Case Law Details
Allied Engineering Works Pvt Ltd Vs National Faceless Assessment Centre Delhi (Delhi High Court)
Introduction: The case of Allied Engineering Works Pvt. Ltd vs. National Faceless Assessment Centre Delhi, heard by the Delhi High Court, revolves around a penalty imposed on the petitioner concerning an income tax deduction claim for expenditure under Section 35(2AB) of the Income Tax Act. The petitioner sought relief on the grounds of a procedural lapse regarding a fair hearing.
Detailed Analysis:
1. Background: The petitioner challenged a penalty order and a consequential demand notice, both dated 23.06.2023. The penalty was imposed due to an alleged overclaim of deduction for research and development expenses. While the petitioner was allowed a 100% deduction for the relevant assessment year (AY) 2021-22, they claimed a 200% deduction in error.
2. Claim of Mistake: The petitioner contended that the mistake arose due to legislative changes after AY 2017-18, and the cap for deductions had varied between 2018-19 and 2019-20. The petitioner cited other reasons in their defense.
3. Violation of Natural Justice: The primary argument presented by the petitioner was a breach of natural justice. They claimed that the penalty order was issued without granting them a personal hearing. Evidence of a request for a personal hearing was provided through a portal screenshot, which was not disputed by the respondent.
4. Court’s Decision: Given the absence of a personal hearing, the Delhi High Court decided to set aside the penalty order and the associated notice. The court granted liberty to the Assessing Officer (AO) to reissue a fresh order after affording the petitioner’s authorized representative an opportunity for a personal hearing.
5. Fresh Order and Immunity Application: The AO was instructed to issue a notice to the petitioner specifying the date and time of the hearing. The fresh order should address all of the petitioner’s contentions, including the assertion that the deduction, albeit at the wrong rate, was reflected in their income tax return.
6. Outcome Clarity: The court clarified that its directions did not preclude the AO from assessing the matter on its merits. The pending interlocutory application was also addressed.
7. Digital Copy: The parties were directed to act in accordance with the digitally signed copy of the court’s order.
Conclusion: In the case of Allied Engineering Works Pvt. Ltd vs. National Faceless Assessment Centre Delhi, the Delhi High Court emphasized the importance of adhering to principles of natural justice. The court nullified the penalty and demand notice due to the absence of a fair hearing and provided the petitioner with an opportunity for a fresh hearing. This case underscores the significance of procedural fairness in tax-related matters.
FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT
CM APPL. 42388/2023
1. Allowed, subject to just exceptions.
W.P.(C) 10939/2023 and CM APPL. 42387/2023 [Application filed on behalf of the petitioner seeking interim relief]
2. Issue notice.
3. Mr Vipul Agrawal, learned senior standing counsel, who appears on behalf of the respondents/revenue, accepts notice.
4. Given the directions that we propose to pass, Mr Agrawal says that he does not wish to file a counter-affidavit in the matter, and he will argue the matter based on the record presently available with the court.
4.1 Therefore, with the consent of the learned counsels for the parties, the writ petition is taken up for hearing and final disposal, at this stage itself.
5. This writ petition concerns Assessment Year (AY) 202 1-22.
6. Via this writ petition, the petitioner seeks to assail the penalty order dated 23.06.2023, as also the consequential demand notice of even date, i.e., 06.2023.
7. Broadly, the impugned penalty order came to be passed because the petitioner had claimed excess deduction under Section 35(2AB) of the Income Tax Act, 1961 [in short, “the Act”], vis-a-vis expenditure incurred on research and development.
8. Concededly, the petitioner, in the AY in issue, i.e., AY 2021-22, was allowed to claim a deduction at the rate of 100% of the expenditure incurred. However, it ended up claiming deduction at the rate of 200%.
9. According to the petitioner, this was a mistake which occurred because the law was amended after AY 2017-18. It is also averred by the petitioner that between 2018-19 and 2019-20, the cap for deduction was pegged at 150%.
10. There are other reasons also which are adverted to in the writ petition. The main ground which has been raised before us is a breach of the principles of natural justice.
11. Learned counsel for the petitioner says that the impugned penalty order dated 23.06.2023 was passed without according personal hearing to the petitioner’s authorized representative. In support of the plea that the petitioner sought personal hearing, our attention has been drawn to the screenshot of the designated portal on which the request was made. This fact which emerges from the record is not disputed by Mr Agrawal.
12. Having regard to the fact that personal hearing was not granted, we are inclined to set aside the impugned order and the consequential notice.
12.1 It is ordered accordingly.
12.2 Liberty is, however, given to the Assessing Officer (AO) to pass a fresh order after according personal hearing to the authorized representative of the petitioner.
12.3 For this purpose, the AO will issue a notice to the petitioner indicating the date and time of the hearing.
13. Needless to add, the AO will pass a speaking order which will deal with all contentions of the petitioner, including the contention that this was not a case of misreporting. According to the petitioner, the factum of deduction being claimed, albeit at the wrong rate, stood embedded in the return of income filed for the aforementioned AY.
13.1 A copy of the speaking order will be furnished to the petitioner.
14. Furthermore, the AO will also take a decision on the pending immunity application, albeit as per law.
15. The writ petition is disposed of, in the aforesaid terms.
16. It is also made clear, that since we have not dealt with the matter on merits, the directions issued today will not impact the order that the AO may
17. Consequently, pending interlocutory application shall also stand
18. Parties will act based on the digitally signed copy of the order.
