An ex-parte assessment order is invalid if the notice was sent to a wrong email address and was never properly served on the taxpayer.

An ex-parte assessment order is invalid if the notice was sent to a wrong email address and was never properly served on the taxpayer.

Issue

Is an ex-parte assessment order, passed under Section 144 of the Income-tax Act, 1961, legally valid if the notice that initiated the proceeding was sent to an incorrect or unused email address, and no other mode of service was attempted by the tax department?

Facts

• An assessee, which was a house building cooperative society, had not filed its income tax return for the Assessment Year 2017-18. They believed they had no taxable income as their construction project was still underway.
• The Assessing Officer (AO) initiated proceedings to investigate cash deposits made during the demonetization period.
• The crucial assessment notice was sent by the AO to an email ID of the assessee that was no longer in use. No other attempt was made to serve the notice through any other valid method, such as registered post or personal delivery.
• As the assessee never received the notice, they failed to respond to it.
• The AO then proceeded to pass an ex-parte assessment order under Section 144, making a large addition for the cash deposits as unexplained money. Several penalty orders were also passed subsequently.

Decision

The court ruled in favour of the assessee.

• It held that since the notice was sent to an incorrect email address and was never actually communicated to the assessee through any other valid mode, the assessee did not get a proper opportunity to be heard.
• This failure to provide a proper and effective notice was a clear breach of the principles of natural justice.
• Because of this fundamental flaw, the court set aside the impugned ex-parte order and all the consequential penalty orders. The entire matter was remanded back to the AO for a fresh adjudication, with the clear instruction to provide the assessee with a proper hearing.

Key Takeways

1. Proper Service of Notice is a Must: For any assessment or legal proceeding to be valid, the taxpayer must be properly served with a notice. Sending a notice to an old or incorrect email address, without using other available and more reliable methods, does not constitute proper service.
2. The Right to a Hearing is Fundamental: The principle of audi alteram partem (which means “let the other side be heard”) is a cornerstone of our legal system. An ex-parte order (an order passed in the absence of one party) can only be passed after the tax department has made genuine and legally valid attempts to serve the notice on the taxpayer.
3. The Burden of Proof is on the Department: The responsibility to prove that a notice has been properly served lies with the department. If the taxpayer can show that the chosen method of communication was ineffective (like an old email ID that they no longer use), the service may be held as invalid by the courts.
4. The Remedy is a Fresh Start: When an order is quashed on the grounds of a violation of natural justice, the standard judicial remedy is not to decide the case on merits but to remand it for a fresh hearing. This ensures that the case is ultimately decided on its merits, but only after the taxpayer has had a fair chance to present their case.