2025 (4) TMI 1301 - HC - Income Tax

Assessment order passed in violation of the principles of natural justice - not granting the Petitioner an opportunity of personal hearing - Violation of the provisions of Section 143 (3) r/w. 144B - HELD THAT - As this was indeed a clear case of violation of principles of natural justice we set aside the impugned assessment Order and remand the matter to the assessing officer with a direction to carry out the assessment afresh after giving an opportunity of hearing to the Petitioner and also providing a draft assessment Order. This exercise must be completed within three months from the date of uploading of this order.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the impugned assessment order dated 09.08.2022 was passed in violation of the principles of natural justice by not granting the Petitioner an opportunity of personal hearing as mandated under Section 143(3) read with Section 144B of the Income Tax Act, 1961.

- Whether the failure to provide the requested video conferencing hearing constituted a bona fide error and the appropriate remedy for such an error.

- Whether the assessment order should be set aside and the matter remanded for fresh assessment after providing the Petitioner an opportunity of hearing and issuance of a draft assessment order.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Violation of Principles of Natural Justice in Not Granting Personal Hearing

Relevant Legal Framework and Precedents: The provisions of Section 143(3) read with Section 144B of the Income Tax Act, 1961, require that before passing an assessment order, the Assessing Officer must provide the assessee an opportunity of personal hearing. The principles of natural justice mandate that no order should be passed without affording the affected party a reasonable opportunity to be heard.

Court's Interpretation and Reasoning: The Court observed that the Petitioner had specifically requested a personal hearing through video conferencing to discuss and explain technical issues. Despite this request, the opportunity was not granted, which amounted to a breach of natural justice. The Court noted that the failure to provide the hearing was a clear violation of the statutory mandate under the Income Tax Act.

Key Evidence and Findings: The affidavit filed by the Assistant Commissioner of Income Tax admitted the issuance of multiple notices under Sections 142(1) and 143(2), and the Petitioner's responses thereto. The affidavit also acknowledged the Petitioner's request for video conferencing hearing and the failure to grant the same due to a bona fide error.

Application of Law to Facts: The statutory requirement to provide an opportunity of hearing was not fulfilled. The Petitioner's right to be heard was infringed, rendering the assessment order liable to be set aside.

Treatment of Competing Arguments: The Respondent did not dispute the failure but characterized it as a bona fide error. The Court accepted this characterization but emphasized that even bona fide errors affecting natural justice require corrective measures.

Conclusion: The assessment order was passed in breach of principles of natural justice and is liable to be set aside.

Issue 2: Bona Fide Error and Appropriate Remedy

Relevant Legal Framework and Precedents: It is well established that proceedings under the Income Tax Act are non-adversarial and that bona fide errors, when discovered, must be rectified to protect the interests of both the revenue and the assessee. The principle of fairness requires that errors affecting the hearing opportunity be remedied by fresh proceedings.

Court's Interpretation and Reasoning: The Respondent's affidavit candidly admitted the error was bona fide and not intentional. The Court recognized this admission and held that the appropriate course was to set aside the impugned assessment order and remand the matter for fresh assessment after providing the Petitioner an opportunity of hearing and issuance of a draft assessment order.

Key Evidence and Findings: The affidavit's paragraphs 6 to 11 detailed the sequence of notices, responses, and the failure to grant the requested hearing opportunity. The Respondent prayed for setting aside and remanding the matter for fresh assessment.

Application of Law to Facts: Given the bona fide nature of the error and the statutory framework, the Court found it just and proper to remit the matter for fresh adjudication with due compliance of procedural safeguards.

Treatment of Competing Arguments: The Respondent's acceptance of error and request for remand was unopposed by the Petitioner, who sought only the opportunity of hearing. The Court balanced the interests of both parties in ordering a fresh assessment.

Conclusion: The assessment order is set aside and the matter remanded to the Assessing Officer for fresh assessment after providing the Petitioner an opportunity of hearing and issuance of draft assessment order.

Issue 3: Directions Regarding Remand and Limitation

Relevant Legal Framework: The Court has inherent power to set aside orders passed in violation of natural justice and to direct fresh proceedings. The limitation period under the Income Tax Act is subject to extension or waiver in appropriate cases where fresh proceedings are directed.

Court's Interpretation and Reasoning: The Court directed that the fresh assessment be completed within three months from the date of uploading the order. The Petitioner agreed that no limitation objection would be raised if the assessment is completed within this timeframe.

Key Evidence and Findings: The Court noted the parties' consent on the limitation issue and the Respondent's undertaking to provide a draft assessment order and hearing opportunity.

Application of Law to Facts: The directions ensure expeditious disposal of the matter while safeguarding procedural fairness.

Treatment of Competing Arguments: No competing arguments were raised regarding the limitation or remand directions.

Conclusion: The matter is remanded with clear directions to complete fresh assessment within three months, with no limitation objection from the Petitioner.

3. SIGNIFICANT HOLDINGS

"Considering the fair approach reflected in the above Affidavit filed by Mr. Shashikant Singh and on being satisfied that this was indeed a clear case of violation of principles of natural justice, we set aside the impugned assessment Order dated 09.08.2022 and remand the matter to the assessing officer with a direction to carry out the assessment afresh after giving an opportunity of hearing to the Petitioner and also providing a draft assessment Order."

"This exercise must be completed within three months from the date of uploading of this order. Learned Counsel for the Petitioner agrees that no limitation issue would be raised provided the assessment is completed within three months of the uploading of this order."

Core principles established include the mandatory requirement of affording an opportunity of hearing under Sections 143(3) and 144B of the Income Tax Act, the non-adversarial nature of tax proceedings, and the duty of the tax authorities to rectify bona fide errors affecting natural justice by remanding for fresh assessment.

The final determination was that the impugned assessment order was set aside and the matter remanded for fresh assessment with directions to provide the Petitioner a