2025 (1) TMI 1240 - HC - Income Tax

Assessment order issued u/s 143 (3) r.w.s. 144B made by the second Respondent - Petitioner contended that since this was a clear case of breach of principles of natural justice the rule for the exhaustion of alternate remedies should not be applied and this Court should entertain this Petition. HELD THAT - Show-cause notice clearly informed the Petitioner that the sales figures could not be relied upon. The methodology by which the correct figures were proposed to be assessed was also clearly indicated in the notice itself. Thus it is clear that the notice referred to a tentative assessment. Still the Petitioner was clearly put on guard regarding the tentative opinion that the sales figures were unreliable. An assessment exercise was to be carried out according to the methodology indicated. Therefore at least prima facie this is not a clear case of the impugned assessment order travelling beyond the show cause notice or a case where it could be ex-facie concluded that the Petitioner was prejudiced on account of the variation in the tentative figures suggested in the show cause notice and the final determination. Finally this is also not a case in which the Petitioner in response to the show-cause notice and the further submissions clearly and categorically requested a personal hearing. In the response dated 20 December 2022 in the last three lines the Petitioner stated that it hoped the reply would satisfy the authorities and if any further clarification is required in the matter a video conferencing opportunity may please be given to clarify the stand. Since the AO may not have required any further clarification no video conferencing opportunity was granted to the Petitioner. Again based on this material we cannot hold that this is a case of patent violation of natural justice based on which the rule of exhaustion of alternate remedies ought to be bypassed.

The Petitioner challenged an assessment order issued under Section 143(3) read with Section 144B of the Income Tax Act, 1961, for the Assessment Year 2021-2022. The core issue was whether the principles of natural justice were violated, warranting the bypassing of the rule of exhaustion of alternate remedies.

1. **Issues Presented and Considered**

The primary legal issue was whether there was a breach of the principles of natural justice in the issuance of the assessment order, justifying the invocation of writ jurisdiction despite the availability of an alternate appellate remedy. Specifically, the Petitioner alleged inadequate notice, a discrepancy between the show cause notice and the final order, and the denial of a requested personal hearing.

2. **Issue-Wise Detailed Analysis**

- **Relevant Legal Framework and Precedents**: The Court considered the principles of natural justice, particularly the requirement for adequate notice and the opportunity to be heard. The Petitioner relied on the precedent set in Whirlpool Corporation vs. Registrar of Trademarks, which allows bypassing alternate remedies in cases of clear natural justice breaches. Additionally, the Petitioner cited Cheftalk Food and Hospitality Services Pvt. Ltd. to argue that inadequate response time constitutes a breach.

- **Court's Interpretation and Reasoning**: The Court noted that the Petitioner received a show cause notice on 15 December 2022 and responded on 20 December 2022. The Court found no evidence of a complaint regarding inadequate notice in the Petitioner's detailed reply. The Court also observed that the show cause notice adequately informed the Petitioner of the assessment methodology, thus negating the claim of surprise or prejudice due to the variation in figures between the notice and the final order.

- **Key Evidence and Findings**: The Court highlighted that the show cause notice explicitly mentioned the unreliability of the sales figures and proposed a method for assessment. The Petitioner's request for a personal hearing was conditional and not a categorical demand, which the Court found insufficient to establish a breach of natural justice.

- **Application of Law to Facts**: The Court applied the principles of natural justice and found that the Petitioner was given a fair opportunity to respond. The Court concluded that the alleged breaches were not substantiated by the facts, as the Petitioner did not demonstrate any prejudice suffered due to the notice period or the denial of a personal hearing.

- **Treatment of Competing Arguments**: The Court considered the Respondent's argument that ample opportunities were provided and that the Petitioner's claims were unfounded. The Court agreed with the Respondent, emphasizing that the Petitioner's failure to raise timely objections in their reply undermined their claims of prejudice.

- **Conclusions**: The Court concluded that the Petitioner's claims of breach of natural justice were arguable but not substantiated enough to bypass the appellate remedy. The Court emphasized that factual disputes regarding natural justice breaches are best resolved through statutory appeals rather than writ jurisdiction.

3. **Significant Holdings**

- **Core Principles Established**: The Court reaffirmed the principle that the exhaustion of alternate remedies is a general rule, and exceptions are only made in clear cases of natural justice breaches. The Court underscored the necessity for a party to demonstrate actual prejudice resulting from alleged procedural deficiencies.

- **Final Determinations on Each Issue**: The Court declined to entertain the writ petition, directing the Petitioner to pursue the alternate remedy of an appeal. The Court clarified that its observations were limited to determining the appropriateness of relegating the Petitioner to an appellate remedy and were not binding on the merits of the appeal.

The Court disposed of the writ petition, allowing the Petitioner to file an appeal within four weeks and instructing the Appellate Authority to consider the appeal on its merits, without being influenced by the Court's observations or the limitation period.

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