Case Law Details
Rajesh Kumar Chandwani Vs ITO (ITAT Raipur)
Reassessment Order Set Aside Due to Violation of Natural Justice in Section 148 Proceedings; Confidential Documents Cannot Be Used Without Giving Copies to Taxpayer; Section 148 Reopening Invalid Because Reasons and Supporting Documents Were Withheld; ITAT Raipur Quashes Income Tax Reassessment Over Denial of Fair Opportunity to Respond.
The appeal before the ITAT Raipur arose from the order of the CIT(Appeals)/NFAC dated 04.02.2026 for Assessment Year 2010-11. The primary contention raised by the assessee was that the reasons and information forming the basis for reopening the assessment under Section 148 of the Income Tax Act, 1961 were never supplied to the assessee despite repeated requests.
The assessee argued that the Department alleged cash deposits of Rs. 6,42,195 in the bank account of M/s. Malhotra Electronics Private Limited, New Delhi, based on certain “credible information” and previous enquiries. However, according to the assessee, neither the nature of such information nor copies of the ledger account of M/s. Malhotra Electronics Private Limited were ever shared. The assessee further contended that the details of earlier enquiries relied upon by the Department were also withheld.
During assessment proceedings, the assessee repeatedly requested the Assessing Officer to provide copies of the information and documents received from the Investigation Wing and other authorities in New Delhi. The Assessing Officer declined the request on the ground that the documents were confidential in nature and therefore copies could not be supplied. The Assessing Officer stated that the materials had only been “confronted” to the assessee during proceedings and while recording the assessee’s statement.
The Tribunal observed that the additions were made on the basis of confidential documents that were never supplied to the assessee for rebuttal or response. According to the Tribunal, merely confronting the assessee with documents during assessment proceedings for a short duration did not satisfy the requirements of natural justice. The Tribunal noted that the purpose of natural justice is fulfilled only when copies of the relevant documents are supplied so that the assessee can properly examine them, apply his mind, and make submissions before the authority.
The Tribunal held that the Department cannot rely upon information or documents for making additions without giving the assessee a fair opportunity to rebut the same. It observed that such action was arbitrary, legally unsustainable, and contrary to quasi-judicial procedure. The Tribunal further held that where the materials referred to in the “reasons to believe” are not supplied to the assessee, the entire reassessment proceedings stand vitiated due to violation of principles of natural justice.
In support of its conclusions, the Tribunal referred to the Rajasthan High Court decision in Micro Marbles Private Limited Vs. Office of the Income Tax Officer, where it was held that non-supply of material referred to in the reasons to believe is sufficient to vitiate reassessment proceedings. The Tribunal also referred to the Bombay High Court judgment in Tata Capital Financial Services Limited, wherein the Revenue was directed to furnish all documents, reports, and letters referred to in the reopening reasons.
The Tribunal additionally relied upon the Chhattisgarh High Court decision in ACIT Vs. Sun and Sun Inframetric Pvt. Ltd., which held that using information and statements against an assessee without permitting a proper defence violates the doctrine of audi alteram partem. Reference was also made to the Supreme Court judgment in CIT Vs. Amitabh Bachchan, which emphasized that breach of principles of natural justice affects the legality of the order and that opportunity of hearing is mandatory where adverse conclusions are drawn.
Considering the facts, circumstances, and judicial precedents, the Tribunal held that the reassessment proceedings suffered from a blatant defect because the relevant information and documents referred to in the reasons for reopening were never shared with the assessee. Without examining the merits of the additions, the Tribunal concluded that the reassessment order was arbitrary, bad in law, and legally unsustainable due to violation of principles of natural justice. Accordingly, the reassessment order was quashed.
The Tribunal further held that once the reassessment itself was quashed, all subsequent proceedings became non-est in law and the remaining grounds became academic. The appeal of the assessee was therefore allowed.
FULL TEXT OF THE ORDER OF ITAT RAIPUR
The present appeal preferred by the assessee emanates from the order of the Ld.CIT(Appeals)/NFAC, dated 04.02.2026 for the assessment year 2010-11 as per the grounds of appeal on record.
The contention in law as has been assailed by the Ld. Counsel for the assessee is that the reasons, information as emanating in the reasons for reopening for issuance of notice u/s.148 of the Income Tax Act, 1961 (for short the Act’), which were in the possession of the Department only was never shared with the assessee. The said reasons recorded as per Annexure to notice u/ s.148 of the Act is extracted as follows:
3. Referring to the aforesaid reasons, the Ld. Counsel for the assessee submitted that firstly, what were those credible informations in the possession of the Department that the assessee had made cash deposits of Rs.6,42,195/- in the bank account of M/s. Malhotra Electronics Private Limited, New Delhi, was never shared with the assessee. Secondly, the copy of ledger account of M/s. Malhotra Electronics Private Limited, New Delhi was also not shared with the assessee. Thirdly, what are those previous enquiries made by the Department revealing these cash deposits, those were also never shared with the assessee for his comments and response. It was further contended by the Ld. Counsel that it was requested before the A.O during assessment proceedings to provide these information to the assessee for his rebuttal and response. However, the A.O on this issue denied to share such information to the assessee by observing as follows as emanating at Para 4.2 of the assessment order which reads as follows:
“4.2 In the replies filed by the assessee on various dates and also during the statement recorded the assesse always insisted the A.O to supply information and documents received from the ITO (Inv.), Special Cell New Delhi and the DCIT-16(1), New Delhi. By the query letter dated 12.12.2017, it was firmly informed to the assessee that these documents are in confidential nature and copy of the same cannot be provided and the informations and documents may be confronted to the assessee. During recording the statement of the assessee, all the informations and documents were confronted to the assessee even stood insistent demanding to supply the copy of informations and documents mere denial of transactions and such insistency cannot be deemed as proper reply.”
4. The A.O held that these informations which the assessee wanted were confidential. However, based on such confidential documents, the additions have been made by the A.O. Meaning thereby, confidential documents have been used behind the assessee for making additions without allowing the assessee to provide response regarding the same or without allowing the assessee to rebut these informations and therefore, this is nothing but violation of principles of natural justice.
5. Similarly, the Ld. CIT(Appeals)/NFAC also has stated in its order that these documents were confronted to the assessee. However, confrontation of these documents during assessment proceedings means that such documents were placed before the assessee only for short time during assessment proceedings which time is limited and it is unreasonable that during such short spell the assessee should peruse all documents, apply mind and furnish submission. The fact is that the copies of the same were never provided to the assessee for his response or rebuttal. The purpose of natural justice is not served only by confronting the assessee with the relevant documents in possession with the Department but the whole purpose is only served if such documents/copies are provided to the assessee so that the assessee can apply his mind and accordingly, make his submissions before the authority. Without this, the action taken by the Department becomes arbitrary, bad in law and one of high handedness. The Department cannot use any information/documents for making additions in the hands of the assessee without giving an opportunity to him for his response or rebuttal. Such an action is neither mandated by the Act nor it is the procedure for adjudication by any quasi-judicial authority. It is settled legal position that where the materials referred to in the “reasons to believe” by the A.0 were not supplied to the assessee for his response, the entire proceedings for reopening of the assessment gets vitiated as there is no reasonable opportunity provided to the assessee therefore effecting the very base of principles of natural justice in income tax proceedings. In this regard, I refer to the judgment of the Hon’ble High Court of Rajasthan, Jodhpur Bench in the case of Micro Marbles Private Limited Vs. Office of the Income Tax Officer (2023) 475 ITR 569 (Raj.) wherein on the similar issue the Hon’ble High Court has held and observed as follows:
“31. Thus, in the light of the decisions of the Delhi and the Bombay High Courts, as referred to above, the non-supply of the material, especially the documents of entry in the books of M/s Sanmatri Gems Pvt. Ltd. and the statement of Deepak Jain recorded under Section 132 (4) of the Act, is sufficient to vitiate the proceedings.
32. It may be noted that the statement recorded under Section 132 (4) of the Act can be used in evidence for making the assessment only if such statement is made in context with other evidence, or material discovered during search. A statement of a person, which is not relatable to any incriminating document or material found during search and seizure operation cannot, by itself, trigger the assessment.
33. In view of the aforesaid facts and circumstances, we are of the opinion that shorn of all other technical aspects which may have been raised before us, the very fact that the material referred to in the “reasons to believe” was not supplied to the petitioner, the entire proceedings for the reopening of the assessment and leading to the consequential assessment stand vitiated in law.”
6. Further, the Hon’ble Bombay High Court in the case of Tata Capital Financial Services Limited Vs. Assistant Commissioner of Income Tax Circle & Ors., while deciding Writ Petition No.546/2022 vide judgment and order dated 15.02.2022, had directed the Revenue to adhere to certain guidelines in reopening the assessment proceedings. It emphasized that the Assessing Officer shall not merely state the reasons to believe in the letter addressed to the assessee, but if the reasons make reference to any other document or a letter or a report, such document or letter or report should be enclosed to the reasons. Therefore, in view of the aforesaid decision also, it is mandatory on the part of the Assessing Officer to supply the assessee with all relevant documents, referred to in the reasons for reopening so that the assessee may file proper objections opposing such reopening of the assessment.
7. The Hon’ble Chhattisgarh High Court in the case of ACIT, Circle-1, Raipur (C.G.) Vs. Sun and Sun Inframetric Pvt. Ltd., TAXC No. 5 of 2022 and TAXC No.7 of 2022, dated 03.08.2022, had upheld the findings of the Tribunal observing that information and statement which were used against the assessee without enabling the assessee to put forth his defence, such procedure defeats the rules of natural justice of doctrine of audi alteram partem.
8. The Hon’ble Supreme Court in the case of CIT Vs. Amitabh Bachhan (2016) 384 ITR 200 (SC) while upholding the mandatory requirement for adhering to the principles of natural justice, in any proceedings by a quasi-judicial authority also referred to the decision in the case of the C.I.T., West Bengal, II, Calcutta Vs. M/s. Electro House, (1972) 82 ITR 824 (SC), wherein it was held and observed that a breach of principles of natural justice effects the legality of the order. Any contravention of the principles of natural justice vitiates the order passed by the authority. Accordingly, the Hon’ble Apex Court has ruled that it is mandatory to provide an opportunity to the assessee to be heard on all issues especially where conclusions are drawn adverse to the assessee.
9. Considering the entire facts and circumstances of the case and judicial pronouncements, even without going into the merits of the matter, that since relevant information/documents which are emanating in the reasons for reopening as per annexure to the notice u/s.148 of the Act were never shared with the assessee which therefore becomes blatant defect in terms with principles of natural justice and therefore, passing of the reassessment order in such a case becomes arbitrary, bad in law and legally unsustainable, hence, the reassessment order is quashed.
10. Since reassessment itself is quashed, subsequent all other proceedings becomes non-est as per law. Rest other grounds stands academic only.
11. That as per above terms, the appeal of the assessee is allowed.
Order pronounced in open court on 28th day of April, 2026.
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