"Failure to Follow Due Process Vitiates Tax Assessment": Bombay High Court Quashes Income Tax Order Over Procedural Violations
Safiya Malik
The Bombay High Court has quashed an income tax reassessment order and demand notice, holding that the Assessing Officer failed to adhere to the statutory requirements under the Income Tax Act, 1961. The court determined that the petitioner was not provided a fair opportunity to respond, thereby violating the principles of natural justice.
The matter was adjudicated by Justice G.S. Kulkarni and Justice Advait M. Sethna. The petitions challenged an assessment order dated March 29, 2022, issued under Section 147 read with Sections 144 and 144B of the Income Tax Act, along with a consequential demand notice dated March 30, 2022. The petitioner contended that the reassessment was conducted in violation of mandatory procedural safeguards and was therefore legally untenable.
The dispute arose when the petitioner, an individual taxpayer, was served a notice under Section 148 of the Income Tax Act on March 23, 2021, for the assessment year 2014-15. The notice cited reasons to believe that the petitioner’s income amounting to ₹11.61 crore had escaped assessment. The petitioner responded by filing her return of income on April 29, 2021, but was subsequently issued a notice under Section 143(2) read with Section 147 on December 9, 2021, stating that her financial transactions were unexplained.
Further notices were issued under Section 142(1) on December 28, 2021, and January 8, 2022, seeking details regarding the transactions. In response, the petitioner sought an adjournment on January 14, 2022, citing difficulties due to the COVID-19 pandemic and the illness of her chartered accountant. The request was neither formally addressed nor responded to by the authorities.
On March 16, 2022, a show cause notice-cum-draft assessment order was issued under Section 144, proposing a best judgment assessment, which the petitioner was required to respond to by March 19, 2022. The petitioner submitted a detailed reply on March 24, 2022, explaining that the transactions in question were receipts from a family trust and a Hindu Undivided Family (HUF), which had already been taxed in prior years. Despite this submission, the assessment order was finalized on March 29, 2022, and a demand notice was issued the following day.
The court examined the procedural requirements under the Income Tax Act, specifically Sections 144B and 147. The court noted:
"Applying the above provisions of the IT Act to the facts of the present case, it is discernible that the respondent no.1 failed to consider all the relevant material, more particularly, the detailed reply of the petitioner dated 24 March 2022 along with annexures, filed in response to the show cause notice-cum-draft assessment order dated 16 March 2022."
The court further recorded that the assessing officer proceeded with the best judgment assessment without addressing the petitioner’s request for an adjournment or considering the explanations provided. The court found that this violated Section 144B, which mandates that the assessment unit must consider all material on record before finalizing an order.
The judgment cited the Supreme Court’s decision in Tin Box Co. v. Commissioner of Income-tax, which held that if an assessing officer fails to grant a proper opportunity of hearing, the assessment order must be set aside. The court also referenced the Bombay High Court's judgment in Cheftalk Food and Hospitality Services (P) Ltd. v. Income Tax Officer, where it was held that failure to provide the mandated response time under Section 144B renders an assessment order invalid. The court stated:
"The approach of the assessing officer denotes mechanical reproduction, non-application of mind, leading to arbitrariness, which is writ large in the impugned order."
The bench also observed that the reopening of the assessment was beyond the statutory period of four years, thereby violating the first proviso to Section 147, which restricts reassessment unless new tangible material is available. The court held that:
"There is no fresh tangible material on record shown by the respondents to justify such reopening of the petitioner’s assessment. Considering such uncontroverted factual position, the decision of respondent no.2 to reopen the assessment for A.Y. 2014-15, in the given facts and circumstances, that too beyond four years, would fall foul to the first proviso to Section 147 of the IT Act."
Based on these findings, the court set aside the impugned assessment order and demand notice. The final directive stated:
"In light of the above discussion, 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. Rule made absolute in terms of prayer clauses (a) and (b). No order as to costs."
The court also held that its decision in this case would apply to the second writ petition filed by the petitioner, thereby quashing both assessment orders.
Advocates Representing the Parties
For Petitioner: Mihir Naniwadekar, Advocate assisted by Advocates Rucha Vaidya and Ruturaj H. Gurjar.
For respondents: Akhileshwar Sharma., Advocate
Case Title: Madhuri Sameer Gokhale v. The Addl. Joint/Deputy/Asst. Commissioner of Income Tax & Ors.
Neutral Citation: 2025:BHC-OS:3792-DB
Case Number: WP No. 3430 of 2022 & WP No. 3460 of 2022
Bench: Justice G.S. Kulkarni & Justice Advait M. Sethna
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