2023 (3) TMI 1462 - HC - Income Tax

Validity of assessment order passed u/s 143(3) - personal hearing to the petitioner not given - AO has added to the petitioner firm s taxable income received towards compensation received, by treating it as revenue received and of variance in turnover in the Income Tax Return (ITR) and in the GST-1/GST-3B return of the petitioner/assessee - HELD THAT - It is not in dispute that no personal hearing was granted to the authorized representative of the petitioner/assessee. The counter-affidavit filed on behalf of the respondent/revenue, inter alia, discloses that neither was any show cause notice issued nor was any hearing granted prior to framing of the assessment order. The reason furnished for non-issuance of the show cause notice, as articulated in the counter-affidavit, is that the petitioner/assessee was indulging in deliberate procrastination. Admittedly, information in the form of documents, was sought by the AO which would shed light as to why cancellation of development agreement, was brought about. Insofar as addition on account of variation in turnover was concerned; the petitioner sought to explain the variation by filing reconciliation statement. This was brushed aside by the AO by holding that an adjustment made while reconciling the turnover figure in the ITR with the turnover figure appearing under the GST-1/GST-3B return had not been clarified. To our minds, had the AO granted personal hearing to the petitioner, some light may have been shone on this aspect of the matter. According to us, the best way forward would be to set aside the impugned assessment order. It is ordered accordingly. Liberty is, however, given to the AO to pass a fresh assessment order.

Summary

Issues involved:
The judgment involves challenges against the assessment order, notice of demand, and notice initiating penalty under the Income Tax Act, 1961 for Assessment Year 2018-19.

Assessment Order:
The Assessing Officer added to the petitioner firm's taxable income based on compensation received and variance in turnover figures between the Income Tax Return and GST returns. The AO issued a notice under Section 142(1) prior to passing the assessment order, seeking details on capital account, rental receipts, turnover, and VAT returns. The petitioner responded by furnishing details of the capital account and partners' ledger account.

Principles of Natural Justice:
The petitioner contended that there was a violation of principles of natural justice as no personal hearing was granted, and the AO did not call for additional documents before making the additions to the income. The respondent argued that the assessment order should not be interfered with as an appeal remedy is available.

Judgment:
The Court found an infraction of natural justice principles due to the lack of personal hearing and additional document requests. The assessment order was set aside, granting liberty to the AO to pass a fresh order after providing a personal hearing to the petitioner. The petitioner was directed to furnish any required information, and if aggrieved, could seek appropriate legal recourse. The notice of demand and penalty were also set aside, and the application was closed.