Factual Matrix 

In the case Pramod Kumar Madhogarhia v. Union of India the Assessing Officer in India issued a Show Cause Notice pursuant to Section 148-A(b) of the Income Tax Act, 1961 alleging that the petitioner had engaged in purchase transactions and was required to provide corroborating evidence and authentic details to support said transactions. The AO subsequently passed an order dated March 30, 2022 before the petitioner could file submissions properly and efficiently in response to the show cause notice. The petitioners filed a writ appeal with the Calcutta High Court after feeling aggrieved by the order issued by the AO on March 30, 2022.

Issue

Whether the assessment order from 22-03-2023 and the challenged order from 4-04-2023 violate the natural justice principle?

Analysis of court decision 

A division bench of the Calcutta High Court, consisting of Chief Justice T.S. Sivagnanam and Justice Hiranmay Bhattacharyya, ruled that the petitioner had been given an ineffective opportunity to respond to the Show Cause Notice in the first instance, violating the natural justice principles.

The Court noted that the petitioner was given insufficient time to submit his reply, particularly because the information source used to start the reopening proceedings was not disclosed to the petitioner, which prevented him from making his arguments in a proper and persuasive way. The Court further noted that the AO had not provided the petitioner with a sufficient opportunity for a hearing or addressed the question of whether the ledger that was attached with the interim reply to the Show Cause Notice was accurate.

The Show Cause Notice issued pursuant to Section 148-A(b) of the Act, the respondents’ order dated 30-03-2022 issued pursuant to Section 148-A(d) of the Act, and the contested order issued by the single bench on April 4, 2023, were all overturned by the Court on the grounds that the opportunity to be heard provided in the first instance should be an effective opportunity. The petitioner was instructed to file a thorough reply together with all the evidence supporting the allegation after the Court reinstated the case at the Show Cause Notice stage before the AO. The court additionally ordered the AO to give the petitioner access to the pertinent records upon which the Show Cause Notice was based.