2022 (9) TMI 414 - HC - Income Tax

Validity of order of assessment passed u/s 143(3) r.w.s 144B - grievance of the petitioner-assessee is that the assessment order is passed in breach of the principles of natural justice - preliminary objection of Respondent is that the assessee has alternate remedy - assessee was given two working days to file its response to the show cause notice and the draft assessment order - HELD THAT - It is true that the order impugned is appealable. However, since, for reasons spelt out hereinafter, we find that the submission premised on the breach of the principles of natural justice is substantiated by the material on record, we are not inclined to compel the assessee to prefer the statutory appeal. The assessee could not file its response within the narrow window of two working days and sought further time, particularly since due to the Covid-19 pandemic the educational institutions were closed and the staff handling accounts was not readily available for collecting the data and formulating the structured response. However, respondent 1 proceeded to pass the impugned order on 20-4-2021. The principles of natural justice are egregiously violated. Two working days were in effect available with the assessee to formulate and submit its structured reply to the show cause notice and the draft assessment order. It is in this view of the matter, that we have observed supra, that the assessee need not be compelled to prefer appeal as a ritualistic formality. We have no hesitation in setting aside the order of assessment impugned and all consequential orders. We request respondent 1 to grant personal hearing to the assessee after giving the assessee seven clear days notice since the portal will have to be opened to facilitate the personal hearing. We further permit the assessee to file all the relevant documents, and if need be, the separate portal shall be opened to unable the assessee to do the needful.

Summary

Issues:
Challenge to assessment order under Income Tax Act based on breach of natural justice principles.

Analysis:
The petitioner, an Urdu Education Society, challenged an assessment order dated 20-4-2021 under the Income Tax Act, claiming a breach of natural justice principles. The High Court acknowledged the alternate remedy of appeal but decided not to compel the petitioner to pursue it due to the substantiated breach of natural justice. Citing the Whirlpool Corporation case, the Court highlighted exceptions where alternative remedies do not bar the Court's jurisdiction, such as violation of natural justice principles. The Court proceeded to analyze the facts of the case.

The petitioner had filed a return declaring NIL income for the assessment year 2018-2019 under Section 11 of the Act. The assessment was conducted under the E-Assessment Scheme 2019, and various notices were issued to the petitioner for scrutiny. The petitioner faced challenges in responding to notices due to the unavailability of records caused by the Covid-19 pandemic and the unfortunate demise of the individual responsible for accounts and taxation matters. Furthermore, incorrect contact details of the petitioner's Chartered Accountant led to communication issues with the department.

The significant development in the case was a show cause notice issued on 15-4-2021 proposing a substantial addition to the declared income, which the petitioner disputed. The petitioner requested additional time to respond due to pandemic-related difficulties, but the assessment order was passed on 20-4-2021 without granting sufficient time for a structured response. The Court found that the principles of natural justice were egregiously violated as the petitioner was given only two working days to respond to the show cause notice and draft assessment order, leading to the order's setting aside.

The Court directed the tax authority to grant the petitioner a personal hearing with a seven-day notice and allowed the submission of relevant documents through a separate portal if required. Emphasizing that the judgment was based on the peculiar facts of the case, the Court clarified that it should not be considered a precedent. Ultimately, the petition was disposed of in favor of the petitioner, setting aside the assessment order and all consequential orders.