AO Can’t Pass Best Judgment Assessment Without Assigning Reasons for Rejecting Voluminous Reply | HC

Case Details: Shantilal Bhikhabhai Nairya vs. Union of India - [2025] 173 taxmann.com 842 (Gujarat)

Judiciary and Counsel Details

• Bhargav D. Karia & D.N. Ray, JJ.
• Sahil J. Rao, Adv. for the Petitioner.
• Karan G. Sanghani, Adv. for the Respondent.

Facts of the Case

The assessee, a proprietor of a manufacturing and trading business of copper and aluminium scrap, filed its return of income declaring total income under the head “Income from Business & Profession”. The assessee received a notice under section 143(2) for scrutiny assessment.

During the assessment proceedings, the Assessing Officer (AO) issued a show cause notice proposing additions to the assessee’s income. In response, the assessee filed a voluminous reply raising objections to the proposed additions. After considering the assessee’s reply, the AO passed the assessment order under section 144.

The assessee filed a writ petition before the Gujarat High Court.

High Court Held

The High Court held that the AO passed the order without assigning any reason for not agreeing with the assessee’s reply. This is a breach of the principle of natural justice. The principle of natural justice has twin ingredients: firstly, the person who is likely to be adversely affected by the action of the authorities should be given notice to show cause thereof and granted an opportunity of hearing; secondly, the orders so passed by the authorities should give the reason for arriving at any conclusion showing proper application of mind.

Violation of either of them could, in the given facts and circumstances of the case, vitiate the order itself. Thus, the assessment order passed by the AO was not tenable in the eye of law.

List of Cases Reviewed

• Assistant Commissioner, Commerical Tax Department, Works Contract and Leasing, Kota v. Shukla and Brothers (2010) 4 Supreme Court Cases 785 [Para 16] – followed.