Arcade Constructions Vs ITO (Karnataka High Court)
Karnataka HC on Reopening: Opportunity of Hearing is a Must! -Quashes ₹9.10 Cr Ex-Parte Reassessment; Karnataka HC Quashes Ex-Parte Reassessment & Penalty Orders Against Arcade Constructions
Karnataka High Court dealt with the validity of reassessment proceedings initiated u/s 148A(b) & concluded ex-parte against a partnership firm.
Arcade Constructions, a partnership firm registered u/s 58(1) of the Partnership Act, had closed its business during the onset of the pandemic & had not filed its return for AY 2020-21. Dept issued notice u/s 148A(b) on 15.03.2024 alleging non-filing of return & escapement of income.
Subsequently, with approval of the Principal CIT, order u/s 148A(b) was passed & reopening initiated. On 21.02.2025, the NFAC proceeded ex-parte & made an addition of ₹9.10 crore as unexplained investment u/s 69A. Consequential penalty orders u/s 271AAC(1) & u/s 272A(1)(d) were also issued.
Petitioner contended that the entire proceedings were carried out ex-parte without providing proper opportunity of hearing. Hence, the reassessment order & subsequent penalty orders were unsustainable in law.
Revenue attempted to justify the reopening but could not dispute the fact that the assessment & penalty orders were indeed ex-parte.
The Court noted that the orders, having been passed ex-parte, were unsustainable. Once the foundation is vitiated, all subsequent proceedings including penalty orders automatically collapse. The matter therefore required remand to the stage of reply to notice u/s 148A(d).
