Madras HC quashes Ex-parte Income Tax Assessment Order for Passing Non-Speaking Order without Considering Submissions [Read Order]

The Madras High Court quashed an ex-parte income tax assessment order, stating that the Assistant Commissioner of Income Tax had passed a non-speaking order mechanically, without considering the petitioner’s submissions and judgments, and further held that the order was unsustainable due to a violation of the principles of natural justice.

The petitioner, Mr.Hussain Maideen Ebrahim Sha challenged the order issued by the first respondent on July 4, 2024, seeking to have it quashed. The petitioner further requested that the court direct the first respondent to stay recovery proceedings while the appeal, already filed with the second respondent, remains pending.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The petitioner, an individual taxpayer, had filed a return of income for the 2018-2019 assessment year on March 31, 2019. The case was selected for scrutiny, and the first respondent, the Assistant Commissioner of Income Tax, issued an assessment order on April 8, 2021. This order assessed the petitioner’s income at ₹12.84 crores, including unexplained investments of ₹11.77 crores. Dissatisfied with the assessment, the petitioner appealed to the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, the second respondent. A stay petition was filed in the meantime, but due to an oversight, the petitioner failed to respond to the proceedings from the second respondent, resulting in an ex parte order on March 6, 2024. The petitioner then appealed to the Income Tax Appellate Tribunal ( ITAT ), which, on May 31, 2024, remanded the matter back to the second respondent.

Following the ITAT ruling, the petitioner submitted a request to the first respondent on June 18, 2024, asking for a stay of the demand and the release of bank attachments. A stay petition was subsequently filed, but the first respondent rejected it, citing a requirement for the petitioner to pay 20% of the disputed demand as per a Central Board of Direct Taxes ( CBDT ) circular from July 31, 2017. The petitioner responded by filing the present writ petition, challenging the July 4, 2024 order.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

Counsel for the petitioner, Mr. R. Sivaraman, argued that the first respondent’s order was issued without considering the financial hardship faced by the petitioner. He contended that the demand for 20% payment, per the CBDT circular, was mechanically imposed without evaluating the merits of the petitioner’s case, nor the judgment submitted during the hearing. Furthermore, the counsel claimed that the order violated the principles of natural justice, as the petitioner was not granted a fair hearing.

In response, the Senior Standing Counsel for the respondents, Mr. B. Ramana Kumar, defended the decision, stating that the petitioner was required to pay at least 20% of the demand, as per CBDT guidelines, despite the case being remanded to the second respondent. He emphasized that the petitioner had been heard on two occasions prior to the issuance of the impugned order, and that the rejection of the stay petition was justified.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

In his reply, the petitioner’s counsel urged the court to expedite the appeal’s disposal by the second respondent, and requested that recovery actions be stayed until the appeal process was completed.

After reviewing the submissions and evidence, the court noted that the petitioner’s appeal was previously dismissed ex parte by the second respondent, a decision that was set aside by ITAT. Given these circumstances, the court concluded that the recovery proceedings initiated against the petitioner were a consequence of the earlier ex parte dismissal.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

Justice Krishnan Ramaswamy ruled in favor of the petitioner, directing the second respondent to dispose of the appeal within six weeks. In the interim, all recovery actions related to the impugned order are to remain. The writ petition was allowed, and associated miscellaneous petitions were closed without costs.

To Read the full text of the Order CLICK HERE

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