Direct Tax Judgement No 2

06.01.2024

Sub: Time Limit to Respond to Notices – Violation of Principles of Natural Justice

Today, the author was browsing through the database, and underlying judgement caught my attention, which may be relevant for many of us, especially in connection with Faceless Assessment Time Limits. The author is summarising the juice of judgement with his comments for the readers. The same can be applied to any analogue’s scenarios.

Facts:

• Assessee was carrying on business
• Assessee filed loss return of income
• The Assessee case was selected for scrutiny as there was a substantial gap in the purchase of property vis-à-vis stamp duty valuation [ Section 50C r.w.s Section 56(2)(x)]
• Assessee was issued a Notice on 16.09.2022 whereby due date to response was stated to be 20.09.2022 [ 17.09.2022 (Saturday) & 18.09.2022 (Sunday)]. Thus, only one day was available for the assessee to submit the response
• Assessee requested the adjournment of just 3 days from 20.09.2022 to 23.09.2022. Such adjournment was requested to gather data and evidence for providing the response.
• Section 144B order r.w.s Section 143(3) was framed by disabling the submission option on the portal, whereby an addition of Rs.1.85 crores was made, and consequently, tax, interest and penalty were demanded.
• Assessee, being aggrieved, approached HC by way of a writ petition to seek justice on the grounds of natural justice and unfairness arising on account of the Faceless Assessment Scheme as per the provisions of the Act by stating the facts as stated above
• DR, in his affidavit, stated that all submitted that the order u/s. 143(3) r.w.s. 144B was passed after following due procedure and after giving opportunities to file a reply to the assessee.
• DR also stated that all comprehensive submissions filed by the assessee were duly considered. Thus, there is no illegality as alleged;

High Court Comments:

• Section 144B (1) (xvi) (b) mandates providing an opportunity to the assessee in case any variation prejudicial to the interest of the assessee is proposed.
• Section 144B (9) stipulates that an assessment made u/s. 143(3) or 144 shall be honest if such assessment is not made in accordance with the procedure laid down under this section.
• We have noticed that the adjournment request made by the assessee on 20.09.2022 till 23.09.2022 was not acceded by the A.O. as it is admitted in the affidavit-in-reply that no such request was reflected on the portal
• Therefore, in our opinion, in the case on hand, the opportunity to respond to the show-cause notice was not made available to the assessee, particularly when the huge variation/ addition was proposed to be made, which is prejudicial to the interest of the assessee, it violates the principles of natural justice.

High Court Held:

• We allow the present petition and quash and set aside the order dated 29.09.2022 passed u/s. 143(3) r.w.s. 144B
• The penalty proceedings and the demand notice are also quashed and set aside
• however, we give liberty to the Assessing Officer to initiate the proceedings afresh from the stage of providing the opportunity to the petitioner of hearing if such request is made and thereafter, to decide the matter
• Needless to say, that A.O. thereafter is at liberty to pass appropriate orders in accordance with the law. It is clarified that this Court has not entered into the merits of the case

Author’s Comment

1. Nowadays, lots of notices are issued u/s 133(6) requesting for the information to be filed by the next day, and if no such information is provided, then a Penalty of Rs.500/- per day is proposed to be levied u/s 272A (2)?
2. Can we derive support from the above judgement to derive the support? Yes.
3. Whether non-granting of adjournment is just, fair, and equitable even after comprehensive submissions are filed in the assessment proceedings by the assessee? Non-granting of adjournment is unfair and violates the principles of natural justice.

Judgement Citation: Sun Glory Education Foundation v NFAC Delhi [2023] 156 taxmann.com 390 (Guj)

Note: Please read the judgement before you reach any conclusions.