The Karnataka High Court has reaffirmed that an ex-parte income tax assessment cannot stand when the assessee was denied a meaningful opportunity to respond, even if non-participation occurred. This judgment reinforces the foundational principle of natural justice in tax proceedings, ensuring that procedural lapses by the taxpayer do not automatically validate arbitrary assessments.
Background & Facts
The Dispute
The petitioner, Sri Ghati Subramanya Kshetra Development Authority, is a religious trust engaged in managing temple affairs and related activities. The Income Tax Department initiated reassessment proceedings for the Assessment Year 2020-21 under Section 148 of the Income Tax Act, 1961, based on perceived discrepancies in cash deposits and non-filing of income tax returns. The assessing officer issued notices under Section 148A(b), followed by a final assessment order dated 28.02.2025 (Annexure-E), which was passed ex-parte after the petitioner allegedly failed to file a return or appear in person.
Key Facts
- The petitioner received notice under Section 148A(b) on or before 15.12.2024, requiring explanation regarding cash deposits
- The petitioner submitted written submissions in response to the notice under Section 148A(b)
- Despite this, the petitioner did not file a return for AY 2020-21
- The assessing officer proceeded to pass an ex-parte assessment order on 28.02.2025, disallowing all cash deposits due to lack of substantiation
- The assessment order was challenged before the Commissioner of Income Tax (Appeals), which was dismissed on grounds of non-participation
- Notices of attachment of assets were issued under Annexures-H and K, following the assessment order
- The petitioner had not filed an application under Section 12A of the Income Tax Act for exemption of income of religious trusts
Procedural History
- 15.12.2024: Notice under Section 148A(b) issued by Assessing Officer
- Before 28.02.2025: Written submissions submitted by petitioner; no return filed
- 28.02.2025: Ex-parte assessment order passed (Annexure-E), ITBA/AST/S/147/2024-25/1073823646(1)
- March 2025: Appeal filed before Commissioner of Income Tax (Appeals)
- Before 13.03.2026: Appeal dismissed without adjudication on merits, solely on ground of non-participation
- 13.03.2026: Writ Petition No. 8547 of 2026 filed before Karnataka High Court seeking quashing of assessment and attachment orders
Relief Sought
The petitioner sought:
- Quashing of the ex-parte assessment order dated 28.02.2025
- Setting aside of notices of attachment under Annexures-H and K
- Remittal of the matter to the assessing officer for fresh opportunity to file return and substantiate cash deposits
The Parties' Positions
Petitioner: Argued that written submissions were made, and the failure to file a return was not wilful or malicious. The assessment was procedurally flawed and violated principles of natural justice. The matter should be remitted for proper adjudication.
Respondents (Revenue): Contended that the petitioner had ample opportunity to file a return and failed to do so. The assessment was validly passed under Section 148, and the non-participation justified the ex-parte order. The petitioner’s failure to apply under Section 12A further weakened its claim.
The Legal Issue
Can an income tax assessment order under Section 148 be sustained as ex-parte when the assessee has submitted written responses but failed to file a return, without affording a final opportunity to be heard?
Arguments Presented
For the Petitioner
Learned counsel submitted that the petitioner had actively participated by submitting written replies to the notice under Section 148A(b), thereby demonstrating willingness to cooperate. The failure to file a return was not tantamount to abandonment of rights. The assessing officer had a duty to provide a final opportunity before passing an ex-parte order. Reliance was placed on the principle that natural justice requires a fair hearing, even in tax proceedings. The assessment order was therefore void ab initio.
For the Respondent
The Revenue’s counsel acknowledged that the petitioner had submitted written submissions but argued that under Section 148, the filing of a return is mandatory for assessment. Non-filing, despite repeated notices, rendered the assessee non-cooperative. The appeal was dismissed on procedural grounds, and the assessment was legally valid. The absence of a Section 12A application further indicated lack of bona fides.
The Court's Analysis
The Court examined the procedural sequence and found that while the petitioner did not file a return, it had not remained silent. Written submissions were made in response to the notice under Section 148A(b), indicating engagement with the process. The assessing officer, having received these submissions, proceeded to pass an ex-parte order without issuing a final notice to file a return or providing an opportunity to explain the non-filing.
"The authority had issued a notice to explain as to why notice under Section 148 of the Act should not be issued and despite notices and reminders, it is submitted that the assessee though submitted written submissions insofar as notice under Section 148A(b), subsequently has failed to participate in the assessment proceedings by filing return."
The Court held that mere non-filing of a return does not absolve the assessing officer of the duty to ensure procedural fairness. The principle of audi alteram partem is not suspended merely because the assessee has not complied with a procedural requirement. The Court emphasized that an ex-parte assessment is permissible only after all avenues for compliance have been exhausted and the assessee has been given a final, unambiguous opportunity to respond.
The Court further noted that the appellate authority had dismissed the appeal without adjudicating on merits, thereby perpetuating the procedural defect. The Revenue’s reliance on the absence of a Section 12A application was deemed irrelevant to the validity of the assessment process itself.
The Verdict
The petition succeeded. The Karnataka High Court set aside the ex-parte assessment order dated 28.02.2025 and the notices of attachment under Annexures-H and K. The matter was remitted to the assessing officer for fresh proceedings under Section 148, with a direction to afford the petitioner a final opportunity to file a return and substantiate the source of cash deposits. All contentions were kept open for adjudication in the remitted proceedings.
What This Means For Similar Cases
Procedural Fairness Trumps Technical Non-Compliance
- Practitioners must argue that written submissions constitute meaningful participation, even in the absence of a return
- Assessing officers cannot treat non-filing as automatic waiver of right to hearing
- A final notice to file return must precede ex-parte assessment
Section 148 Proceedings Require Active Engagement, Not Passive Punishment
- The burden is on the department to demonstrate that all avenues for compliance were exhausted
- Failure to apply for Section 12A exemption does not justify bypassing fair hearing
- Remittal is the appropriate remedy where procedural fairness is violated, not outright validation of flawed orders
Appeals Must Address Merits, Not Just Procedure
- Appellate authorities cannot dismiss appeals on technical grounds of non-participation without examining the substance of the assessment
- This judgment reinforces that procedural defects in assessment cannot be cured by appellate dismissal
