Bombay High Court Quashes Income Tax Reassessment Order in Favour of Assessee for Violation of Natural Justice. Reassessment Order Passed Before Expiry of Reply Deadline and Without Considering Timely Response Violates Fair Hearing Under Section 148 of Income Tax Act, 1961.

Case Note & Summary

The dispute arose from an income tax reassessment proceeding initiated against the petitioner, Sai Kiran Clearing Co. Pvt. Ltd., by the Income Tax Department. The petitioner challenged the reassessment order dated 30.03.2022 passed by the Deputy Commissioner of Income Tax, Circle-2(3)(1), Mumbai, before the High Court of Judicature at Bombay in its writ jurisdiction. Although the petitioner had already filed an appeal against the same order, it approached the High Court alleging a gross violation of principles of natural justice. The respondents included the Deputy Commissioner, the National Faceless Assessment Centre, the Additional Commissioner of Income Tax, and the Union of India through the Secretary, Department of Revenue. On 29.03.2022, the assessing officer issued a show cause notice to the petitioner, directing a response by 23.59 hours on 30.03.2022. The petitioner filed its reply on 30.03.2022 at 17.59 hours, well within the given deadline. However, the second respondent passed the impugned reassessment order at 17.22 hours on the same day, i.e., before the deadline expired and without considering the petitioner's reply. The petitioner contended that the order was therefore passed in clear violation of the principles of natural justice and fair play, as its timely response was completely ignored. It argued that this violation constituted an exception to the rule requiring exhaustion of alternate remedies, thereby permitting the High Court to entertain the writ petition despite the pending appeal. The respondents, on the other hand, submitted that the reassessment had to be completed by 31.03.2022 due to limitation, and that the petitioner had acquiesced in the proceedings under Section 148 of the Income Tax Act, 1961. They also stated that if the matter were remanded, appropriate directions should be issued regarding the timeline to avoid limitation issues. The High Court considered the rival contentions and held that the undisputed facts demonstrated a clear violation of the principles of natural justice and fair play. It noted that the show cause notice granted time until 23.59 hours on 30.03.2022, that the reply was filed at 17.59 hours, and that the reassessment order was made at 17.22 hours, before the time limit expired. Consequently, the reply filed within the timeline was not considered, which vitiated the impugned order. The Court relied on its earlier decision in Mateen Pyarali Dholakia v. Union of India, where a coordinate Division Bench had interfered with an assessment order passed before the expiry of the reply period and without considering the assessee's reply. The Court also held that violation of natural justice is one of the recognized exceptions to the rule of exhaustion of alternate remedies, allowing the writ petition to be entertained despite the pending appeal. Accordingly, the High Court set aside the impugned reassessment order dated 30.03.2022 and remitted the matter back to the assessing officer for fresh consideration. The assessing officer was directed to consider the petitioner's response, grant a personal hearing, and pass a fresh reassessment order on merits and in accordance with law within three months of the uploading of the order. The petitioner's statement that it would withdraw the pending appeal within 15 days was accepted, and the petitioner also undertook not to raise any limitation objection provided the fresh assessment order was passed within three months. All contentions on the merits of the reassessment, including the validity of the reopening of assessment, were left open, with liberty to the petitioner to raise them in any appeal against the fresh order. The rule was made absolute without any order as to costs.

Headnote

Issue of Consideration

Final Decision

The High Court set aside the impugned reassessment order dated 30.03.2022 and remitted the matter to the assessing officer to consider the Petitioner's response, grant a personal hearing, and pass a fresh reassessment order on merits within three months of uploading of the order. The Petitioner's appeal against the impugned order was to be withdrawn within 15 days; no limitation objection to be raised if fresh order passed within three months; all contentions on merits left open, with liberty to challenge fresh order. Rule made absolute without costs.

Law Points