2024 (3) TMI 107 - HC - Income Tax

Validity of draft assessment order u/s 144C(1) - difference in numbers in closing and opening stock of Lingerie - challenge is to a draft assessment order and that the petitioner had an alternative remedy by way of approaching the Dispute Resolution Panel - as alleged value of closing stock is more than the value of opening stock of previous assessment year and the assessment year under consideration - personal hearing through video conferencing denied - HELD THAT - The extract indicates clearly that the income-tax authorities checked the website of the petitioner and found the price range for lingerie of a particular brand 'sloggi'. Based on the price range of such brand, an estimated average price of Rs. 1,500/- was taken as the unit price. On that basis, the total addition of Rs. 27,04,84,500/- was arrived at. Since the show cause notice did not contain the above quantification of the addition, the petitioner was deprived of the opportunity to respond thereto. It is also significant to notice that expenditure to the extent of Rs. 9,01,61,500/-, which was incurred in the previous year, was disallowed without putting the petitioner on notice with regard to such proposed disallowance in the above mentioned show cause notice. Apart from the above, it should not be lost sight of that the petitioner had expressly requested for a personal hearing through video conferencing and the provision of such personal hearing is mandated under clause (viii) of sub-section 6 of Section 144B of the Income-tax Act. For all these reasons, the impugned draft assessment order calls for interference so as to provide a reasonable opportunity to the petitioner. Since an issue not raised earlier finds place in the draft assessment order and probably in the assessment order, it becomes necessary for the respondent to issue a fresh show cause notice or, in the alternative, for the draft assessment order to be treated as a show cause notice. Therefore, it is directed that the draft assessment order be treated as a show cause notice. In view of the interference with the draft assessment order, the assessment order does not survive. The petitioner is permitted to submit a reply to the draft assessment order (i.e. show cause notice) within a period of three weeks from the date of receipt of a copy of this order.

Summary

Issues Involved:
The petitioner challenges a draft assessment order under Section 144C(1) of the Income-tax Act, 1961, alleging breach of principles of natural justice and failure to provide a personal hearing through video conferencing.

Issue 1: Breach of Principles of Natural Justice

The petitioner, engaged in the manufacture of apparel, received a notice under Section 143(2) of the Income-tax Act regarding a discrepancy in stock. The petitioner requested further time and a personal hearing through video conference. Despite this, an impugned draft assessment order was issued without quantifying the proposed addition to the total income. The respondent argued that the petitioner had alternative remedies, citing relevant judgments. However, the Court held that the existence of an alternative remedy does not preclude jurisdiction, especially in cases of breach of natural justice. As the draft assessment order lacked quantification and disallowed expenses without notice, the Court directed it to be treated as a show cause notice for the petitioner to respond within three weeks.

Issue 2: Failure to Provide Personal Hearing

The petitioner contended that the draft assessment order was flawed as it did not provide the requested personal hearing through video conferencing, as mandated by Section 144B of the Income-tax Act. The respondent argued that the petitioner had sufficient opportunities to explain the discrepancies. The Court recognized the petitioner's right to a personal hearing and directed the assessing officer to allow this, along with providing a fresh draft assessment order after the petitioner's response to the show cause notice.

Separate Judgement:
Honourable Mr. Justice Senthilkumar Ramamoorthy delivered the judgment, directing the draft assessment order to be treated as a show cause notice, thereby nullifying the subsequent assessment order. The petitioner was granted three weeks to respond, with the assessing officer instructed to provide a reasonable opportunity, including a personal hearing through video conferencing, before issuing a fresh draft assessment order. The writ petition was disposed of accordingly, with no costs incurred.