Case Law Details
General Commercial Agencies Vs Assessment Unit (Madras High Court)
In the case of General Commercial Agencies vs Assessment Unit, the petitioner challenged an income tax assessment order dated 23.03.2023, concerning the assessment year 2018-2019, issued by the Income Tax Department. The reassessment proceedings were initiated following a notice under Section 148 of the Income Tax Act, 1961. Subsequent notices under Sections 143(2) and 142(1) were issued in November 2023. The contentious issue arose when a show cause notice (SCN) dated 13.03.2024, raised for the first time, an allegation concerning unexplained credits amounting to Rs. 9.50 crore in the petitioner’s bank account. The notice proposed to treat these credits as unexplained income under Section 69A, subject to taxation under Section 115BBE of the Income Tax Act.
The petitioner responded to the SCN requesting additional time to address the allegations due to the short deadline of three days provided initially. Although a brief extension until 19.03.2024 was granted, the petitioner sought more time, which was denied. Consequently, the assessment order was passed on 23.03.2024, without providing further opportunity to the petitioner to furnish a detailed reply. The petitioner argued that the short timeframe violated the principles of natural justice as the substantial sum and the new allegations required a thorough response. The petitioner also pointed out that an official communication, digitally signed late at night on 20.03.2024, adjourned the case to 21.03.2024, further compounding the challenge of responding effectively.
The respondent, represented by junior standing counsel, argued that the petitioner had ample time since notices under Sections 143(2) and 142(1) were served months earlier in November 2023. However, upon reviewing the case, the Madras High Court observed that the Rs. 9.5 crore issue was raised for the first time in the SCN dated 13.03.2024 and had not been mentioned in earlier notices. The court ruled that the petitioner was not provided with adequate time to address such significant allegations, and therefore, the assessment order required interference.
The High Court set aside the impugned assessment order and remanded the case back to the assessment authorities for reconsideration. It directed the petitioner to respond to the SCN within two weeks, enclosing all relevant documents. The authorities were instructed to provide a reasonable opportunity for the petitioner, including a personal hearing via video conference, and to issue a fresh assessment order within four months. Additionally, the court ordered the respondent to restore the petitioner’s access to the tax portal to enable the submission of the response. The writ petition was disposed of without any cost implications, and all associated miscellaneous petitions were closed.
The case highlights the importance of providing taxpayers with sufficient time to respond to significant tax liabilities, ensuring procedural fairness and adherence to principles of natural justice, particularly when substantial amounts and serious allegations are involved. The Madras High Court’s ruling emphasized that a hasty decision-making process without adequate opportunities for response could not be sustained under the law.
FULL TEXT OF THE JUDGMENT/ORDER OF MADRAS HIGH COURT
An assessment order dated 23.03.2023 pertaining to assessment year 2018-2019 is the subject of challenge in this writ petition.
2. In respect of the above mentioned assessment year, reassessment proceedings were initiated against the petitioner. After issuing notices under Sections 143(2) and 142(1) of the Income Tax Act, 1961 (the Income Tax Act), show cause notice dated 13.03.2024 was issued to the petitioner calling upon the petitioner to reply thereto on or before 16.03.2024. The petitioner replied to such show cause notice stating that further time is required to respond to the proposal with regard to adding all credits in the bank statement. In response, extension of time was granted up to 19.03.2024. The petitioner requested for further time. Such request was not considered. Instead, the impugned assessment order was issued on 26.03.2024.
3. Learned counsel for the petitioner invited my attention to the petitioner’s reply to the show cause notice. He pointed out that the proposed variation in relation to the credits in the bank statement of the petitioner was made for the first time in show cause notice dated 13.03.2024. He further submitted that the time provided for responding thereto was insufficient. He also pointed out that the communication dated 20.03.2024 adjourning the case to 21.03.2024 was digitally signed after 11.00 p.m. on 20.03.2024. Therefore, he makes a request that the petitioner be provided an opportunity to respond effectively to the show cause notice.
4. Mr. S. Premalatha, learned junior standing counsel, accepts notice for the respondents. By referring to the details of opportunities given to the petitioner, she points out that pursuant to notice under Section 148, notices were issued under Sections 143(2) and 142(1) in November 2023. Therefore, she contends that the petitioner was not prejudiced by the limited time provided to respond to the show cause notice dated 13.03.2024.
5. On perusal of show cause notice dated 13.03.2024, it is evident that such notice deals with aggregate credit entries of Rs.9,50,80,259/- in the petitioner’s bank statement and the proposal to treat this aggregate sum as unexplained money under Section 69A read with 115BBE of the Income Tax Act. On perusal of earlier notices under Sections 143(2) and 142(1), this issue was not raised in such notices. In these circumstances, it was necessary to provide a reasonable time to the petitioner to respond to the show cause notice. The show cause notice granted three days originally and this time limit was extended by a further three days. Since sufficient time was not given to the petitioner to respond meaningfully to the show cause notice, the impugned assessment order calls for interference.
6. For reasons set out above, the impugned assessment order dated 23.03.2023 is set aside and the matter is remanded for reconsideration. The petitioner shall reply to the show cause notice within a maximum period of two weeks from the date of receipt of a copy of this order by enclosing all relevant documents. Upon receipt thereof, the 1st respondent is directed to provide a reasonable opportunity to the petitioner, including a personal hearing through video-conference, and thereafter issue a fresh assessment order within a period of four months from the date of receipt of the petitioner’s reply. In order to enable the petitioner to upload the reply to the show cause notice, the respondents are directed to provide necessary access to the portal.
7. The writ petition is disposed of on the above terms without any order as to costs. Consequently, connected miscellaneous petitions are closed.
Author Bio
