2022 (1) TMI 29 - AT - Income Tax

Revision u/s 263 by CIT - assessee denied opportunity of hearing in the present case and that order was passed without considering the reply filed by the assessee - HELD THAT - Undoubtedly the present proceedings were initiated just 15 days before the expiry of limitation to pass the order u/s. 263 of the Act and the two notices given to the assessee for hearing afforded very short period of time to reply. That the first one given only two days time to reply and the second one four days time - despite the inadequate time given to the assessee to respond, we find that the assessee still managed to file a reply to the Ld. PCIT and even pointed out the reason for not complying with the first notice. But apparently for no reason, his reply was not even considered by the Ld. PCIT when the facts before us clearly demonstrate that they were filed on the ITBA Portal on the specified date and even the PCIT was intimated of the reply filed on the said date. The Revenue has not controverted these facts before us. So for some apparent reason, the PCIT simply chose to ignore the reply filed by the assessee and went ahead to pass the order u/s. 263 of the Act on the very same date, i.e. 23/03/2021. The impugned order, we hold, has not only has been passed in gross violation of the principles of natural justice but is also in violation of the procedure laid down u/s. 263 of the Act which specifically requires the authorities to pass the order u/s. 263 after affording due opportunity of hearing to the assessee and after making such enquiry as is deemed necessary. In the present case, the Ld. PCIT has neither afforded adequate opportunity of hearing to the assessee but by not taking note of the reply, he has not even made necessary enquiries in the present case before passing the impugned order. The order passed, therefore, is in gross violation of the principles of natural justice and in view of the various decisions cited by the ld. counsel for the assessee before us, the only recourse is to set aside the same. We have no hesitation, therefore, in holding that the impugned order passed in the present case is in gross violation of the principles of natural justice having been passed in haste without giving adequate opportunity of hearing to the assessee and without even dealing with and considering reply filed by the assessee and the order, therefore, needs to be set aside.

Summary

Issues Involved:
1. Jurisdiction under Section 263.
2. Violation of principles of natural justice.
3. Adequacy of opportunity for hearing.
4. Merits of the agricultural income assessment.

Issue-wise Detailed Analysis:

1. Jurisdiction under Section 263:
The assessee challenged the jurisdiction of the Principal Commissioner of Income Tax (PCIT) under Section 263 of the Income Tax Act, 1961. The PCIT had revised the order passed by the Assessing Officer (AO) under Section 143(3), considering it erroneous and prejudicial to the interest of the Revenue. The PCIT found the agricultural income declared by the assessee to be doubtful and directed the AO to conduct a deeper inquiry.

2. Violation of Principles of Natural Justice:
The assessee argued that the PCIT's order was in gross violation of the principles of natural justice. It was contended that the PCIT did not provide adequate opportunity for hearing and failed to consider the reply filed by the assessee. The assessee relied on various case laws, including 'Sona Builders vs. UOI (SC)' and 'Tulsi Tracom Private Limited vs. CIT (Del. High Court)', to support this contention.

3. Adequacy of Opportunity for Hearing:
The facts highlighted that the PCIT initiated proceedings just 15 days before the limitation period for passing the order was to expire. The first notice was issued on 16.03.2021, asking for a response by 19.03.2021, giving only two working days to respond. A second notice was issued on 19.03.2021, with a response deadline of 23.03.2021. Despite the short notice, the assessee managed to file a reply, explaining the delay due to unawareness and health issues. However, the PCIT ignored the reply and passed the order on the same date, 23.03.2021.

4. Merits of the Agricultural Income Assessment:
The assessee contended that the AO had conducted thorough inquiries during the assessment proceedings, and the PCIT failed to demonstrate which necessary inquiries were not conducted by the AO. The PCIT's order was challenged on the grounds that inadequate inquiry does not amount to a lack of inquiry and that the original assessment order was neither erroneous nor prejudicial to the interest of the Revenue.

Judgment:
The Tribunal held that the impugned order was passed in gross violation of the principles of natural justice. The PCIT did not provide adequate opportunity for hearing and ignored the reply filed by the assessee. The Tribunal emphasized that the order was passed in haste, without proper consideration of the assessee's response. The Tribunal referred to various judicial precedents, including the Hon'ble Supreme Court's decision in 'Sona Builders', which highlighted the importance of adequate time for response and proper service of notice.

The Tribunal concluded that the PCIT's order was in violation of the procedure laid down under Section 263, which requires due opportunity of hearing and necessary inquiries before passing an order. Consequently, the Tribunal set aside the PCIT's order. Since the order was set aside on procedural grounds, the Tribunal did not adjudicate the merits of the case, rendering them academic in nature.

Conclusion:
The appeal of the assessee was allowed, and the impugned order of the PCIT was set aside due to the violation of natural justice principles and inadequate opportunity for hearing. The Tribunal emphasized the necessity for proper procedural compliance and adequate opportunity for the assessee to respond in revisionary proceedings under Section 263.