2024 (12) TMI 1486 - HC - Income Tax

Shorter period to respond to notices issued u/s 142(1) - HELD THAT - This Court finds that a notice u/s 143(2) of the Act was issued to the petitioner on 31.03.2021 and another notice u/s 142 (1) dated 16.09.2021 along with a questionnaire. He has filed his reply to the same, whereafter subsequently another notice was issued to him on 24.09.2021 under section 142 (1) of the Act whereby he was asked to provide copy of declaration under FEMA/AMLA, contract/agreement for procurement of goods/services along with invoices/bills, evidence to show that TDS has been deducted, ledger account of trade payables, details of imports in prescribed format, copy of certificate of chartered engineer for recognizing income and expenditure for each of the project as on 31.03.2019. The notice was issued on 24.09.2021 with direction to provide the aforesaid information on or before 26.09.2021 at 3 00 PM. Thus, we find that the time provided was too short. While initially the petitioner was asked to provide certain details along with questionnaire, the notices which have been issued on 24.09.2021 and 27.09.2021 deal with a different information altogether, and the time provided under these notices was not even of seven days, which is the minimum required time for furnishing of information. Decision taken without giving opportunity of filing reply and details would therefore stand vitiated in law. The draft assessment order passed on the said basis as above, was also objected to as per section 144C (2) of the Act before the DRP, but the DRP has not decided the same. The Assessing Officer has also not delved with the objections. In view thereto, the final assessment order dated 30.11.2021 would not be sustainable in law

1. ISSUES PRESENTED and CONSIDERED

The legal judgment revolves around the following core issues:

Whether the petitioner was given sufficient time to respond to notices issued under Section 142(1) of the Income Tax Act, 1961.
Whether the Assessing Officer was justified in passing the final assessment order without waiting for the Dispute Resolution Panel (DRP) to decide on the petitioner's objections under Section 144C(2) of the Act.
Whether the procedural requirements for providing the petitioner an opportunity to be heard were adhered to, in compliance with the provisions of the Income Tax Act and relevant rules.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Sufficiency of Time to Respond to Notices

Relevant Legal Framework and Precedents: Section 142(1) of the Income Tax Act mandates the issuance of a notice requiring the taxpayer to furnish information or documents necessary for assessment. The legal framework requires a reasonable time to be provided for compliance.
Court's Interpretation and Reasoning: The court found that the time provided to the petitioner in the notices dated 24.09.2021 and 27.09.2021 was insufficient, as it did not meet the minimum required time of seven days for furnishing information.
Key Evidence and Findings: Notices were issued on 24.09.2021 and 27.09.2021 with deadlines that did not allow adequate time for the petitioner to gather and submit the required documents, particularly when accounting for non-working days.
Application of Law to Facts: The court applied the requirement of reasonable time under the Act, finding that the short notice period effectively deprived the petitioner of a fair opportunity to comply.
Treatment of Competing Arguments: The Revenue argued that sufficient time was given, citing earlier notices. However, the court noted that the later notices required different information and thus necessitated a fresh time period for compliance.
Conclusions: The court concluded that the insufficient time provided for compliance with the notices rendered the subsequent assessment proceedings procedurally flawed.

Issue 2: Passing of Final Assessment Order Without DRP Decision

Relevant Legal Framework and Precedents: Section 144C of the Income Tax Act outlines the procedure for filing objections against a draft assessment order and mandates that the DRP consider these objections before a final order is passed.
Court's Interpretation and Reasoning: The court emphasized the necessity of waiting for the DRP's decision on objections before finalizing the assessment, as part of ensuring a fair hearing process.
Key Evidence and Findings: The petitioner had submitted objections to the draft assessment order, but the final order was passed without the DRP's decision, violating procedural safeguards.
Application of Law to Facts: The court found that the Assessing Officer acted prematurely, as the DRP had not yet addressed the objections, thus invalidating the final assessment order.
Treatment of Competing Arguments: The Revenue contended that the petitioner could appeal the final order, but the court held that the procedural lapse warranted setting aside the order.
Conclusions: The court concluded that the final assessment order was unsustainable in law due to the failure to await the DRP's decision.

Issue 3: Compliance with Procedural Requirements for Hearing

Relevant Legal Framework and Precedents: The principles of natural justice and procedural fairness require that taxpayers be given a fair opportunity to be heard before adverse decisions are made.
Court's Interpretation and Reasoning: The court found that the lack of adequate time and the bypassing of the DRP process amounted to a denial of the petitioner's right to a fair hearing.
Key Evidence and Findings: The procedural lapses identified included insufficient time for response and the premature finalization of the assessment order.
Application of Law to Facts: The court applied principles of natural justice to determine that the petitioner was denied a fair opportunity to present his case.
Treatment of Competing Arguments: The Revenue's arguments regarding procedural compliance were rejected in light of the identified lapses.
Conclusions: The court concluded that the procedural deficiencies vitiated the assessment process.

3. SIGNIFICANT HOLDINGS

Preserve Verbatim Quotes of Crucial Legal Reasoning: "Decision taken without giving opportunity of filing reply and details would therefore stand vitiated in law."
Core Principles Established: The judgment reinforces the requirement of providing sufficient time for compliance with notices and adherence to procedural safeguards, such as awaiting DRP decisions, to ensure a fair hearing process.
Final Determinations on Each Issue: The final assessment order dated 30.11.2021 was set aside, and the authorities were directed to consider the petitioner's objections and proceed afresh in compliance with procedural requirements.

The court's decision underscores the importance of procedural fairness and the necessity for tax authorities to adhere to statutory requirements, ensuring taxpayers are afforded a fair opportunity to respond to notices and objections are duly considered before finalizing assessments.

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