Assessment Order Enhaning Addition Without Opportunity Quashed: Bombay HC

KEM Hospital And Seth G. S. Medical College Employees Co-op Credit Society Ltd. Vs National Faceless Assessment Centre (Bombay High Court)

Material Facts

The petitioner challenged the final Assessment Order dated 28.09.2022 passed under Sections 144 and 144B of the Income-tax Act, 1961, the Notice of Demand issued under Section 156 on the same date, and the Show Cause Notice initiating penalty proceedings under Section 270A.

The petitioner contended that the Show Cause Notice dated 05.03.2022 proposed an addition of ₹2,69,05,368 to its income. However, the final Assessment Order made an addition of ₹9,81,95,173 without providing any opportunity to explain why such enhanced addition should not be made. According to the petitioner, the enhanced addition was based on the balance sheet and Profit and Loss Account submitted in response to the Show Cause Notice.

Procedural History

• A Show Cause Notice dated 05.03.2022 proposed an addition of ₹2,69,05,368.
• The petitioner submitted its response on 03.08.2022.
• On 28.09.2022, the Assessing Officer passed the final Assessment Order under Sections 144 and 144B, making an addition of ₹9,81,95,173, and issued a demand notice under Section 156 along with a Show Cause Notice for penalty proceedings under Section 270A.
• The petitioner challenged these actions before the Bombay High Court.

Legal Issue(s)

• Whether an assessment order under Sections 144 and 144B of the Income-tax Act could make an enhanced addition beyond the amount proposed in the Show Cause Notice without giving the assessee an opportunity to respond.
• Whether the impugned assessment order was liable to be quashed for lack of such opportunity.

Relevant Statutory Provisions

• Sections 144, 144B, 156 and 270A of the Income-tax Act, 1961.

Petitioner’s Submissions

The petitioner submitted that:

• The Show Cause Notice proposed an addition of only ₹2,69,05,368.
• The final Assessment Order increased the addition to ₹9,81,95,173.
• No opportunity was provided to explain why the enhanced addition should not be made.
• The enhanced addition was based on the balance sheet and Profit and Loss Account furnished in response to the Show Cause Notice.

Revenue’s Submissions

The Revenue opposed the petition. After hearing both parties and examining the record, the Court considered the petitioner’s grievance.

Court’s Findings and Reasoning

The High Court found the petitioner’s grievance to be well-founded.

The Court observed that after the Show Cause Notice dated 05.03.2022 and the petitioner’s reply dated 03.08.2022, the Assessing Officer passed the impugned Assessment Order making an addition of approximately ₹9.81 crore.

The Court found that no opportunity whatsoever had been given to the petitioner to explain why the enhanced addition of ₹9.81 crore should not be made to its total income. In these circumstances, the Court held that the final Assessment Order dated 28.09.2022 could not be allowed to stand.

Directions

The High Court directed that:

• The Assessment Order dated 28.09.2022 shall stand quashed and set aside and shall be treated as a Show Cause Notice.
• The Income Tax Department shall open the portal within one week to enable the petitioner to file its response.
• The petitioner shall file its response within 15 days from reopening of the portal, together with all supporting documents.
• If the petitioner seeks a personal hearing, the Assessing Officer shall grant such hearing.
• After considering the response and, where applicable, completing the personal hearing, the Assessing Officer shall pass a fresh Assessment Order within eight weeks from receipt of the response or conclusion of the hearing, whichever is later.

Final Ruling

The Bombay High Court quashed and set aside the Assessment Order dated 28.09.2022, directed that it be treated as a Show Cause Notice, issued directions for filing a fresh response and hearing, and disposed of the writ petition without any order as to costs.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

1. Respondents waive service. With the consent of the parties, Rule made returnable forthwith and heard finally.

2. The above Writ Petition is filed to challenge the impugned final Assessment Order dated 28^th September 2022 passed under Section 144 read with Section 144B of the Income Tax Act, 1961 (for short “I. T. Act, 19611 and the impugned Notice of Demand of the same date issued under Section 156 of the I. T. Act. Further, a Show Cause Notice dated 28^th September 2022 for initiating penalty proceedings under Section 270A of the I. T. Act also assailed.

3. The short ground on which the challenge is laid before us is that though the Show Cause Notice issued to the Petitioner dated 5^th March 2022 sought to make an addition to the Petitioner’s income to the tune of Rs. 2,69,05,368/-, a final Assessment Order makes an addition to the income of Rs. 9,81,95,173/-. This addition has been made without giving any opportunity to the Petitioner to show cause as to why this addition should not be made and has been picked up only from balance-sheet and Profit and Loss Account of the Petitioner society which was submitted in reply to the Show Cause Notice issued to the Petitioner.

4. Having heard the learned counsel appearing on behalf of the Petitioner, as well as the learned counsel appearing on behalf of the Revenue, and after perusing the record before us, we indeed find that the grievance made by the Petitioner is well-founded. After the Show Cause Notice that was issued on 5th March 2022, and the response given thereto by the Petitioner on 3′ August 2022, the impugned Assessment Order has been passed making the addition of approximately Rs.9.81 Crores. No opportunity whatsoever was given to the Petitioner to explain as to why the addition of Rs.9.81 Crores ought not be made to its total income. Once these are the facts, we find that the final Assessment Order dated 28^th September 2022 cannot be allowed to stand.

5. In view of the foregoing discussion, the following order is passed:-

a. The final Assessment Order dated 28^th September 2022 is hereby quashed and set aside. The said order will now be treated as a Show Cause Notice to the Petitioner.

b. The Petitioner shall file his response to the aforementioned Show Cause Notice within a period of 15 days from the date when the Income Tax Department opens the portal to enable the Petitioner to file his response/reply. The portal shall be opened by the Income Tax Department within a period of one week from today.

c. It is needless to clarify that this response/reply shall contain all necessary documents to substantiate the claim of the Petitioner as to why the aforesaid sum of Rs.9.81 Crores ought not be added to the income of the Petitioner. If the] Petitioner wants a personal hearing, he shall make that request to the Assessing Officer who shall then accord a personal hearing to the Petitioner.

d. Once the response/reply along with necessary documents is filed, and a personal hearing is given [if asked for], the Assessing Officer shall pass the Assessment Order within a period of eight weeks from the date of receiving the response/reply of the Petitioner, or after the conclusion of the hearing, whichever is later.

6. Rule is accordingly made absolute and the Writ Petition is also disposed of in terms thereof. However, there shall be no order as to costs.

7. This order will be digitally signed by the Private Secretary/ Personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order.