2015 (10) TMI 1572 - HC - VAT and Sales Tax

Short payment of tax - omission to report purchases in the return vis-a-vis the books of accounts - Held that - When there is no assessment order or notice issued, the impugned notice of demand of cash amount is wholly untenable and illegal in terms of Section 269 B of the Income Tax Act. Therefore, the impugned order is quashed - It is brought to the notice of this Court by the learned counsel appearing for the petitioner that one cheque amount has been utilized and amount of ₹ 16,00,000/- has been realized. However, the second cheque which appears to have been dishonoured for want of sufficient fund shall be returned to the petitioner. Since the petitioner is challenging the liability, he should be given notice of assessment followed by personal hearing and thereafter, the respondent shall proceed on merits to pass appropriate assessment order after complying with all the conditions after giving notice followed by personal hearing - Decided in favour of assessee.

Summary

Issues:
1. Allegations of tax evasion and irregularities against a partnership firm.
2. Refusal of tax authorities to accept explanations provided by the firm during inspection.
3. Arbitrary tax demand imposed on the firm without proper assessment or notice of demand.
4. Legality of the recovery order issued without a valid assessment order or notice.
5. Quashing of the impugned notice of demand and the subsequent legal implications.

Analysis:

1. The petitioner, a partnership firm engaged in trading activities, faced allegations during an inspection related to tax evasion and irregularities, including omission of reporting purchases, overcharging buyers, stock variation, and unreported turnover from buyers. The firm offered explanations, but the tax authorities refused to accept them, leading to an alleged tax demand of Rs. 42,72,722.

2. The petitioner, under compulsion, issued cheques to meet the demanded amount despite insufficient funds, highlighting the arbitrary nature of the tax demand. The absence of a valid assessment order or notice of demand raised questions about the authority of the tax authorities to demand cash payment along with penalties without following due process.

3. The court noted the lack of a proper assessment order or notice of demand, rendering the impugned notice of cash demand illegal and untenable under Section 269 B of the Income Tax Act. Consequently, the court quashed the impugned order, emphasizing the importance of adhering to legal procedures and jurisdictional requirements.

4. The court directed the return of the dishonored cheque to the petitioner and emphasized the necessity of providing the firm with a notice of assessment, followed by a personal hearing, before proceeding with any further assessment order. The judgment highlighted the significance of due process, including notice and personal hearing, in tax assessment matters to ensure fairness and compliance with legal requirements.

5. Ultimately, the writ petition was allowed, with no costs imposed, and the connected miscellaneous petition was closed. The judgment underscored the importance of following proper legal procedures, providing opportunities for explanation and hearing, and ensuring compliance with statutory requirements in tax assessment and recovery processes.