2023 (9) TMI 390 - HC - Income Tax

Best judgment assessment - draft assessment orders and final Assessment Orders AO recorded that no reply to the notice u/s 142(1) was submitted by the petitioner/assessee - HELD THAT - Firstly, it seems that the Assessing Officer inadvertently overlooked the email reply dated 20.07.2022 of the petitioner, wherein the petitioner not just sought extension of time till 05.08.2022 to respond but also disclosed vital facts pertaining to its case. However, in the impugned draft assessment orders and the final Assessment Orders, the Assessing Officer recorded that no reply to the notice u/s 142(1) of the Act was submitted by the petitioner/assessee. On account of this clear non-application of mind, the impugned draft assessment orders, the final Assessment Orders and the consequential demand notices cannot be sustained. Secondly, the notice dated 12.07.2022 under Section 142(1) of the Act was clearly vitiated on account of granting hardly three days to the petitioner to respond. Denial of sufficient time to respond was not just an abrogation of jus naturale but the same also infringed clause B(1) of the Standard Operating Procedure dated 19.11.2020 of the CBDT, according to which normally a response time of 15 days has to be given to the assessee in order to respond to the notice under Section 142 of the Act. That being so, the impugned draft assessment orders, the final Assessment Orders and demand notice are liable to be set aside.

Summary

Issues involved:
The judgment involves issues related to violation of principles of natural justice in assessment proceedings, non-receipt of notices by the assessee, failure to acknowledge responses from the assessee, granting insufficient time to respond to notices, and errors in draft assessment orders and final Assessment Orders.

Violation of Principles of Natural Justice:
The writ petitions challenged Assessment Orders and Penalty Orders on the ground of violation of principles of natural justice. The court noted that both sides agreed to dispose of the petitions on this limited ground. The Assessing Officer had overlooked crucial replies and vital facts provided by the petitioner, leading to a clear non-application of mind in the assessment process.

Non-Receipt of Notices by the Assessee:
The petitioner claimed that except for one notice, none of the other notices were received. The Assessing Officer issued several notices between specific dates, but the petitioner asserted that it did not receive them. The petitioner responded to a notice dated 12.07.2022 requesting an extension to provide detailed information, citing non-receipt of earlier notices.

Insufficient Time Granted to Respond:
The notice dated 12.07.2022 under Section 142(1) of the Act allowed only three days for the petitioner to respond. This short response time was deemed inadequate and a violation of the Standard Operating Procedure, which mandates a response time of 15 days for such notices. The court held that this denial of sufficient time to respond infringed the rights of the assessee.

Errors in Draft Assessment Orders and Final Assessment Orders:
The Assessing Officer failed to consider the petitioner's responses and vital facts disclosed in emails, leading to errors in the draft assessment orders and final Assessment Orders. Despite the petitioner's efforts to provide information and seek an extension, the Assessing Officer recorded inaccurately that no reply was received. These errors rendered the assessment orders and demand notices unsustainable.

Conclusion:
The court allowed all four writ petitions, setting aside the draft assessment orders, final Assessment Orders, demand notices, and Penalty Orders. The matters were remanded back to the Assessing Officer with directions to provide a fair hearing to the petitioner in compliance with the law after issuing fresh notices under Section 142(1) of the Act. The judgment highlighted the importance of upholding principles of natural justice and ensuring procedural fairness in assessment proceedings.