Agrawal Jmc Joint Venture Vs Assistant/Joint/Deputy/ACIT/ITO (Gujarat High Court)
The Gujarat High Court has set aside an income tax assessment order totaling over ₹107 crore against a joint venture involved in highway construction, citing a violation of natural justice principles. The court found that the Income Tax Department failed to provide a personal hearing to the petitioner despite a timely request.
The petitioner, engaged in infrastructure projects, had filed a nil return for the Assessment Year 2018-2019. Subsequently, their case was selected for limited scrutiny concerning interest income and contract receipts from the National Highway Authority of India (NHAI). The tax department issued a show-cause notice proposing to add ₹35.20 crore as interest income and ₹72.21 crore as contract receipts, which the petitioner claimed were advances contingent on a Delhi High Court decision.
The Assessing Officer (AO) passed an assessment order under Section 143(3) read with Section 144B of the Income Tax Act, 1961, adding the aforementioned amounts to the petitioner’s income. The petitioner challenged this order, arguing a breach of natural justice as their request for a personal hearing, made on April 7, 2021, was allegedly ignored without valid reasons. They also cited hardship due to the substantial demand of ₹50.91 crore.
The Income Tax Department, in its reply, contended that the petitioner had an alternative remedy through appeal and that there was no violation of natural justice. The department claimed that the petitioner failed to request a video conference hearing according to the Standard Operating Procedure (SOP) issued under the Faceless Assessment Scheme, 2019. They argued that a hyperlink for requesting a video conference was available on the e-filing portal, which the petitioner did not utilize.
However, the petitioner, in their rejoinder, disputed the existence and accessibility of the said hyperlink at the relevant time, especially due to alleged issues with the Income Tax Business Application (ITBA) portal. They also pointed out that the SOP relied upon by the department was issued on April 13, 2021, after their hearing request on April 7, 2021.
The Gujarat High Court, after hearing both sides, focused on the aspect of providing a hearing opportunity. The court acknowledged the principle of self-restraint in entertaining writ petitions when statutory remedies exist but noted that this restraint does not apply when there is a violation of natural justice.
The court observed that the petitioner had responded to the show-cause notice and the draft assessment order within two days of their issuance and requested a personal hearing on the third day. Considering the substantial addition proposed and the fact that the assessment was not time-barred, the court deemed the revenue’s stance that the hearing request was an afterthought unsustainable.
The High Court referred to Section 144B of the Income Tax Act, which governs faceless assessments and came into effect on April 1, 2021. Sub-section (9) of this section explicitly states that assessments not made according to the prescribed procedure shall be considered void. The court emphasized that the principles of natural justice are integral to this provision, underscoring the legislature’s intent to ensure a hearing opportunity.
The court cited the Delhi High Court’s decision in Sanjay Aggarwal vs. National Faceless Assessment Centre, Delhi [(2021) 127 taxmann.com 637 (Delhi)], which held that the word “may” in Section 144B(vii) does not absolve the revenue from considering a request for a personal hearing. In that case, an assessment order passed without granting a requested hearing was quashed.
The Gujarat High Court also relied on the Bombay High Court’s ruling in M/s. Piramal Enterprises Ltd. vs. Addl. Commissioner of Income Tax [(2021) 129 taxmann.com 18 (Bombay)], which reiterated the need for authorities to approve a personal hearing when requested by the assessee, referencing the Delhi High Court’s judgment.
The Gujarat High Court concluded that the Income Tax Department failed to provide a reasonable opportunity for a personal hearing to the petitioner. The court rejected the revenue’s reliance on the SOP issued after the hearing request and the unsubstantiated claim of a readily available hyperlink on the e-filing portal at the relevant time.
While acknowledging the Supreme Court’s judgment in Dharampal Satyapal Limited vs. Deputy Commissioner of Central Excise, Gauhati and others [(2015) 8 SCC 519) regarding the “useless formality theory,” the Gujarat High Court emphasized the Apex Court’s view in M/s. Escorts Farms (Ramgarh) Ltd.) vs. Commissioner, Kumaon Division, Nainital, U.P. & Ors. that the right to a hearing is a valuable right, and its denial constitutes a serious breach of statutory procedure and natural justice principles.
Consequently, the Gujarat High Court quashed and set aside the impugned assessment order, the consequential demand for taxes, and the penalty. The matter was remanded back to the Assessing Officer, who is now directed to grant the petitioner a personal hearing via video conferencing and thereafter pass a reasoned order in accordance with the law.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
