requested an adjournment on 15th March 2022, which was not responded to by the AO, leading to the non-consideration of the reply filed on 22nd March 2022.
Application of Law to Facts: The Court applied the provision allowing for time extension and found that the AO's refusal to grant adjournment was unjustified.
Treatment of Competing Arguments: The respondent argued that the adjournment request was a delay tactic. The Court disagreed, noting the procedural fairness required in considering such requests.
Conclusions: The Court concluded that the denial of adjournment was unjustified, contributing to the procedural unfairness in the AO's decision-making process.

SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: The Court emphasized the necessity to "provide an opportunity of being heard" as per Section 148A (b) and highlighted the breach of natural justice due to the non-consideration of the petitioner's reply.
Core Principles Established: The decision reinforced the principles of natural justice, requiring authorities to consider all submissions and provide requested information before making decisions impacting the assessee.
Final Determinations on Each Issue: The Court quashed the impugned order and notice, remanding the matter back to the AO for reconsideration after providing the necessary information to the petitioner and considering the reply filed on 22nd March 2022.

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