Karnataka HC: Assessment Quashed for Granting Only Two Days to Respond to Section 144B Show Cause Notice

Nambiar Builders Private Limited Vs Assessment Unit (Karnataka High Court)

Karnataka HC: Assessment Quashed for Granting Only Two Days to Respond to Section 144B Show Cause Notice

The Karnataka High Court partly allowed the writ petition and quashed the show cause notice, assessment order and consequential penalty notices, holding that the assessee had been denied a reasonable opportunity of hearing under the faceless assessment procedure prescribed in Section 144B. The Court noted that the show cause notice dated 20.02.2026 required the assessee to respond by 24.02.2026, effectively granting only two days, whereas the Standard Operating Procedure (SOP) under Section 144B(6)(xi) contemplates seven days’ time for filing a response unless the period is curtailed for recorded reasons. Since no reasons were recorded for abridging the statutory response period, the procedure adopted was contrary to the prescribed SOP and violated the principles of natural justice.

Rejecting the Revenue’s contention that the defect stood cured because the assessee had participated in the assessment proceedings, the Court held that mere participation does not validate proceedings initiated in breach of the mandatory procedural safeguards. Relying on its earlier decisions in similar matters, the Court restored the assessment proceedings to the stage of the defective show cause notice and directed the Department to enable the assessee to file a detailed additional reply on the portal. The Court further directed that the fresh assessment be completed after duly considering the assessee’s response, while clarifying that the assessee would not subsequently raise the plea of limitation in the remanded proceedings.

FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT

The petitioner, who is in receipt of the Show Cause Notice dated 20.02.2026 and who has not only responded to such notice but also participated in the assessment proceedings, has filed this petition calling in question the Show Cause Notice, Assessment Order and Penalty Show Cause Notices. The impugned Show Cause Notice is dated 20.02.2026 and it is marked as Annexure-A. The Show Cause Notice dated 20.02.2026 is issued calling upon the petitioner to file its response before 2 p.m. of 24.02.2026.

2. Sri Hemant Venkatray Pai, the learned counsel for the petitioner, while relying upon the date of the Show Cause Notice and time allowed, submits that in terms of the SOP issued under the provisions of Section 144 B (6)(xi) of the Income Tax Act, 1961 [for short, ‘the iT Ace], it is mandatory in law to issue seven days to respond unless time is curtailed recording reasons. The learned counsel emphasizes that the notice being defected the entire proceedings must fail.

3. Sri M. Thirumalesh, a learned Standing Counsel for the respondents without disputing the date of the Show Cause Notice or that the petitioner was allowed only two days to respond, submits that this Court may consider that the petitioner has not only filed its reply but also participated in the assessment proceedings, and that this Court may not interfere unless the petitioner shows that the reply has not been considered or that it is not extended a reasonable opportunity to file detailed response.

4. In reply, Sri Hemant Venkatray Pai submits that this Court may refer to the order dated 05.10.2023 in W.P.No.20622/2023 [T-IT] and the inarguable position is that the petitioner did not have a cause until the assessment proceedings were closed. The learned counsel also submits that even interference at this stage would not foreclose the assessment proceedings on the ground of rejection. This Court must indeed refer to the opinion as contained in the order dated 05.10.2023 in W.P.No.20622/2023 which reads as under:

“It is undisputed that the petitioner is issued with the Show Cause Notice dated 08.12.2022 allowing time till 17:29 hours of 14.12.2022, and the SOP issued under the provisions of Section 144B[6][xi] of the IT Act contemplates Show Cause Notice with seven days to respond unless such time must be curtailed because of the date for completion of the assessment. It follows from these undisputed facts that the petitioner is issued with the Show Cause Notice allowing six days to file response but without recording reasons for curtailing notwithstanding the fact that the assessment could be completed before 31.12.2022.

This supports the canvass demonstrating lack of opportunity. This Court must also observe that in similar circumstances, this Court has disposed of the writ petition in W.P. No.2816/ 2023 and connected matters on 09.03.2023 remanding the proceedings to the stage post the concerned Show Cause Notice with liberty to the assessee to file a reply and calling upon the concerned to extend an opportunity as would be permissible in law and to complete the assessment proceedings. The petition must therefore prevail and there must be suitable orders.”

5. This Court finds considerable force in the submissions on behalf of the petitioner in the light of the exposition as aforesaid, and therefore, there must be interference to restore the proceedings with opportunity to the petitioner to file a detailed further response, if any, within two [2] weeks from the date the concerned enables filing of the objections. In the light of the afore, the following:

ORDER

The petition is allowed-in-part, and the impugned Show Cause Notice, Assessment Order and Penalty Show Notices as per Annexures-A to A4 are quashed. The petitioner is at liberty to file further reply within four [4] weeks from the date the concerned enables filing of objections in the portal. The assessment shall be completed considering the reply once again and the petitioner shall not, in the light of the submissions made, raise question of limitation.