2023 (1) TMI 375 - HC - Income Tax

Validity of Assessment order framed u/s 143(3) r.w.s. 144B - opportunity to respond to the show-cause notice was not made available to the assessee - Violation of principles of natural justice - HELD THAT - Section 144B(1)xvi (b) mandates to provide an opportunity to the assessee, in case any variation prejudicial to the interest of the assessee is proposed. It refers to serve a notice calling upon him to show-cause as to why the proposed variation should not be made. Section 144B (9) stipulates that an assessment made u/s. 143(3) or 144 shall be non est, if such assessment is not made in accordance with the procedure laid down under this section. Therefore, in our opinion, in the case on hand as the opportunity to respond to the show-cause notice was not made available to the assessee particularly, when the huge variation/ addition was proposed to be made which is prejudicial to the interest of the assessee, it violates the principles of natural justice. Resultantly, we allow the present petition and quash and set aside the order passed u/s. 143(3) r.w.s. 144B. The penalty proceedings and the demand notice are also quashed and set aside, however, we give liberty to the Assessing Officer to initiate the proceedings afresh from the stage of providing the opportunity to the petitioner of hearing if such request is made, and thereafter, to decide the matter.

Summary

Issues:
Seeking directions to quash and set aside the assessment order under the Income Tax Act for Assessment Year 2020-21.

Analysis:
The petitioner, a company providing education services, filed a return declaring a loss for A.Y. 2020-21. The assessment was scrutinized due to discrepancies in property valuation. Despite requesting an adjournment to respond to a show-cause notice proposing a significant addition, the petitioner's request was not granted, and the assessment order was passed without considering the response. The petitioner challenged this action, citing violations of natural justice principles.

During the hearing, the petitioner's advocate argued that Section 144B of the Act mandates considering the assessee's response before finalizing the assessment order. He highlighted the short notice given for response due to weekend days and the subsequent closure of the e-submission portal, preventing the petitioner from submitting a reply. The advocate emphasized the violation of natural justice principles and cited a relevant court decision in support.

On the other hand, the Standing Counsel for the respondent contended that due procedure was followed, and the assessee had opportunities to respond to previous notices. He disputed the claim of lack of consideration for the adjournment request and the closure of the e-submission portal, asserting that the assessment was conducted fairly and in compliance with the law.

After considering both parties' arguments, the Court noted the failure to grant the petitioner an opportunity to respond to the show-cause notice proposing a substantial addition, which was prejudicial to the assessee's interest. This lack of opportunity violated natural justice principles and rendered the assessment non est as per Section 144B(9). Consequently, the Court allowed the petition, quashing the assessment order, penalty proceedings, and demand notice. The Assessing Officer was granted the liberty to restart the proceedings from the stage of providing the petitioner with a hearing opportunity, emphasizing compliance with legal procedures.

In conclusion, the Court ruled in favor of the petitioner, emphasizing the importance of adhering to procedural fairness and providing adequate opportunities for the assessee to respond before finalizing assessment orders under the Income Tax Act.