Faceless Assessment: Seven-Day Minimum Mandatory for SCN Compliance

Sri Gopal Store Vs AO (Orissa High Court)

In the recent case of Sri Gopal Store vs AO, the Orissa High Court established a vital precedent for faceless assessment proceedings under the Income Tax Act, 1961. The court ruled that the assessee should be provided a minimum of seven days to comply with a show cause notice (SCN), following guidelines from the Central Board Direct Taxes (CBDT).

Analysis: In this case, Sri Gopal Store, the petitioner, was issued a show cause notice on 12th December, 2022, requiring a response by 16th December, 2022. The petitioner argued that this did not adhere to CBDT guidelines, which mandate a minimum notice period of seven days unless the assessment period is nearing its expiry. The AO countered that the assessee had been given several opportunities and sufficient time to comply but had failed to do so. Furthermore, the AO argued that while the compliance date was 16th December, the scrutiny order was only passed on 23rd December, 2022, giving the assessee 11 days to comply.

Upon review, the Orissa High Court ruled in favour of the petitioner, noting that the revenue authority was obliged to provide a reasonable timeframe for the assessee to respond to the show cause notice. The court further observed that there was no justification for curtailing the response time.

Conclusion: The judgment in the Sri Gopal Store vs AO case by the Orissa High Court reinforces the importance of adherence to procedural guidelines in tax assessment proceedings. By ruling that a minimum of seven days must be given to comply with a show cause notice, the court underscored the need for fairness and reasonableness in tax procedures. This verdict is a significant step towards enhancing transparency and predictability in faceless assessments under the Income Tax Act, 1961.

FULL TEXT OF THE JUDGMENT/ORDER OF ORISSA HIGH COURT

1. Mr. Ray, learned senior advocate appears on behalf of petitioner (assessee) and demonstrates, the show cause notice was issued on 12^th December, 2022 requiring reply by late afternoon of 16^th December, 2022. This was contrary to direction by Central Board Direct Taxes (CBDT) for there being minimum seven days notice, unless to be curtailed by reason expiring period of limitation for the assessment.

2. Mr. Mohapatra, learned advocate, Senior Standing Counsel appears on behalf of revenue. He submits, counter has been filed. He draws attention to statements made in a passage appearing in paragraph 11. The passage is reproduced below.

“On the above facts, it is seen that AO has given several opportunities and sufficient time to comply with the notice issued to assessee, however, assessee did not comply with some of the notices and if complied, it was incomplete. Moreover, after the issuance of the show-cause notice on 12.12.2022 though the compliance date was 16.12.2022 scrutiny order was passed on 23.12.2022 after 11 days from the date of issuance of the show-cause. The assessee could have complied with the notice if wanted to. Further, as mentioned in clause no. N.1.3.2 Response time of 7 days may be curtailed, keeping in view the limitation date for completing the assessment. Hence, technically there is no violation of the SOP issued by the CBDT on this behalf.”

3. Mr. Ray disputes alleged omission can be fatal to contention of his client.

4. We made query from Court on whether there is any CBDT provision in Income Tax Act, 1961 or the rules having empowered the CBDT to issue a directive on dispensation of requirement to give show cause notice on earlier omission by assessee in the proceeding. Nothing could be shown. It transpires that revenue was mandated to give the show cause notice and on having given it was bound by directions made by CBDT on reasonable time for the assessee to answer. The statement in relied on passage in the counter saying that though compliance date was 16^th December, 2022, scrutiny order was passed on 23^rd December, 2022 after 11 days and assessee did not comply till then, demonstrates that there is no basis for curtailment of the response time.

5. For reasons aforesaid we set aside and quash impugned assessment order and demand, both dated 23^rd December, 2022. The show cause notice is restored for being replied to. Assessee is to answer by 20^th July, 2023, failing which scrutiny order dated 23^rd December, 2022 culminating in impugned assessment order and demand will all stand automatically restored.

6. The writ petition is disposed of.