2025 (3) TMI 536 - HC - Income Tax

Violation of the mandatory provisions u/s 144B - petitioner is in violation of mandatory unamended provisions u/s 144B read with the first proviso to Section 147 rendering such assessment ex facie without jurisdiction and a nullity in law. HELD THAT - The foundational principles of audi alteram partem are not just paramount but jurisprudentially accepted in the IT Act as noted by us above. One cannot take a pedantic view by not permitting the assessee to file her returns which would be counter to the very object and purpose the tax laws intend to achieve as held by us in the judgment of Jyotsna Mehta 2024 (9) TMI 585 - BOMBAY HIGH COURT As in the case of Teerth Developers and Teerth Realties 2024 (11) TMI 1269 - BOMBAY HIGH COURT of which one of us was a member to hold that section 144B inherits the principles of natural justice which embraces the reasonable opportunity of representation to the assessee being discernibly absent in the given case as noted by us above. Accepting the submissions would be contrary to and the teeth of these judgments referred to supra. Considering that the impugned order is legally unsustainable as a sequel the impugned demand notice would not survive and has to be set aside. We are of the clear opinion that the petitioner has become entitled to the reliefs as prayed for. Accordingly the petition deserves to be allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The primary issue considered by the Court was the legality and validity of the impugned assessment order dated 29 March 2022 and the consequential demand notice dated 30 March 2022. The petitioner contended that the assessment was in violation of the mandatory provisions under Section 144B, read with the first proviso to Section 147 of the Income Tax Act, 1961, rendering the assessment without jurisdiction and a nullity in law.

2. ISSUE-WISE DETAILED ANALYSIS

Legality of the Impugned Assessment Order

- Relevant Legal Framework and Precedents: The assessment was challenged under Section 144B of the IT Act, which mandates a faceless assessment procedure, and Section 147, which deals with the reopening of assessments. The petitioner argued that the assessment violated the principles of natural justice and the procedural requirements stipulated under these sections.

- Court's Interpretation and Reasoning: The Court found that the assessment order did not adhere to the procedural requirements under Section 144B, specifically the failure to provide a reasonable opportunity to the petitioner to respond to the show cause notice. The Court emphasized the importance of adhering to the principles of natural justice, which are inherent in the statutory provisions.

- Key Evidence and Findings: The petitioner had submitted a detailed reply dated 24 March 2022, which was not adequately considered by the assessing officer. The Court noted that the assessing officer's approach was mechanical and lacked application of mind, as evidenced by the perfunctory acknowledgment of the petitioner's submissions in the impugned order.

- Application of Law to Facts: The Court applied the provisions of Section 144B and the principles of natural justice to the facts, concluding that the procedural lapses and the failure to consider the petitioner's detailed submissions rendered the assessment order unsustainable in law.

- Treatment of Competing Arguments: The respondents argued that the assessment was justified and that the petitioner had an alternate remedy of appeal. However, the Court found that the procedural breaches and the violation of natural justice principles warranted judicial intervention under Article 226 of the Constitution.

- Conclusions: The Court concluded that the impugned assessment order and demand notice were legally untenable due to the procedural lapses and the failure to adhere to the principles of natural justice.

Reopening of Assessment under Section 147

- Relevant Legal Framework and Precedents: Section 147 of the IT Act allows for the reopening of assessments if income has escaped assessment. The petitioner argued that the reopening was beyond the permissible period and lacked fresh tangible material.

- Court's Interpretation and Reasoning: The Court found that the reopening of the assessment was not justified as the amount in question had already been brought to tax in earlier assessment years. The absence of new tangible material to justify the reopening was a critical factor in the Court's decision.

- Key Evidence and Findings: The petitioner provided documentation showing that the amount was sourced from a family trust, on which tax had already been paid. The respondents did not dispute this fact.

- Application of Law to Facts: The Court applied the first proviso to Section 147, which restricts reopening beyond four years unless there is a failure to disclose material facts. The Court found no such failure on the petitioner's part.

- Treatment of Competing Arguments: The respondents' argument that the reopening was justified was not supported by any new evidence. The Court emphasized the need for tangible material to justify reopening.

- Conclusions: The Court concluded that the reopening of the assessment was unjustified and beyond the jurisdictional requirements of Section 147.

3. SIGNIFICANT HOLDINGS

- Preserve Verbatim Quotes of Crucial Legal Reasoning: "The assessing officer denotes mechanical reproduction, non-application of mind leading to arbitrariness, which is writ large in the impugned order."

- Core Principles Established: The principles of natural justice are paramount in assessment proceedings, and procedural lapses that violate these principles render an assessment order unsustainable. The reopening of assessments requires fresh tangible material, especially when beyond the statutory period.

- Final Determinations on Each Issue: The Court quashed the impugned assessment order and demand notice, granting the reliefs sought by the petitioner. The Court also held that the procedural breaches and failure to consider the petitioner's submissions warranted setting aside the assessment.