Failure To Grant Requested Personal Hearing Under Section 148A Vitiates Reassessment Order Requiring Fresh Opportunity

By | October 27, 2026
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Failure To Grant Requested Personal Hearing Under Section 148A Vitiates Reassessment Order Requiring Fresh Opportunity

Issue

  1. Whether passing an order under Section 148A(3) without granting a personal hearing, despite a specific request by the assessee, violates principles of natural justice and invalidates the order.
  2. Whether the Assessing Officer is permitted to proceed afresh under Section 148A after setting aside the non-compliant order to afford the requisite personal hearing.

Facts

  • The case pertains to Assessment Year (AY) 2020-21 under the Income-tax Act, 1961.
  • The assessee, an individual shareholder, held shares in two companies that underwent restructuring under an NCLT-approved Scheme of Arrangement, with the cost of acquisition determined under Section 49.
  • The assessee disclosed these shares in his tax return based on his cost computation, whereas the companies reported them at a different valuation, resulting in a reporting variance of ₹42.40 crores.
  • The original assessment was completed under Section 143(3) without any addition on this account.
  • The Assessing Officer subsequently issued a notice under Section 148A(1) alleging income escaping assessment due to the ₹42.40 crore discrepancy.
  • The assessee submitted a comprehensive written response explaining the NCLT Scheme, Section 49 cost computation, and the basis for differing values, while explicitly requesting an opportunity for a personal hearing.
  • The Assessing Officer passed an order under Section 148A(3) holding it a fit case to issue a notice under Section 148 without providing a personal hearing.

Decision

  • Violation of Natural Justice: Merely permitting the filing of a written reply does not satisfy the legal requirement of providing a personal hearing when requested by the assessee.
  • Invalidation of Order: The order passed under Section 148A(3) violated principles of natural justice and the statutory mandate of Section 148A, rendering it unsustainable and liable to be set aside.
  • Liberty to Proceed Afresh: Setting aside the impugned order does not prevent the Assessing Officer from initiating fresh proceedings in accordance with the law, provided an opportunity for a personal hearing is granted.
  • Outcome: The issue was decided in favor of the assessee.

Key Takeaways

  • Mandatory Personal Hearing: When an assessee explicitly requests a personal hearing during Section 148A proceedings, failure to afford it breaches principles of natural justice and invalidates subsequent orders.
  • Written Reply Is Not a Substitute: Written submissions cannot replace an oral/personal hearing where such a hearing is required or specifically sought by the tax assessee.
  • Procedural Defect Permits Remand: Setting aside a reassessment order due to procedural non-compliance leaves open the option for the Revenue to re-initiate proceedings from the stage of defect after granting due opportunity.
HIGH COURT OF RAJASTHAN
Purshotam Kumar Hissaria
v.
Assistant Commissioner of Income-tax
Arun Monga and YOGENDRA KUMAR PUROHIT, JJ.
D.B. Civil Writ Petition No. 22635 of 2026
SEPTEMBER  29, 2026
Sanjay Jhanwar, Sr. Adv. and Prateek Gattani for the Petitioner. K.K. Bissa for the Respondent.
ORDER
Arun Monga, J.- Petitioner is before this Court seeking quashing of the order dated 29.09.2026 passed under Section 148A of the Income Tax Act, 1961 (“the Act of 1961”).
2. The petitioner holds shares in Sunita Hydrocolloids Private Limited (“SHPL”) and Hissaria Hydrocolloids Private Limited (“HHPL”), which were disclosed in his income-tax returns. Pursuant to a composite Scheme of Arrangement sanctioned by the National Company Law Tribunal, Ahmedabad Bench, vide order dated 22.07.2019, involving amalgamation and demerger of entities forming part of the Sunita Group, the petitioner’s existing shareholding was restructured. Consequently, shares of SHPL and HHPL were allotted to him on 20.03.2020, without any fresh investment or cash consideration. The cost of acquisition was determined in terms of Sections 49(2), 49(2C) and 49(2D) of the Act of 1961.
2.1 In his return of income, the petitioner disclosed the shares of SHPL and HHPL at the aforesaid cost of acquisition, aggregating to Rs. 2,90,01,438/-. On the other hand, SHPL and HHPL disclosed, under Schedule SH-1 of their respective returns, the shares issued pursuant to the Scheme at the value adopted under the Scheme of Arrangement. This resulted in a difference of Rs. 42,39,78,012/-. The petitioner’s case is that the difference was on account of the respective reporting requirements and the basis of valuation adopted in the two returns. An assessment order dated 20.03.2026 was thereafter passed under Sections 143(3) read with 144B of the Act of 1961, without making any addition on this issue.
2.2. However, subsequently, Respondent No. 1 issued a notice dated 30.03.2026 under Section 148A(1) of the Act for A.Y. 2020-21, proposing that income of Rs. 42,39,78,012/- had escaped assessment. The petitioner submitted a detailed reply dated 14.04.2026, explaining the Scheme of Arrangement, the computation of the cost of acquisition under Section 49 of the Act and the difference in the respective reporting. On 29.06.2026, Respondent No. 1 passed an order under Section 148A(3), without granting any opportunity of hearing to the petitioner, holding that the case was fit for issuance of notice under Section 148 of the Act of 1961.
2.3. Hence, the present writ petition.
3. Learned Senior Counsel for the petitioner primarily contends that, despite the petitioner having specifically sought an opportunity of personal hearing in terms of the statutory mandate contained in Section 148A of the Act of 1961, the proceedings were concluded solely on the basis of the reply submitted to the show-cause notice, without granting such an opportunity. Thus, an adverse prima facie opinion has been formed against the petitioner ex parte, in violation of the principles of natural justice.
4. On a Court query, learned Senior Counsel for the petitioner fairly conceded that the impugned order merely records a prima facie opinion. However, it was submitted that the same is likely to weigh upon the mind of the Assessing Officer at the time of passing the final order. This is particularly so as the petitioner was not afforded an opportunity to assist the Assessing Officer in support of the reply submitted for dropping the further proceedings pursuant to the show-cause notice.
5. Learned counsel for the respondents, on the other hand, submitted that since notice was issued to the petitioner, the impugned order cannot be said to be ex parte. However, we are unable to accept the said submission, as mere issuance of notice does not, by itself, amount to grant of an opportunity of hearing.
6. In the aforesaid context, it would be apposite to notice the provisions of Section 148A of the Act of 1961, which are reproduced hereinbelow:-
Procedure before issuance of notice under section 148
“(1) Where the Assesssing Officer has information which suggests that income chargeable to tax has escaped assessment in the case of an assessee for the relevant assessment year, he shall, before issuing any notice under section 148 provide an opportunity of being heard to such assessee by serving upon him a notice to show cause as to why a notice under Section 148 should not be issued in his case and such notice to show cause shall be accompanied by the information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year.
(2) On receipt of the notice under sub-section (1), the assessee may furnish his reply within such period, as may be specified in the notice.
(3) The Assessing Officer shall, on the basis of material available on record and taking into account the reply of the assessee furnished under sub-section (2), if any, pass an order with the prior approval of the specified authority determining whether or not it is a fit case to issue notice under section 148.
(4) The provisions of this section shall not apply to income chargeable to tax escaping assessment for any assessment year in the case of assessee where the Assessing Officer has received information under the scheme notified under section 135A.
Explanation- For the purposes of this section and section 148, “specified authority ” means the specified authority referred to in section 15.1. “
(emphasis supplied)
7. A perusal of the aforesaid provision clearly leaves no manner of doubt that the Assessing Officer is statutorily required to provide an opportunity of being heard to the assessee before passing an order.
8. Apropos, on a Court query, learned counsel for the respondents submitted that, since a detailed reply along with relevant material had been filed by the petitioner, the Assessing Officer, in his wisdom, deemed it appropriate to pass the impugned order basis thereof.
9. In the premise, we are of the opinion that mere filing of a reply does not fulfil the requirement of affording an opportunity of personal hearing. Accordingly, the impugned order, being in violation of the principles of natural justice and de hors the compliance of mandate envisaged under Section 148(A), ibid, is not tenable and is accordingly set aside.
10. It is, however, clarified that setting aside of the impugned order shall not preclude the Assessing Officer from proceeding afresh in the matter after affording an opportunity of personal hearing to the petitioner.
11. Petition is disposed of with aforesaid liberty and any pending application(s) shall also stand disposed of.