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TMI Blog2021 (8) TMI 48X X X X Extracts X X X X X X X X Extracts X X X X ..... for trading. 3. The petitioner had filed its original return of income for the assessment year 2017-18 in November 2017 declaring NIL income. The petitioner has filed a revised return of income in March 2019 for said assessment year electronically in the prescribed fixed format. 4. According to petitioner, in its profit and loss account, it breaks up expenditure in broad categories viz; cost of material consumed, purchase of stock in trade and change in inventory of finished goods, work in progress and stock in trade. Its details are disclosed in schedule to profit and loss account. In the balance-sheet, inventory (closing stock) comprises the items raw material, work in progress, finished goods, stock in trade and spares and is given in consolidated figures. 5. It is referred to that petitioner has tendered and uploaded profit and loss account and balance-sheet by filling up relevant columns of the format of return of income. Columns in the return of income are predetermined and inflexible and since it provided for only one column for purchase, it was not possible for petitioner to show purchases of raw material and purchases of trading goods separately. There is no column to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the course of submissions, petitioner wanted to opt out of eproceedings and to have physical submission but its case was transferred to e-proceedings / faceless assessment. 10. The petitioner also refers to that during course of assessment proceeding, various show-cause notices were issued from time to time seeking details and the petitioner had filed its replies with submissions with respect to issues sought to be raised. 11. Petitioner states, it received a purported draft assessment order in the form of a show-cause notice dated 25/03/2021 stating that certain additions are proposed to be made while completing assessment, purporting to give opportunity to show cause, up to 26/03/2021. 12. The notice, inter alia, also states that the petitioner may file response in writing and may also file request for personal hearing through video conferencing. The notice proposed to disallow a sum of Rs. 167.57 crore under section 14A of the Income Tax Act, 1961 (for short, 'IT Act') and an amount of Rs. 430.35 crore based on difference of turnover disclosed by the petitioner and information received from CBEC, addition to value of closing stock as there being difference between value o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the petitioner had been issued notices from time to time and the petitioner's submissions were duly considered and are incorporated in transfer pricing order. 18. It has been referred to that in CASS, additional income in respect of closing stock has been properly made having regard to the differences of values appearing in profit and loss account and balance sheet. Similar is the case of the opening stock, as there have been differences in the opening stock of the current year which should have been generally the same, as the closing stock of the preceding year. It is sought to be submitted that after satisfaction, there has been disallowance under section 14A of the Act r/w Rule 8D in the draft assessment order. The assessee had failed to furnish computation as per rule 8D and instead had furnished scientific working of disallowance which is less than expenses already debited in profit and loss account for earning exempt income, as such, 1% of investment less expenses had been added to total income. 19. It is contended that a show cause notice issued on 25.03.2021 to the petitioner. However, pursuant to the same, there had been no compliance on 26.03.2021. On 28.03.2021, the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n are cumulative which do not change the amount of income chargeable to tax. 24. He goes on to submit that an Assessing Officer cannot proceed to make disallowance under section 14A by applying Rule 8D of Income Tax Rules without recording subjective satisfaction. Despite scientific working apportioning the cost to the tune of Rs. 3,26,18,604/been given, respondent no.1 has proceeded to disallow Rs. 167 crore under Rule 8D. He submits that this is completely arbitrary and irrational and is contrary to binding principles laid down by superior courts. The order is without application of mind. 25. He submits that addition of Rs. 362.72 crore is on the basis of alleged information received from CBEC of the sales tax returns of the petitioner. The petitioner has given details of sales tax returns filed by it which show that petitioner had rendered services to the extent of Rs. 272.41 crore. The basis for computing Rs. 567.76 crore by respondent no.1, despite being sought, yet has not been given to the petitioner. He submits that reconciliation was not possible unless the petitioner is given proper and relevant information. 26. He submits that this court as well as other High Courts h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are several issues which would be required to be addressed to and explained. There are certain aspects which can be peculiarly explained and understood during oral submissions and thus a hearing is a must which is allowed in the scheme, however, is not afforded and is wanting in the present case. 31. Mr. Pardiwala purports to refer to and rely, for aforesaid proposition, on a decision rendered by Delhi High Court in the case of Moser Baer India Ltd. Vs. Additional Commissioner of Income-tax, reported in [2009] 176 Taxman 473 (Delhi). This case concerns determination, by Transfer Pricing Officer (TPO) pursuant to section 92BA, of arm's length price of international transaction without granting opportunity of personal hearing to the assessee. He submits that in said case, the importance of personal hearing has been discussed with quite some elaboration. He points out that in aforesaid decision, judgments in the case of Travancore Rayon Ltd. Vs. Union of India reported in AIR 1971 862 (7) and in the case of Indian Transformers Ltd. Vs. Asstt. Collector reported in 1983 (14) ELT 2293, by Supreme Court and Kerala High Court respectively are considered showing that oral hearing is a m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssion from the other side about an opportunity of hearing been available with Dispute Resolution Panel. Yet, according to him, the same would not dispense with hearing by the authority which is to determine the income assessible to tax according to procedure when the statutory scheme makes provisions for the same. 33. Mr. Pardiwalla submits that there is no distinction under the scheme between the eligible assessee and other assessee so far as opportunity of hearing is concerned in the scheme under section 144B. 34. Mr. Pardiwalla cites a few decisions from Delhi High Court viz; (a) Sanjay Aggarwal Vs. National Faceless Assessment Centre, Delhi, reported in [2021] 127 taxmann.com 637 (Delhi) wherein, taking into account provisions in clauses under section 144B(1) for faceless assessment, it has been observed to the effect that a look at relevant provisions would give a sense as to why legislature has provided personal hearing in the matter in a case where variation is proposed in the orders of draft assessment, final draft assessment or revised draft assessment. Opportunity is made available to assessee by serving a notice calling upon him to show-cause and assessee or his repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /11/2020. It has been also observed that since statute itself makes provision for personal hearing, the respondent revenue cannot veer away from the same. As such, impugned assessment had been set aside directing granting of personal hearing to the petitioner or its representative via video conferencing with the concerned officer with a prior notice therefor. (d) In YCD Industries Vs. National Faceless Assessment Centre, Delhi, reported in [2021] 127 taxmann.com 606 (Delhi), the High Court has observed as under :- "16.1. The statute [i.e. Section 144B(1)(xiv), (xv), (xvi)b and (xxii)] provides for issuance of a show cause notice-cum-draft assessment order, and an opportunity to the petitioner/assessee to respond to the same where income of the assessee is varied by the respondent/revenue. Admittedly, the petitioner's income was varied to its prejudice with the addition of Rs. 90,25,535/-. As a matter of fact, had the show cause notice cum draft assessment been served on the petitioner, its authorised representative could have requested for a personal hearing in the matter. The respondent/revenue, to our minds, could not have side-stepped such safeguards put in place by the legi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al hearing amounting to a full review of the original order on merits, then such a statute would be construed as excluding the audi alteram partem rule at the pre-decisional stage. Conversely if the statute conferring the power is silent with regard to the giving of a pre-decisional hearing to the person affected and the administrative decision taken by the authority involves civil consequences of a grave nature, and no full review or appeal on merits against that decision is provided, courts will be extremely reluctant to construe such a statute as excluding the duty of affording even a minimal hearing, shorn of all its formal trappings and dilatory features at the pre-decisional stage, unless, viewed pragmatically, it would paralyse the administrative process or frustrate the need for utmost promptitude. In short, this rule of fair play must not be jettisoned save in very exceptional circumstances where compulsive necessity so demands. The court must make every effort to salvage this cardinal rule to the maximum extent possible, with situational modifications. But, the core of it must, however, remain, namely, that the person affected must have reasonable opportunity of being hea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e exercise of power under Section 142(2A) of the Act leads to serious civil consequences and, therefore, even in the absence of express provision for affording an opportunity of pre-decisional hearing to an assessee and in the absence of any express provision in Section 142(2A) barring the giving of reasonable opportunity to an assessee, the requirement of observance of principles of natural justice is to be read into the said provision. Accordingly, we reiterate the view expressed in Rajesh Kumar's case (supra)." 36. Mr. Pardiwalla has also pointed out that this court has followed said decision in the case of Principal Commissioner of Income-tax Vs. Vilson Particle Board Industries Ltd., reported in [2020] 116 taxmann.com 12 (Bombay). 37. He then refers to a decision of this court in the case of Sahara Hospitality Limited Vs. Commissioner of Income Tax reported in [2012] 25 Taxmann.com 299 (Bombay). Said decision has been rendered in the context of section 127 - power to transfer cases - under the Income Tax Act. After referring to various citations, it has been considered by the court, the Supreme Court had held that a reasonable opportunity should be given to assessee wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... process. The rates fixed for another assessee cannot be adopted. The transfer pricing officer has followed decisions while benchmarking transaction of corporate guarantee restricting adjustment in the matter to 1.68%. 44. Mr. Walve contends that the allegation about opportunity of personal hearing through video conferencing not being given is not correct and proper and the assessee would have opportunity of personal hearing through video conferencing after filing objections to variations in total income under section 144C(2) and before passing final assessment order. 45. Mr. Walve submits that instead of approaching the High Court under the writ petition, the assessee ought to have filed its objections to the variations with the Dispute Resolution Panel (DRP) and urges this court not to indulge into request by petitioner. 46. It is contended that the draft assessment order is valid, as per law and is legal and thus, the writ petition is opposed with request to dismiss the same. 47. Sum and substance of the submissions on behalf of petitioner is that personal hearing in the present matter is essential to properly appreciate the nature and manner in which the transactions are car ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ails an opportunity to show-cause pursuant to sub-clause (b) of clause (xvi), giving option under clause (xxii) to assessee of furnishing response to NFAC. 52. Procedure as contained in clause (xxiii) is to be followed in the cases where DAO or FDAO is prejudicial to the interest of assessee after notice has been served on the assessee. 53. It would be seen that, up to clause (xxii) there is no segregation or distinction in treatment to be given to assessees bifurcating them into two categories viz; 'eligible assessee' and 'others' (other than eligible assessee). 54. Sub-clause (a) of clause (xxiii) prescribes courses to be adopted by NFAC in the case of non-response to show cause notice by an assessee. Clause (xxiii) purports to treat the assessees according to their categorization under sub-clause (a), items (A) or (B). Clause (xxiii), sub clause (a), item (A) prescribes, in the case DAO or FDAO proposes variation prejudicial to an eligible assessee, to forward DAO or FDAO to the eligible assessee and in the case of others, pursuant item (B) NFAC may finalize DAO or FDAO and serve a copy of assessment order on the assessee. 55. Sub-clause (b) of clause (xxiii), appears to obl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) ..... (iv) ..... (v) ..... (vi) ..... (vii)in a case where a variation is proposed in the draft assessment order or final draft assessment order or revised draft assessment order, and an opportunity is provided to the assessee by serving a notice calling upon him to show cause as to why the assessment should not be completed as per the such draft or final draft or revised draft assessment order, the assessee or his authorised representative, as the case may be, may request for personal hearing so as to make his oral submissions or present his case before the income-tax authority in any unit;" 60. Plainly reading aforesaid provision would show that whenever assessee requests for personal hearing so as to make oral submissions or to present case, it is before income-tax authority in any unit. Sub-section (7), clause (viii) shows that request for personal hearing is to be approved by the authorities referred to therein upon its opinion that the request is covered by sub-clause (h) of clause (xii). Clause (xii) empowers authorities with prior approval of the Board to lay down the standards, procedures and processes for effective functioning of National Faceless Asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 144B. There is a telling / pronounced rigour, to follow the procedure under section 144B, lest the assessment would be non est. 66. Going by the provisions under section 144B, when hearing has been envisioned and incorporated, it is imperative to observe principles of natural justice as stipulated. 67. In the present matter, it is not disputed that show-cause notice had been issued to the petitioner on 25/03/2021 to which the petitioner has responded to from time to time vide letters dated 26th March, 2021, 28th March, 2021 requesting for personal hearing and by sending responses dated 7th and 8th April, 2021. There is nothing to reflect upon that after receipt of response to show-cause-notice dated 26th March, 2021, 28th March, 2021, 7th and 8th April, 2021, prescribed procedure has been followed. The petitioner appears to be losing out on an opportunity as would be available to it under clause (xxiii)(b) read with sub section (7) sub-clause (vii). 68. In the circumstances, when an assessee approaches with response to show cause notice, the request made by an assessee, as referred to in clause (vii) of sub section 7 of section 144B, would have to be taken into ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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