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2025 (4) TMI 1569 - HC - Income TaxValidity of Reopening of assessment u/s 147 - Reasons to believe - whether notice under Section 148 of the Income Tax Act 1961 requires reasons in support of notice or not? - whether official respondent while issuing notice u/s 148 require to furnish reasons or not? HELD THAT - The general principle insofar as providing opportunity or reasons in support of any adverse order or civil consequence in such circumstance invariably reasons must be supported. In the present case by virtue of notice u/s 148 petitioners are required to submit their explanation or whatever the materials. In this regard unless and until petitioners are made known that they have to answer to the notice and it is not supported by reasons otherwise they are not in a position to submit effective reply / explanation with the material information. On this score the petitioners have made out a case. Reassessment notices set aside. Assessee appeal allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Requirement of recording reasons in support of notice under Section 148 of the Income Tax Act, 1961 Relevant legal framework and precedents: Section 148 empowers the assessing officer to issue a notice if there is reason to believe that income chargeable to tax has escaped assessment. The unamended Section 148, applicable in these cases, does not explicitly mandate recording reasons with the notice. The Supreme Court decision in GKN Driveshafts (India) Ltd. vs. ITO (2003) held that reasons need not accompany the notice under Section 148. However, subsequent jurisprudence, including the Supreme Court's decisions in Union of India v. Ashish Agarwal (2022, 2023) and the Bombay High Court in Nusli N. Wadia (2022), emphasize the necessity of providing reasons to the assessee to enable effective response and fair opportunity. Court's interpretation and reasoning: The Court recognized that the authorities issuing the notices under Section 148 are exercising quasi-judicial functions. Quasi-judicial actions must be supported by cogent, clear, and succinct reasons to satisfy the principles of natural justice and Article 14 of the Constitution. The Court extensively relied on the Supreme Court's ruling in Oryx Fisheries Private Limited vs. Union of India (2010), which mandates that reasons must be recorded to avoid arbitrariness and ensure transparency and accountability. The Court also referred to the Constitution Bench decision in Managing Director, ECIL, Hyderabad vs. B. Karunakar (1993), which held that even where statutory provisions do not explicitly require it, fairness demands that reasons be provided to affected parties. Key evidence and findings: The impugned notices under Section 148 were bald and vague, lacking any reasons or material on which the assessing officer based the belief of escaped income. The petitioners were thus deprived of the opportunity to submit effective explanations or rebuttals. The NFAC's rejection of objections through non-speaking, cryptic orders further compounded the procedural unfairness. Application of law to facts: Applying the principles of natural justice and the established precedents, the Court found the issuance of notices without reasons to be illegal and violative of Article 14. The absence of reasons rendered the petitioners unable to effectively contest the reassessment proceedings. Treatment of competing arguments: The respondents contended that the unamended Section 148 did not require reasons to be recorded and relied on GKN Driveshafts to support that contention. The Court distinguished the present facts from GKN Driveshafts, noting that the latter did not hold that reasons are never required, but rather that reasons need not be included with the notice if they exist elsewhere. The Court also emphasized the evolution of jurisprudence and the overriding need to ensure fairness and transparency in quasi-judicial proceedings. Conclusion: The Court held that reasons supporting the issuance of notice under Section 148 are mandatory. Absence of such reasons vitiates the notice and impairs the assessee's right to fair hearing. Accordingly, the impugned notices under Section 148 without reasons were set aside. Issue 2: Validity of preliminary orders and rejection of objections by National Faceless Assessment Centre (NFAC) through non-speaking orders Relevant legal framework and precedents: The NFAC acts as a quasi-judicial authority in income tax reassessment proceedings. The Supreme Court in GKN Driveshafts and subsequent rulings have underscored the requirement of reasoned orders to ensure transparency and accountability. The principles of natural justice require that objections raised by an assessee be considered through speaking orders. Court's interpretation and reasoning: The Court found the NFAC's orders rejecting the petitioners' objections on jurisdiction to be cryptic, non-speaking, and perfunctory, amounting to a mere formal compliance with procedural requirements. Such orders do not meet the standards of reasoned decision-making mandated by law and judicial precedent. Key evidence and findings: The impugned orders were mere formal rejections without elucidation of reasons or consideration of the petitioners' submissions. This procedural lacuna denied the petitioners a meaningful opportunity to contest the assumption of jurisdiction. Application of law to facts: The Court applied the principles articulated in Oryx Fisheries and other precedents to hold that the NFAC must issue reasoned orders when rejecting objections to jurisdiction or other procedural pleas. Treatment of competing arguments: The respondents did not specifically justify the non-speaking nature of the orders. The Court found no justification for such perfunctory treatment. Conclusion: The non-speaking, cryptic orders by NFAC rejecting objections were quashed as illegal and violative of natural justice. Issue 3: Validity of notices under Sections 142(1) and 143(2) of the Income Tax Act assuming jurisdiction for reassessment Relevant legal framework and precedents: Sections 142(1) and 143(2) empower the assessing officer to call for information and assess or reassess income. However, such notices must be issued within the limitation period and after proper jurisdictional satisfaction. Court's interpretation and reasoning: The Court observed that the notices under Sections 142(1) and 143(2) were issued in continuation of the invalid Section 148 notices lacking reasons. Further, some notices were issued beyond the limitation period prescribed under Section 149. Key evidence and findings: The notices requisitioned information already sought during original assessments and were issued without jurisdictional satisfaction or reasons. Application of law to facts: The Court held that such notices issued without valid Section 148 notices and beyond limitation were illegal and liable to be quashed. Treatment of competing arguments: Respondents argued the validity of such notices based on statutory provisions and audit objections. The Court rejected these arguments due to procedural infirmities and absence of reasons. Conclusion: The impugned notices under Sections 142(1) and 143(2) were quashed for lack of jurisdiction and violation of limitation. Issue 4: Requirement of reasons and fair opportunity under Article 14 and principles of natural justice in quasi-judicial proceedings Relevant legal framework and precedents: The Court extensively relied on the Supreme Court's decisions in Oryx Fisheries (2010), Managing Director, ECIL (1993), and Union of India v. Ashish Agarwal (2022, 2023), which emphasize that quasi-judicial authorities must provide reasoned decisions to ensure fairness, transparency, and accountability. The doctrine of reasoned decisions is a component of due process and human rights under Article 14. Court's interpretation and reasoning: The Court underscored that recording reasons is indispensable for judicial accountability and to prevent arbitrariness. It cited the principle that justice must not only be done but must also manifestly appear to be done. The Court held that failure to provide reasons deprives the affected party of effective opportunity to respond, violating natural justice and constitutional guarantees. Key evidence and findings: The impugned notices and orders were devoid of reasons, cryptic, and non-speaking, thereby failing the test of fairness. Application of law to facts: The Court applied these principles to hold that the impugned actions were illegal and violative of Article 14. Treatment of competing arguments: The respondents' reliance on absence of statutory requirement for reasons was rejected in light of overriding constitutional mandates and judicial precedents. Conclusion: Quasi-judicial authorities must provide reasoned decisions to comply with Article 14 and principles of natural justice; failure to do so renders the action illegal. Issue 5: Limitation period for issuance of notice under Section 148 and its impact on reassessment proceedings Relevant legal framework and precedents: Section 149 prescribes the limitation period for issuance of notice under Section 148. Notices issued beyond this period are barred unless specific exceptions apply. Court's interpretation and reasoning: The Court noted that in some petitions, notices under Section 148 were issued beyond the prescribed limitation period without recording any failure on the part of the assessee or other valid grounds. Key evidence and findings: The notices dated 27.03.2021 and 31.03.2021 for assessment years 2014-15 were found to be barred by limitation. Application of law to facts: The Court held such notices to be illegal and without jurisdiction. Treatment of competing arguments: Respondents did not establish any exception to limitation; thus, the Court found no merit in their arguments. Conclusion: Notices issued beyond limitation period without valid grounds are invalid and liable to be quashed. 3. SIGNIFICANT HOLDINGS "Whatever notice issued by the official respondent, it must be supported by reasons otherwise aggrieved person has no opportunity of filing his detailed explanation to such notice." "The respondents-Income Tax Department are exercising quasi-judicial functions, therefore, they are liable to follow the aforementioned principle laid down by the Hon'ble Supreme Court... recording of reasons is meant to serve the wider principle of justice that justice must not only be done it must also appear to be done as well." "In the present case not even iota of material like reasons supporting the notice. Nusli N. Wadia case... is crystal clear that notice must be supported by reasons." "The general principle insofar as providing opportunity or reasons in support of any adverse order or civil consequence, in such circumstance invariably reasons must be supported." "By virtue of notice under Section 148, petitioners are required to submit their explanation or whatever the materials. In this regard, unless and until petitioners are made known that they have to answer to the notice and it is not supported by reasons, otherwise they are not in a position to submit effective reply / explanation with the material information." "Impugned Notices dated 31.03.2021 and 23.11.2021... stand set aside. Writ petitions stand allowed. Reserving liberty to the respondents to issue fresh notice supported by reasons, such exercise shall be undertaken within a period eight weeks from today." Core principles established include:
Final determinations on each issue resulted in setting aside the impugned notices and orders for lack of reasons, violation of natural justice, and limitation bar, with liberty granted to respondents to issue fresh notices supported by reasons within a stipulated time frame.
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