2022 (6) TMI 1081 - HC - Income Tax

Undisclosed business income/profit - Unmatched gross profit figures as per tally software - as in survey proceedings hard disk of the computer containing Tally software details, was taken by the Income Tax Department - assessment proceedings have to be completed through e-proceeding - petitioner submits that the petitioner has clearly explained that the details that were obtained at the time of survey on 06.03.2018 were not audited and they are incomplete records - non providing personal hearing to assessee - HELD THAT - The undisclosed business profit have been arrived from the net profit in the books of accounts as on the date of survey and the amounts declared in the income tax. This would have definitely required a proper assessment by calling the petitioner for a personal hearing. Therefore, the impugned order seems to indicate that there is a procedural infraction. It has not complied with the requirements of instructions of the board in its clarification dated 11.07.2016 bearing reference F.No.225/162/2016/ITA.II. Though the petitioner has not specifically requested for a personal hearing, the fact remains that where the books of accounts have to be examined for arriving at a proper conclusion, a personal hearing is mandatory. We are inclined to quash the impugned orders and the case is remit back to the respondent to pass an appropriate order preferably within a period of three months from the date of receipt of copy of this order. The impugned order which stands quashed shall now be treated as a show cause notice for the purpose of completing the assessment. WP allowed.

Summary

Issues Involved:
1. Validity of the impugned assessment order dated 18.02.2021.
2. Requirement of a proper show cause notice and personal hearing.
3. Procedural compliance with CBDT instructions and natural justice principles.
4. Adequacy of the notice under Section 143(2) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Validity of the Impugned Assessment Order:
The petitioner challenged the assessment order dated 18.02.2021 for the assessment year 2018-2019. The petitioner argued that the accounts retrieved during the survey on 06.03.2018 were draft and unaudited, and the final audited accounts showed a different net profit. The petitioner emphasized that the assessment should have considered the audited accounts filed on 29.10.2018, declaring a net profit of Rs.3,32,84,528/-.

2. Requirement of a Proper Show Cause Notice and Personal Hearing:
The petitioner contended that as per CBDT instructions, a show cause notice is required before making any additions or disallowances. The petitioner referred to several CBDT instructions, including those dated 29.12.2015, 11.07.2016, and 20.08.2018, which emphasize the need for a show cause notice and an opportunity for personal hearing. The petitioner argued that the notice dated 06.02.2021 did not serve as a proper show cause notice and that personal hearing was mandatory, especially when examining books of accounts.

3. Procedural Compliance with CBDT Instructions and Natural Justice Principles:
The petitioner cited the case of eShakti.com Private Limited vs. The Assistant Commissioner of Income Tax, where the court emphasized the need for a show cause notice and personal hearing in the interest of natural justice. The petitioner argued that the impugned order violated these principles as it was passed without proper procedural compliance.

4. Adequacy of the Notice under Section 143(2) of the Income Tax Act:
The petitioner received a notice under Section 143(2) on 26.09.2019, which was general and lacked specific details. The petitioner argued that without a proper opportunity to respond to this notice, the subsequent notice dated 06.02.2021 could not be treated as a show cause notice. The respondent, however, argued that the petitioner had an alternate remedy under Section 246A of the Income Tax Act and that there was no violation of natural justice since the petitioner was issued a show cause notice on 06.02.2021 and had replied to it.

Court's Observations and Judgment:
The court noted that the facts were undisputed, including the survey conducted on 06.03.2018 and the subsequent retrieval of information from the petitioner's books of accounts. The court observed that the petitioner failed to respond to the notice under Section 143(2) issued on 26.09.2019, which specifically referenced the survey under Section 133A. The court acknowledged that the notice dated 06.02.2021 served as a show cause notice for completing the assessment and that the petitioner had replied to it on 12.02.2021.

The court highlighted the importance of personal hearing when books of accounts are examined, as per CBDT Instruction No.3 of 2018. The court found that the impugned assessment order indicated procedural infractions, as it did not comply with the requirements for personal hearing and proper assessment of the books of accounts.

Conclusion:
The court quashed the impugned assessment order and remitted the case back to the respondent to pass an appropriate order within three months. The impugned order was to be treated as a show cause notice, and the petitioner was given thirty days to file a reply or objection. The proceedings were to be conducted through video conferencing, ensuring compliance with procedural requirements and principles of natural justice. The writ petition was allowed, and the connected Miscellaneous Petitions were closed.