Case Law Details
S.B. Distributors Acting Through Its Partners And 4 And Ors Vs ITO (Delhi High Court)
Introduction: In a recent landmark judgement by the Delhi High Court, it was ruled that the income revision under section 147 of the Income Tax Act, initiated by the Income Tax Officer (ITO) against SB Distributors, was invalid due to the absence of a Show Cause Notice (SCN) issued prior to the revision. The court quashed the impugned assessment order and offered respite to the petitioner.
Analysis: The bone of contention in the SB Distributors vs ITO case was the assessment order dated 29.05.2023 passed under Section 147 read with Section 144 of the Income Tax Act, 1961. The order, according to the petitioner, was flawed since it lacked a SCN cum draft assessment order proposing income variation. This misstep resulted in the issuance of an unsupportable demand notice, which eventually led to the present legal dispute.
The Delhi High Court, after perusal of the impugned assessment order and understanding the situation, agreed with the petitioner’s viewpoint. It recognized the failure to issue a show cause notice cum draft assessment order before enhancing the petitioner’s taxable income as a fundamental flaw, thereby nullifying the assessment order. The court has allowed the AO to pass a fresh assessment order only after issuing a SCN cum draft assessment order, detailing the proposed income variation.
Conclusion: This judgement underscores the significance of due process in taxation matters. By nullifying the assessment order due to the absence of a SCN, the Delhi High Court has emphasised that every procedural aspect should be meticulously followed to uphold the principle of natural justice. This decision could potentially influence similar cases in the future, where procedural lapses may lead to the invalidation of the assessment orders.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
1. Allowed, subject to just exceptions.
W.P.(C) 8949/2023 & CM Appl. 33932/2023 [Application filed on behalf of the petitioner seeking interim relief]
2. Issue notice.
2.1 Mr Zoheb Hossain, learned senior standing counsel, accepts notice on behalf of the respondents/revenue.
3. In view of the directions that we propose to pass, Mr Zoheb Hossain says that counter-affidavit need not be filed in the matter, and that he will argue the matter based on the record presently available with the court.
4. Dr Rakesh Gupta, who appears on behalf of the petitioner, says that apart from anything else, the impugned assessment order dated 29.05.2023 passed under Section 147 read with Section 144 of the Income Tax Act, 1961 [in short, “the Act”] is flawed, as no show cause notice cum draft assessment order was served on the petitioner, proposing variation in income.
5. Dr Gupta says that on account of this fundamental flaw, the consequent steps taken by the Assessing Officer (AO), i.e., the issuance of demand notice dated 29.05.2023 and the penalty notices dated 29.05.2023 and 30.05.2023, are also unsustainable in law.
6. Mr Zoheb Hossain, learned senior standing counsel, who appears on behalf of respondent/revenue, cannot but accept that the law requires the AO to issue a show cause notice cum draft assessment order, proposing variation in income.
7. A perusal of the impugned assessment order shows that additions have been made, enhancing the taxable income of the petitioner.
8. Given the fact that no show cause notice cum draft assessment order was issued prior to upward revision of the petitioner’s income, the impugned assessment order is set aside, albeit with liberty to the AO to pass a fresh assessment order.
9. Before the AO passes a fresh assessment order, he will issue a show cause notice cum draft assessment order, indicating therein the proposed variation in income.
10. This exercise will be completed by the AO within the next four (4) weeks.
11. The petitioner will be at liberty to file a response. The response will be filed within four (4) weeks of receipt of the draft show cause notice cum draft assessment order.
12. The AO will, thereafter, accord personal hearing to the authorized representative of the petitioner. For this purpose, the AO will issue a notice to the petitioner, whereby the date and time of the hearing will be indicated.
13. Needless to say that the AO will pass a speaking assessment order, which would deal with the contentions embedded in the reply, if any, filed by the petitioner.
14. As a result of the directions issued hereinabove, the demand notice dated 29.05.2023, and the penalty notices dated 29.05.2023 and 30.05.2023, shall also collapse.
15. The above-captioned petition is disposed of, in the aforesaid terms.
16. Consequently, the pending application shall stand closed.
17. Parties will act based on the digitally signed copy of the order.
