2022 (10) TMI 611 - HC - Income Tax

Shorter time period to respond to the show cause notice cum assessment order - Addition on account as income from other sources - draft assessment order also shows levy of penalty under Section 271(1)(c) - petitioner has neither furnished the computation of total income for the earlier years i.e., up to the assessment year 2007-08 nor furnished evidence to support the claim of BIFR declaring the company as a sick industrial company and directions to Income Tax Department thereon - HELD THAT - As just 24 hours time was given for the petitioner to respond to the show cause notice cum assessment order. Learned Standing Counsel for Income Tax states that steps of this nature were forced to be taken since the time limit for passing the orders were getting expired due to indifferent attitude of the assesses. We are not inclined to go into that aspect in this writ petition. Since the time given for responding to the cause notice cum draft assessment order was very short and more particularly, when the said notice was sent in the night, which could not have been noticed by the petitioner, we deem it appropriate, in the facts and circumstances of the case, to set aside the impugned assessment orders and remand the matters back to respondent No.1 for passing orders afresh by giving sufficient time to the petitioner to respond to the impugned show cause notices, in accordance with law. Consequently, the impugned penalty orders issued shall not be given effect to till the assessment orders are passed.

Issues involved:
1. Challenge to Assessment Order, Demand Notice, and Penalty Notice under the Income Tax Act for Assessment Year 2013-14.
2. Condonation of delay in filing income tax returns and carry forward of losses.
3. Reopening of assessments by the Income Tax Department.
4. Allegations of violation of principles of natural justice and constitutional rights.
5. Correctness of show cause notice and draft assessment order issuance.

Detailed Analysis:
1. The writ petition challenged the Assessment Order, Demand Notice, and Penalty Notice issued under the Income Tax Act for the Assessment Year 2013-14. The petitioner contended that these actions were in violation of natural justice, arbitrary, unreasonable, and contravened constitutional rights under Articles 14 and 19(1)(g) of the Constitution of India. The petitioner sought to set aside these notices based on these grounds.

2. The petitioner, a sick industrial company under the Sick Industrial Companies (Special Provisions) Act, sought condonation of delay in filing income tax returns and carry forward of losses. The Board for Industrial and Financial Reconstruction (BIFR) had provided a rehabilitation scheme exempting the petitioner from certain provisions of the Income Tax Act. However, the Income Tax Department rejected the application for condonation of delay, leading to the reopening of assessments by issuing a notice under Section 148 of the Act.

3. The Income Tax Department reopened assessments based on the BIFR order's applicability, leading to a show cause notice and draft assessment order. The petitioner raised concerns about inadequate time given to respond to the notices and alleged that notices were sent to incorrect email IDs, affecting the petitioner's ability to provide explanations and participate in the assessment process.

4. The counter filed by the Income Tax Department disputed the petitioner's claims, stating that the petitioner failed to provide necessary evidence and documentation to support their claims. The department argued that the assessment order was lawful and justified based on the petitioner's non-compliance and lack of substantiating documentation. The petitioner, in response, reiterated the issues with notice service and lack of opportunity to present their case adequately.

5. The main issue before the court was whether the show cause notice and draft assessment order issued with a short response time were appropriate. The court found that the short notice period and late-night communication were not conducive to a fair assessment process. As a result, the court set aside the assessment orders, remanding the matters back to the Income Tax Department for fresh consideration with adequate time for the petitioner to respond, emphasizing compliance with legal procedures.

In conclusion, the High Court allowed the writ petitions, remanding the matters for reconsideration, and directed that penalty orders should not be enforced until new assessment orders are passed. The court emphasized the importance of providing sufficient time for taxpayers to respond to notices and participate in the assessment process in accordance with the law.

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