Mahendra Prasad Yadav Vs Income Tax OFFICER-1

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Digitally signed by SHAYNA KADRI

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2025:CGHC:55825-DB

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NAFR

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HIGH COURT OF CHHATTISGARH AT BILASPUR

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TAXC No. 209 of 2025

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1 - Mahendra Prasad Yadav S/o Shri Vishvanath Yadav Aged About 58 Years PanAebpy7047q R/o Principal Saraswati Shishu Mandir Dipadihkalan Balrampur, Surguja (C.G.) 497118

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... Appellant

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versus

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1 - Income Tax Officer-1 Ambikapur Kharsiya Road Bhagwanpur, Ambikapur 497001

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... Respondent(s)

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(Cause-title is taken from Case Information System)

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For Appellant : Mr. Rajkumar Gupta, Advocate and Mr. Shalaj Sharma, Advocate For Respondent : Mr. Amit Chaudhari, Advocate

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(Division Bench) (Hon’ble Smt. Justice Rajani Dubey Hon'ble Shri Justice Amitendra Kishore Prasad)

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Order on Board

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Per; Amitendra Kishore Prasad, Judge

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17/11/2025

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This appeal is filed under Section 260A of the Income Tax Act, 1961, on the grounds that the order passed by the Income Tax Appellate Tribunal, Raipur, upholding the decision of the Income Tax Commissioner (Appeals), is erroneous and contrary to the provisions of law. The appellant challenges the validity of the reassessment order

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passed without affording an opportunity of hearing, in violation of the principles of natural justice, as well as other legal grounds raised in the appeal.

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Facts of the case, in a nutshell, are that the appellant, on 19.12.2019, received the Income Tax Assessment Order for the assessment year 2017-18, passed by the Income Tax Assessing Officer-1, Ambikapur, under Section 144 of the Income Tax Act, 1961. This order was issued ex-parte, without prior notice or an opportunity for hearing, which is a violation of the principles of natural justice. The appellant, on the following day, 20.12.2019, received a notice under Section 142(1) of the Income Tax Act, 1961, from the same Assessing Officer, calling upon the appellant to respond to the assessment proceedings for the assessment year 2017-18. The appellant found that he had received the assessment order first and only then the notice to appear for the assessment proceedings, which is contrary to the prescribed legal procedure. According to the assessment order, during the demonetization period of the financial year 2016-17, the appellant was alleged to have deposited Rs. 42,45,201/- in cash with Chhattisgarh State Rural Bank, Ambikapur, but no income tax return had been filed by the appellant for the relevant assessment year. Consequently, the Assessing Officer issued a notice under Section 142(1), which the appellant only received after the assessment order was passed. The assessment order also stated that the appellant had deposited large sums of cash during the demonetization period, which was scrutinized in the order. The Income Tax Assessing Officer made a best judgment assessment under Section 144 of the Income Tax Act, determining the

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total income of the appellant as Rs. 3,899,360/-, and raised a tax demand of Rs. 4,879,820, including interest, as per the calculation sheet attached to the order. However, upon reviewing the assessment order, the appellant contacted Chhattisgarh State Rural Bank, Dipadih, to verify the bank account numbers mentioned in the assessment order. Certified copies obtained from the bank revealed that the bank accounts listed in the assessment order did not belong to the appellant. Specifically, account number 7002594581 belonged to Saraswati Shishu Mandir, Dipadih Kalan, and account number 7002139589 belonged to Krishna Kumar Gupta. Despite the absence of any bank accounts in the name of appellant, the assessment order falsely attributed deposits to him. The appellant filed an appeal before the Commissioner of Income Tax (Appeals) under Section 246A of the Income Tax Act, 1961, against the ex-parte assessment order under Section 144. In the appeal, the appellant presented his case, arguing that the assessment was made without any opportunity for hearing and that the bank accounts mentioned in the assessment order were not his. The appellant also submitted certified evidence from the bank and post office to prove that the accounts referenced in the order did not belong to him. The Commissioner of Income Tax (Appeals) acknowledged that the assessment was made ex-parte and without hearing the appellant, and therefore, set aside the original assessment order. The Commissioner directed the Assessing Officer to initiate fresh reassessment proceedings de-novo. Despite the submission of appellant of clear and certified evidence, the decision of Commissioner did not fully address the concerns of appellant, and it was ordered that a new reassessment would be carried out. Dissatisfied with this

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decision, the appellant further appealed before the Income Tax Appellate Tribunal, Raipur, under Section 253 of the Income Tax Act, 1961, challenging the reassessment order passed by the Commissioner of Income Tax (Appeals). The Tribunal, after hearing the appeal, dismissed the appellant’s case and upheld the Commissioner’s order for reassessment, thus rejecting the claim of appellant. Aggrieved by the order of the Income Tax Appellate Tribunal, the appellant has now approached the this Court under Section 260A of the Income Tax Act, 1961, seeking the quashing of the assessment order passed by the Income Tax Assessing Officer-1, Ambikapur, as well as the orders of the Income Tax Commissioner (Appeals) and the Income Tax Appellate Tribunal.

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Learned counsel for the appellant submits that the Income Tax Assessment Order passed under Section 144 of the Income Tax Act, 1961, by the Income Tax Assessing Officer-1, Ambikapur, is legally flawed and must be quashed. Section 144 of the Income Tax Act, which governs the “Best Judgment Assessment,” sets out four essential conditions that must be met for the Assessing Officer to proceed with passing an assessment order. These conditions are (a) failure to furnish a return despite being required to do so under Section 139; (b) failure to comply with all terms and conditions of a notice issued under Section 142; (c) failure to comply with the notice issued under Section 143 if a return has been filed; and (d) the Assessing Officer must provide the assessee with an opportunity to show cause as to why the assessment should not be completed to the best of his judgment. The requirement for notice and an opportunity to be heard is an essential

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safeguard, and the appellant submits that this vital procedure was completely disregarded by the Assessing Officer in this case. It is wellestablished that the principles of natural justice require that before an assessment is made under Section 144, the assessee must be given a reasonable opportunity of being heard. This involves the issuance of a notice specifying the date and time for the assessee to show cause. However, in the present case, the appellant was not provided with any such opportunity prior to the passing of the assessment order. Instead, the assessment order was passed without any prior notice or hearing, violating both the statutory requirements and the right of appellant to fair procedure. Furthermore, the appellant contends that the assessment order was passed based on fictitious and erroneous information, including incorrect bank account details, which the Assessing Officer failed to verify before passing the order. The appellant was also not given an opportunity to respond to the issues raised in the notice under Section 142 or Section 143. In this regard, the learned counsel for appellant relies on the judgment of the Hon'ble Supreme Court in the matter of Assistant Commissioner of Incometax vs Hotel Blue Moon, reported in (2010) 321 ITR 362 , which held that no assessment under Section 144 could be made without issuing a notice under Section 142(1) or Section 143, and the assessee must be given an opportunity to present their case. In the present case, the appellant never received any such opportunity, and as such, the entire assessment order is unlawful. The learned counsel for appellant further submits that the failure of the Assessing Officer to follow the procedure prescribed in the Income Tax Act, particularly under Sections 142 and 143, amounts to a grave violation of the principles of natural justice.

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Section 251 of the Income Tax Act empowers the Commissioner of Income Tax (Appeals) to set aside an ex parte assessment order passed under Section 144 and order a fresh assessment if it is found that the assessee was not provided a proper opportunity to be heard. In this case, although the Commissioner of Income Tax (Appeals) set aside the original assessment order and directed a fresh reassessment, the appellant contends that the reassessment process itself was marred by procedural irregularities. Despite the clear evidence of appellant showing that the bank accounts mentioned in the assessment order did not belong to the appellant, the Commissioner did not take adequate steps to verify the facts. The appellant had presented certified copies from the bank proving that the bank accounts in question belonged to other individuals, Saraswati Shishu Mandir and Krishna Kumar Gupta. These facts were clearly stated, but the Commissioner did not inquire further or seek confirmation from the concerned banks, nor did he request the explanation of Assessing Officer as to why the appellant was not given an opportunity to be heard before the assessment was completed. Additionally, the finding of Commissioner that the appellant failed to present arguments or evidence during the assessment proceedings is incorrect and contrary to the facts. The appellant did not receive the assessment order and the notice to appear at the same time, which meant that he could not have responded to the notice or the issues raised in the assessment process. This was acknowledged in the appeal proceedings, but the Tribunal, in upholding the order passed by Commissioner for reassessment, failed to properly address the fundamental issue of not providing the appellant with a fair hearing before passing the

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assessment order. The learned counsel for appellant further submits that the reassessment process itself is flawed and akin to "fishing for evidence," which is impermissible under the law. The principle of "fishing for evidence" prohibits authorities from repeatedly reopening matters and searching for evidence to substantiate a claim that was not initially supported by facts. In this case, the reassessment appears to be based on speculative and erroneous bank deposit data, which was not corroborated by any credible evidence from the appellant's side. Notably, the Income Tax Department’s portal, which provides information on bank account holders who deposited more than Rs. 200,000 during demonetization, does not list any such deposit by the appellant, further demonstrating that the claims made by the Assessing Officer were unfounded. Moreover, the appellant emphasizes the errors in the details of the bank accounts provided in the assessment order. The bank account number 7002594581, which was alleged to belong to the appellant, actually belonged to Saraswati Shishu Mandir, and the account number 7002139598 was linked to Krishna Kumar Gupta. These facts were confirmed by certified copies from the respective banks, which were presented during the appeal process. Despite this clear evidence, the Assessing Officer failed to correct these mistakes, which leads the appellant to believe that the assessment was conducted with the intent to harass and cause undue distress. Lastly, the learned counsel for appellant submits that the assessment order passed under Section 144 is flawed not only in terms of procedure but also in its substance. The assessment order includes fabricated deposit amounts and bank accounts that do not belong to the appellant. These serious errors further demonstrate that

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the entire assessment is based on a misapplication of the law and facts, and thus, it should be quashed.

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Learned counsel for the respondent submits that the appeal has been partly allowed by the Commissioner of Income Tax (Appeals) in a reasonable and speaking order, which addressed the grievances raised by appellant and directed a fresh reassessment in accordance with the law. The decision of the Income Tax Appellate Tribunal further upheld this order, ensuring that the concerns of appellant were considered. Given that the orders are just and balanced, the learned counsel for respondent submits that there is no merit in this appeal, and it does not warrant any interference by this Court.

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We have heard learned counsel for the parties and also perused the documents enclosed along with the appeal.

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The Commissioner of Income Tax (Appeals), in his order dated 07.07.2025, has observed that the original assessment order passed by the Assessing Officer under Section 144 of the Income Tax Act, 1961, was made ex-parte, without providing the appellant a reasonable opportunity of being heard. Order passed by Commissioner of Income Tax (Appeals) is quoted below for ready reference :

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“6.3 It is an undisputed fact that the assessment order was passed ex-parte u/s. 147 r.w.s144 of the Act in the present case and the appellant didn't furnish any written submission or evidences during the assessment proceedings before the AO. Now, the appellant has made a written submission with documentary evidences during the appellate proceedings, which were not furnished before the AO and the

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AO had passed the ex-parte order without having any opportunity to consider these submissions /evidences in the present case. Since the written submission and documentary evidences has direct bearing on the issue in the present case, opportunity of being heard needs to be provided to the appellant.

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6.5 Considering the above facts, in the interest of natural justice, the aforesaid assessment order is hereby set-aside by invoking the powers under the proviso below to clause (a) of sub-section (1) of section 251 of the Income Tax Act, 1961. Therefore, the Assessing Officer is hereby directed to make fresh assessment order after providing sufficient opportunities of being heard and considering all the material facts, written submission and documentary evidences submitted by the appellant during the appellate proceedings as well as set-aside assessment proceedings. Nonetheless to say that the appellant shall furnish complete written submission and documentary evidences in support of its contention before the AO during set-aside assessment proceedings.”

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Upon perusal of the order, it appears that the Commissioner of Income Tax (Appeals) invoked Section 251 of the Income Tax Act, 1961, to set aside the ex-parte assessment order passed by the Assessing Officer under Section 144. Section 251 of the Act was amended as follows:

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“In section 251 of the Income-tax Act, in sub-section (1), in clause (a), the following proviso shall be inserted with effect from the 1st day of October, 2024, namely:-

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"Provided that where such appeal is against an order of assessment made under section 144, he may set aside the

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assessment and refer the case back to the Assessing Officer for making a fresh assessment;".

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The matter was remitted for making a fresh assessment, after affording the appellant a reasonable opportunity to be heard. In his findings, the Commissioner acknowledged that the original assessment was passed without a fair hearing, thus violating the principles of natural justice. As per the amended provisions of Section 251, the Commissioner remitted the case back to the Assessing Officer, directing him to conduct a fresh reassessment while allowing the appellant a chance to present their written submissions and documentary evidence during the proceedings. While passing the order, the Commissioner emphasized the need for the Assessing Officer to follow due procedure of law, ensuring that the case of appellant is re-assessed in a fair and transparent manner, in compliance with all procedural requirements laid down in the Income Tax Act. However, it appears that the NFAC (National Faceless Assessment Centre), in its appellate order, should have explicitly directed the Assessing Officer to adhere to the prescribed legal procedures while conducting the reassessment, a direction that is not clearly reflected in the order under appeal.

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In light of the above, this Court, while confirming the order of the Commissioner of Income Tax (Appeals) and acknowledging that the matter has been remitted for a fresh assessment, observes that the Assessing Officer must follow the due procedure of law as prescribed under the Income Tax Act. The Court further directs that no coercive

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action, such as the recovery of taxes, shall be taken by the Assessing Officer until the completion of the reassessment proceedings.

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It is also made clear that this Court has not passed any order on the merits of the case. There is nothing further to adjudicate regarding the merits of the original assessment or reassessment at this stage.

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With this observation and direction, the appeal is disposed of.

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The Assessing Officer is directed to carry out the entire reassessment process, as directed by the Commissioner, while ensuring full compliance with the due process of law.

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Sd/Sd/- (Rajni Dubey) (Amitendra Kishore Prasad) Judge Judge

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Shayna

Mahendra Prasad Yadav v. Income Tax OFFICER-1

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Mahendra Prasad Yadav v. Income Tax OFFICER-1

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