Kerala HC Quashes Income Tax Assessment Order Citing Violation of Natural Justice Principles

PLY Park Vs ITO (Kerala High Court)

Introduction: The Kerala High Court recently delivered a crucial judgment in the case of PLY Park Vs ITO, highlighting a violation of natural justice principles in an Income Tax assessment. The petitioner, an assessee under the Income Tax Act, challenged the assessment order for the fiscal year 2018-19.

Detailed Analysis: The petitioner, having not filed its return for the said assessment year, faced scrutiny due to significant cash transactions. Despite being granted an opportunity to respond to the notice under Section 148, the petitioner alleged a breach of natural justice. The petitioner, relying on a requested adjournment until 17.3.2023, believed it had time to respond. However, the assessment order (Ext.P6) was finalized on 14.3.2023, raising concerns about a lack of clarity in the communication.

The petitioner argued a bona fide belief in the granted time frame, emphasizing the absence of a specified response date. The Court agreed, noting a violation of natural justice due to the order being passed before the perceived response deadline. Consequently, the Court set aside the order (Ext.P6) and remanded the matter back to the assessing authority.

Conclusion: In conclusion, the Kerala High Court’s decision in PLY Park Vs ITO serves as a reminder of the critical importance of adhering to natural justice principles in tax assessments. The Court’s directive to reconsider the case and provide the petitioner with a fair opportunity to respond underscores the significance of procedural fairness in legal proceedings. This case contributes to the evolving jurisprudence surrounding income tax assessments and emphasizes the need for clear communication and adherence to due process.

FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT

The petitioner is an assessee under the provisions of the Income Tax Act, 1961 (‘Act’, for short). The petitioner did not file its return of

income for the assessment year 2018-19. However, as per the information flagged in accordance with the risk management strategy formulated by the CBDT, the petitioner had deposited cash of Rs.1,26,41,200/- in the Bank account and had withdrawn cash of Rs.31,87,595/- in the financial year 2017-18 relevant to the assessment year 2018-19. The petitioner was issued notice under Section 148 of the Act and was provided an opportunity of being heard under Section 148A(b) of the Act. The petitioner was issued show cause notice to explain as to why the said cash deposit of Rs.1,26,41,200/-should not be assessed as income chargeable to tax, which had escaped assessment within the meaning of the provision of Section 147 of the Act for the assessment year 2018-19. The petitioner in response to the notice dated 23.2.2023 had requested for adjournment to 17.3.2023 and the web portal of the Income Tax Department would suggest that the said request was considered, but no date was given for filing the response. The petitioner was of the opinion that the petitioner had been granted time up to 17.3.2023 to give response to the notice dated 23.2.2023. However, before 17.3.2023, the assessment order got finalised vide Ext.P6 on 14.3.2023. Learned counsel for the petitioner submits that there has been violation of the principles of natural justice, inasmuch as the petitioner requested on 2.3.2023 for adjournment to give response to the notice dated 23.2.2023, and the status of the said request would suggest that the petitioner was granted time for response, but without date. Therefore, the petitioner had bona fide believed that the petitioner was granted time till 17.3.2023. As the order impugned was passed before 17.3.2023, i.e. on 14.3.2023, there was violation of principles of natural justice and the order, Ext.P6, needs to be set aside and the matter needs to be remanded back for providing one more opportunity to the petitioner to file response to the show cause notice dated 23.2.2023, and after hearing the petitioner, the assessing authority may finalise the assessment.

2. Sri. Jose Joseph, learned Senior Standing Counsel for the Income Tax Department, is not in a position to dispute that on petitioner’s request adjournment date for submission of the response to the show cause notice dated 23.2.2023 was not mentioned and it is also not reflected from Ext.P4, whether the request was accepted or not, because the status of the request would show open. However, no adjourned date for submission of response was mentioned.

3. I am in agreement with the learned counsel for the petitioner that in the absence of date mentioned for submission of the response to the show cause notice dated 23.2.2023, the petitioner had bona fide believed that the petitioner’s request for adjournment to 17.3.2023 to give response to the show cause notice dated 23.2.2023 was accepted. However, before 17.3.2023, the impugned order, Ext.P6, has been passed on 14.3.2023, and therefore, I am of the considered view that there was violation of the principles of natural justice. For that reason, the impugned order is bad in law and is liable to be set aside.

4. In view of the above, the present writ petition is allowed and the impugned order, Ext.P6, dated 14.3.2023 is set aside and the matter is remanded back to the 2^ndor the 3^rdrespondent, as the case may be, to open the link provided to the petitioner for uploading the response to the show cause notice dated 23.2.2023. If the petitioner fails to upload the response within the time prescribed for the same, the assessing authority would be free to pass fresh order or the same order in Ext.P6. However, if the petitioner files response to the show cause notice dated 23.2.2023 on receiving intimation of the link provided to him having been opened for uploading the response, the assessing authority will consider the response to the show cause notice dated 23.2.2023 and also provide an online opportunity of hearing to the petitioner before finalising the process.

With the aforesaid direction and observation, the present writ petition stands finally disposed Pending interlocutory application, if any, in the present writ petition stands dismissed.