2021 (5) TMI 639 - HC - Income Tax

Assessment u/s 144C - need of issuance of show cause notice - HELD THAT - The impugned order at Ext.P7 shows that notices under Section 142(1) were issued to the petitioner 04.02.2021. The first notice as contemplated by Section 144C of the Income tax Act came to be issued to the petitioner on 18.03.2021 and it was accompanied with draft assessment order. Only four days time was granted by this notice at Ext.P4 to show cause. The petitioner immediately responded by the communication at Ext.P5 and sought time only upto 27.03.2021 to file reply to the show cause notice and he did reply to the show cause notice by his reply (Ext.P6) dated 23.03.2021. Reply is not considered while passing the assessment order at Ext.P7 rather it is noted therein that petitioner did not respond to the show cause notice at Ext.P4. At this stage, it is not possible to accept the contention of the learned Standing Counsel appearing for the respondent that there was no need of issuance of show cause notice at Ext.P4, particularly, when the respondent had chosen to issue the said show cause notice at Ext.P4 to the petitioner. The impugned order therefore prima facie suffers from the perversity as well as non-compliance with the principles of natural justice.

Summary

Issues:
1. Compliance with the principles of natural justice in the issuance of show cause notice and passing of the assessment order.

Analysis:
The petitioner, through their counsel, highlighted the show cause notice at Ext.P4, issued in accordance with Section 144C of the Income Tax Act, 1961, accompanied by a draft assessment order. The petitioner requested additional time to respond, citing the limited four-day period granted. Despite submitting a reply to the show cause notice at Ext.P6 on 23.03.2021, the assessment was finalized based on Ext.P7, which claimed the petitioner had not responded by the required date. The petitioner argued that the assessment order was passed without considering their response, alleging a violation of natural justice principles.

The Standing Counsel for the respondent contended that issuing a show cause notice was unnecessary as per Section 144C of the Income Tax Act, asserting that adequate hearing opportunities were provided to the petitioner. However, the court observed discrepancies in the process. The impugned order at Ext.P7 indicated that while initial notices were issued under Section 142(1) on 04.02.2021, the first notice under Section 144C was sent on 18.03.2021, granting only four days to respond. The petitioner's reply at Ext.P6, dated 23.03.2021, was disregarded in the assessment order, which incorrectly stated non-receipt of a response to Ext.P4. The court found the respondent's argument regarding the show cause notice's necessity unconvincing, deeming the order flawed and non-compliant with natural justice principles.

Given the above analysis, the court refused the respondent's argument against the show cause notice's requirement and acknowledged the potential violation of natural justice principles in the assessment process. Consequently, the court admitted the petition and granted interim relief until its final disposal.