2018 (4) TMI 527 - HC - Income Tax

Notice u/s 226 challenged - petitioner s principal grievance that he should not be declared to be an assessee in default in the absence of AO first coming to the conclusion that the statement made on oath by the petitioner does not merit acceptance - Held that - The impugned notices issued to the two petitioners only seeks to examine the basis of the statements made on oath and dependent upon that, to show cause why the petitioners should not be proceeded against as though the tax was due from it. The impugned notices do not warrant any interference. It would be appropriate for the petitioners to respond to the show-cause notices dated 26th March, 2018 and make all contentions available to them to impress upon the DCIT respondent no.1 that the impugned notices need to be dropped. Therefore, we decline to entertain the petitions at this stage. As the period to respond to the impugned notices was only 2 days from the date of receipt, we deem it appropriate to extend the time for the petitioners to reply to the impugned notices dated 26th March, 2018 issued by respondent no.1 by a period of 15 days from today. The respondent no.1 would consider the petitioners response to the show-cause notices dated 26th March, 2018 and dispose of the same in accordance with law after following the principles of natural justice.

Summary

Issues:
Challenge to Notices under Section 226(3)(x) of the Income Tax Act, 1961

Analysis:
The judgment by the High Court of Bombay involved two petitions challenging identical Notices dated 26th March, 2018 issued to two petitioners under Section 226(3)(x) of the Income Tax Act, 1961. The impugned notices required the petitioners to support statements made on oath regarding dues to a party in default of revenue and show cause as to why they should not be treated as an assessee in default. The petitioners argued that the notices contradicted Supreme Court decisions and that they should not be declared as defaulters without the Assessing Officer first determining the validity of their statements. However, the Court observed that the notices were merely seeking to examine the basis of the statements made on oath and did not warrant interference at that stage. The petitioners were advised to respond to the show-cause notices and present their contentions to the Deputy Commissioner of Income Tax to have the impugned notices dropped.

The Court decided not to entertain the petitions at that stage but extended the time for the petitioners to reply to the notices by 15 days from the date of the judgment. It was directed that the respondent would consider the petitioners' responses and dispose of the matter in accordance with the law and principles of natural justice. Additionally, the respondents were prohibited from taking any coercive action against the petitioners until the notices were properly dealt with and for a further two weeks following communication of the orders to the petitioners. Ultimately, both petitions were disposed of with no order as to costs.