HC Reverses 2016 Ex-Parte Order: Impacts of Best Judgment Assessment

Parina Laboratories Pvt. Ltd. Vs ITO (Bombay High Court)

Introduction: In a significant legal development, the Bombay High Court has recently rendered a verdict on a case involving Parina Laboratories Pvt. Ltd. The case revolves around an ex-parte order passed in 2016, which triggered a series of events leading to a High Court intervention. This article provides a detailed analysis of the case, shedding light on the background, legal implications, and the final outcome.

Background of the Case: The case centers on an order dated December 30, 2016, issued under Section 144 of the Income Tax Act, 1961. This order was related to the assessment year 2009-10 and had a substantial impact on Parina Laboratories Pvt. Ltd.

Change in Company Status: The petitioner company underwent a significant change when one of its directors, Devesh Ajmera, passed away in July 2016. This change effectively rendered the company non-functional, leading to a lack of communication and awareness regarding the proceedings initiated by the Assessing Officer.

Discovery of the Order: It wasn’t until March 2020 that the company and Uma Devesh Ajmera, another director, became aware of the order’s existence. This awareness arose when the Union Bank of India informed Uma Devesh Ajmera that her personal account had been attached by Income Tax authorities. Subsequent inquiries by her Chartered Accountant unveiled the 2016 order and a consequential order passed under Section 179 of the Act.

Impugned Order and Time Constraints: The impugned order indicated that the notices sent to the petitioner had returned undelivered with the endorsement “Left.” The Assessing Officer seemed to be working under time constraints, leading to the decision to complete the assessment to the best of judgment under Section 144 of the IT Act.

One-Time Settlement (OTS): Notably, the order was also based on the assumption that the petitioner had entered into a One Time Settlement (OTS) of Rs.9,59,95,749 with Union Bank of India in 2008. This amount was added to the petitioner’s income due to a lack of complete OTS details.

Legal Implications: The delayed discovery of the order and the expiration of the appeal period left the petitioner in a challenging position. The petitioner contended that the actual OTS amount with Union Bank of India was significantly lower than what was considered in the order.

High Court’s Verdict: The Bombay High Court ultimately set aside the 2016 ex-parte order, recognizing the constraints under which it was passed. The court directed the Jurisdictional Assessing Officer to provide copies of all notices, allowing the petitioner to respond and furnish necessary details. The Assessing Officer was instructed to pass a reasoned order after affording the petitioner a personal hearing and addressing all submissions.

Conclusion: The case of Parina Laboratories Pvt. Ltd. vs. ITO highlights the significance of due process and fairness in income tax assessments. The High Court’s decision to set aside the 2016 ex-parte order provides a lifeline to the petitioner, offering an opportunity for a fair and reasoned assessment. This case serves as a reminder of the importance of proper communication and adherence to legal procedures in the realm of taxation.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

1. Petitioner is impugning an order dated 30^thDecember 2016 passed under Section 144 read with Section 147 of the Income Tax Act, 1961 (the Act) for Assessment Year 2009-10.

2. It is petitioner’s case that there were two directors in the Board of petitioner namely Devesh Ajmera and Uma Devesh Ajmera, it was Devesh Ajmera the husband of Uma Ajmera who was carrying on the business It is stated that Devesh Ajmera died on or about 17^thJuly 2016 and thereafter the company was effectively non functional. It is petitioner’s case that therefore none of the notices that were sent by the Assessing Officer (A.O.) was received by petitioner. It is averred in the petition that only in March 2020 when Uma Devesh Ajmera, who was the Director in the petitioner company and petitioner in Writ Petition No. 2486 of 2023, was informed by the Union Bank of India that her personal account has been attached by the Income Tax authorities, her Chartered Accountant started making enquiries and found out about the impugned order having been passed in 2016 and the consequential order passed under Section 179 of the Act against Uma Devesh Ajmera on 18^th February 2020.

3. We have considered the impugned order dated 30^thDecember 2016 in which it is stated, and rightly so, that the notices that were sent to petitioner came back undelivered with the endorsement “Left”. The A.O., it appears from the impugned order, was racing against time because the matter would have got time barred and therefore passed the impugned Paragraph No.5 of the impugned order reads as under :

5. Since the matter is getting barred by limitation and there is no response from the assessee and its Directors to any of the notices issued by this office till the date of passing this order, I have no alternative but to complete the assessment based on the information available on record and gathered during the course of assessment proceedings, to the best of my judgment u/s. 144 of the I.T. Act. 1961.

4. We also find that the impugned order has been passed on the basis that assessee had come to One Time Settlement (OTS) of Rs.9,59,95,749/- on 21^st October 2008 with Union Bank of India for loan taken and in the absence of complete details of the OTS the said amount was added as income of petitioner.

5. Since petitioner/Uma Devesh Ajmera came to know about the existence of the order only on or about March 2020, the time to file appeal has also expired.

6. It is averred in the petition that the OTS with Union Bank of India was only about Rs.42 Lakhs and not Rs.9.60 Crores. Therefore, in our view grave prejudice will be caused to petitioner if the impugned order is

7. Shivaram also states that petitioner/Uma Devesh Ajmera will fully co-operate with the Jurisdictional Assessing Officer (JAO) and provide all details to reconsider the assessment of petitioner for Assessment Year 2009-10. Statement accepted.

8. In view of the above, we pass the following order :

a) The impugned order dated 30^thDecember 2016 is quashed and set aside.

b) The JAO shall, within two weeks provide copy of all notices issued to petitioner through petitioner’s advocate Mr. Rahul Hakani.

c) Within two weeks thereafter petitioner shall reply/show cause to the notices and provide all details and documents.

d) Within six weeks thereafter the A.O. shall pass such order as he deems fit in accordance with law after giving a personal hearing to petitioner, notice whereof shall be communicated atleast five working days in advance.

(e) The order to be passed shall be a reasoned order dealing with all submissions of petitioner.

9. Petition disposed.

10. All consequential Notices/Demands issued are also quashed and set aside.

11. We clarify that we have not expressed any views or opinion on the merits of the matter.

Source:

Parina Laboratories Pvt. Ltd. Vs ITO (Bombay High Court)