High Court Quashes Reassessment and Demand Notice Passed Without Granting Opportunity of Hearing

The petitioner, being a non-resident Indian, had NRE deposits in Indian banks based on foreign remittances and received only interest income exempt under Section 10(15) of the Income Tax Act. The department alleged non-filing of the return for the assessment year 2018-19 and flagged the case under the risk management strategy. On that basis, a show-cause notice under Section 148A(b) was issued on 16.03.2022, and an order under Section 148A(d) dated 26.03.2022 declared that the income of Rs. 3,05,18,951/- had escaped assessment. After the proceedings remained inactive for some time, fresh notices were issued under Section 142(1) on February 1, 2023, and March 10, 2023. A show-cause notice dated 22.03.2023 scheduled a personal hearing for 25.03.2023, which fell on a Saturday and a government holiday.

The petitioner immediately sought adjournment on 24.03.2023, seeking 15 days to file a reply. Another notice dated 23.03.2023 once again instructed submitting details by 25.03.2023. Without intimating the request for adjournment or holding a personal hearing, the AO gave an order on 31.03.2023 under Section 147 read with Section 144, adding Rs. 3,05,18,951/- and issued a corresponding demand notice under Section 156. Penalty proceedings were also initiated under Sections 271AAC, 271F and 272A. Grieved by the ex parte character of the assessment, the petitioner went to the High Court against the reassessment order and demand notice based on a violation of natural justice.

Issue Raised: Whether reassessment and demand notices under Sections 147, 144, and 156 of the Income Tax Act could be sustained when no personal hearing was provided, even on a clear written request by the petitioner.

HC’s Decision: The Court observed that the sequence of events clearly established that though the petitioner had responded to the departmental notices and specifically requested a personal hearing, the same was not provided before passing the impugned order. The Bench held that it was undisputed that the show-cause notice dated 22.03.2023 fixed a hearing on 25.03.2023, and despite the petitioner’s communication dated 24.03.2023 seeking time and highlighting that the date fell on a holiday, no further opportunity was granted. The 31.03.2023 order impugned was not made in an unhurried fashion, dismissing the petitioner’s plea and submissions. The Court reaffirmed the established law that the right to hear is a natural justice aspect inherent within itself. The doctrine of audi alteram partem binds all quasi-judicial authorities to accord a reasonable opportunity of being heard prior to passing any adverse decision. By doing so, the department transgressed this elementary procedural protection.

The Court held that the order of reassessment dated 31.03.2023 passed under Section 147 read with Section 144B for the A.Y. 2018–19 was not sustainable in law. The demand notice dated 31.03.2023 issued under Section 156 also stood quashed. The Court also observed that where a decision is arrived at without fair hearing, such an order cannot be upheld on technical grounds of limitation. Therefore, the petition was granted, the impugned orders and notices were cancelled, and the rule made absolute with no order as to costs.

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