2025 (3) TMI 51 - HC - Income Tax

Validity of Final assessment order due to non-compliance with the principles of natural justice - failure to grant a personal hearing as required u/s 144B - HELD THAT - We are unable to agree with the submissions advanced by Respondents one on the ground of availability of alternate statutory remedy to the petitioner which ought to have been exhausted before approaching this Court in writ jurisdiction. Such submission in the given facts would fall foul of the statutory mandate u/s 144B of the IT Act which embraces the right to be heard failing which the order would be without jurisdiction and non est. In the given facts and circumstance it would be unfair and unjust to the petitioner to be left entangled in litigation before the appellate authority and thereafter in further appeals which are available as the foundational illegality in a situation like the present would have to be nipped in the bud. In such situation the appellate remedy may not be effective or efficacious considering the patent illegality in the impugned final assessment order. We express our inability to agree with the submission of Respondents to the effect that the petitioner in this case did not comply with the timelines clearly set out in draft assessment order to submit its response on the e-filing portal on or before 18 00 hours of 26 August 2022. Petitioner did submit such response with a categorical reques to be heard through video conferencing. Thus according to Respondents when such specific timelines are not adhered to by the petitioner the consequences ought to follow. The sequel to such submissions would mean shutting the doors of this Court to the petitioner merely because of a delay of merely one day in submitting its response as provided in the show cause notice-cum-draft assessment order. Also accepting such submissions would tantamount to bypassing the clear statutory mandate u/s 143 (3) read with 144B of the IT Act as interpreted by the decisions cited above. We therefore cannot accept justice becoming a casualty to technicalities by adopting a hyper-technical approach. 38. We may now refer to Section 156 of the IT Act which provides for the demand notice to be issued in case of any failure to pay tax by the assessee. In the present case it is pertinent to note that such demand notice is issued pursuant to the impugned final assessment order of the said date. Therefore when such demand notice is premised upon the impugned assessment order which itself is without jurisdiction and non est as observed any actions including issuance of consequential notices would not stand legal scrutiny. Penalty notices u/s 274 270A r/w Section 271AA (1) - We note that notice/order under a statutory provision which would entail civil consequences causing prejudice to the person ought to be passed in strict adherence to the principles of natural justice to include opportunity of being heard. As decided in UMC Technologies Private Limited v. Food Corporation of India and Another 2020 (11) TMI 966 - SUPREME COURT to state that it is the first principle of civilized jurisprudence that a person against whom any action is sought to be taken or interest are being affected should be given a reasonable opportunity to defend himself to include the right to be heard before an order entailing such consequence is passed. Thus we are unable to accept the submission of Respondents on the penalty notices issued by the respondents - WP allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal question considered by the Court was whether the final assessment order dated 9 September 2022 was rendered a nullity due to non-compliance with the principles of natural justice, specifically the failure to grant a personal hearing as required under Section 144B of the Income Tax Act, 1961 (IT Act). Consequently, the Court also considered whether the subsequent demand notice and penalty proceedings based on this assessment order were legally valid.

2. ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents:

The legal framework primarily involved Sections 143(3) and 144B of the IT Act. Section 143(3) mandates that an assessment order should be made after hearing the evidence the assessee may produce. Section 144B, introduced to facilitate faceless assessment, requires adherence to principles of natural justice, including the opportunity for a personal hearing through video conferencing. The Court also referenced the principles of natural justice ingrained in Article 14 of the Constitution of India, which mandates audi alteram partem (the right to be heard).

Court's Interpretation and Reasoning:

The Court interpreted Section 144B as mandating a personal hearing if requested by the assessee. The Court emphasized that the statutory provisions are clear in requiring adherence to the principles of natural justice. The Court noted that the faceless assessment scheme aims to increase transparency and accountability, not to bypass fundamental rights.

Key Evidence and Findings:

The petitioner was issued a show cause notice-cum-draft assessment order on 18 August 2022, which allowed for a response by 26 August 2022, including a request for a personal hearing. The petitioner submitted a request for a personal hearing on 27 August 2022. However, the final assessment order was passed on 9 September 2022 without granting this hearing.

Application of Law to Facts:

The Court found that the respondents failed to comply with the statutory mandate under Section 144B by not granting a personal hearing despite the petitioner's request. This failure constituted a breach of natural justice principles, rendering the assessment order and subsequent notices legally unsustainable.

Treatment of Competing Arguments:

The respondents argued that the petitioner failed to comply with the timeline for requesting a hearing, which justified proceeding without it. The Court rejected this argument, stating that a one-day delay should not override the statutory right to a hearing. The Court emphasized that justice should not be sacrificed for technicalities.

Conclusions:

The Court concluded that the impugned assessment order was passed in violation of statutory provisions and principles of natural justice. Consequently, the demand notice and penalty proceedings based on this order were also invalid.

3. SIGNIFICANT HOLDINGS

The Court held that the assessment order dated 9 September 2022 was a nullity due to non-compliance with Section 144B of the IT Act, which requires a personal hearing upon request. The Court reiterated that the principles of natural justice are integral to the statutory framework and cannot be bypassed.

Preserve Verbatim Quotes of Crucial Legal Reasoning:

"It is well settled that an order passed in breach of the principles of natural justice would be required to be held to be vitiated, non-est and a nullity."

Core Principles Established:

The Court established that compliance with the principles of natural justice, specifically the right to a personal hearing, is mandatory under Section 144B of the IT Act. Any assessment order passed without adhering to these principles is without jurisdiction and void.

Final Determinations on Each Issue:

The Court quashed the impugned assessment order, demand notice, and penalty proceedings, declaring them null and void due to the violation of statutory provisions and principles of natural justice. The Court made the rule absolute in terms of the petitioner's prayers, with no order as to costs.