Income Tax: High Court Quashes Rs. 232 Crore Ex Parte Assessment; Grants Fresh Opportunity to Respond

Nayati Healthcare and Research NCR Private Limited challenged an ex parte assessment order dated 24.03.2025 passed under Sections 143(3) read with 144B of the Income Tax Act, 1961, whereby income was determined at Rs. 232,17,82,426 on a best judgment basis.

The company had been admitted into insolvency by order of the National Company Law Tribunal, which appointed an Interim Resolution Professional (IRP) under Section 16 of the IBC. On 05.08.2024, the National Company Law Appellate Tribunal stayed the CIRP timeline, effectively stalling proceedings though the IRP continued formally. The company exited insolvency on 07.01.2026.

It was contended that during this period neither the IRP nor the management could properly represent the case, resulting in ex parte assessment.

Main Issue: Whether a best judgment assessment passed during pendency of insolvency proceedings, when the assessee was allegedly unable to present its case effectively, could be sustained or whether principles of natural justice required fresh adjudication.

HC’s Ruling: The High Court held that the peculiar circumstances showed that both the IRP and the management were bona fide prevented from placing relevant material before the Assessing Officer.

The Court further observed that relegating the petitioner to the appellate remedy would be illusory in the facts, since the appellate authority may decline to admit fresh material and the statutory pre-deposit requirement would impose undue hardship on a company that had just emerged from insolvency.

The Court set aside the assessment order. The Assessing Officer was directed to issue a fresh detailed notice, grant at least 30 days to respond, and pass a fresh order in accordance with law after considering the company’s submissions. The Court clarified that no opinion was expressed on the merits. The writ petition was accordingly allowed.

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