Vimal Trading v. National Faceless Assessment Centre

16. Ms. Halbe would strenuously urge that the request for personal hearing was made by the petitioner on 27 August 2022 whereas, the final impugned assessment order was passed on 9 September 2022. At this juncture, she would emphasize on the fact that the impugned final assessment order was passed by respondent no. 1 a little before the assessment in the present proceedings which would have got time-barred on 30 September 2022. The respondent therefore, acted in haste with a clear intent to save the assessment from getting time-barred and acting unreasonably, arbitrarily and in contravention of express mandate under Section 144B of the IT Act.

17. In support of her submissions, Ms. Halbe specifically relied on the judgment of the Delhi High Court in the case of Divya Capital One Pvt. Ltd. v. Assistant Commissioner of Income-Tax & Anr[1]. In the said case the High Court was dealing with a situation where an order was passed under Section 148A(d) of the IT Act without considering the submissions filed by the assessee which was available on record of the assessing officer, before passing such order. The Delhi High Court considering such facts held that the submissions which are available on record as on the date of passing of the impugned assessment order must be considered. Thus, drawing an analogy, Ms. Halbe would contend that in the present case the application of the petitioner for the grant of personal hearing was very much before the assessing officer before passing the impugned final assessment order dated 9 September 2022. However, the respondent no.1 chose to overlook the statutory mandate under Section 144B(6)(viii) which categorically prescribes for a grant of hearing, to the assessee.

18. Ms. Halbe then placed reliance on various decisions of Supreme Court in Cantonment Board, Dinapore and Ors v. Taramani Devi[2]; Delhi Transport (2022) 445 ITR 436 AIR 1992 SC 61 Corporation v. DTC Mazdoor Union[3]; Maneka Gandhi v. Union of India & Ors.[4] to emphasize that well-settled legal principle of audi alteram partem is ingrained and ordained under Article 14 of the Constitution of India.

19. Ms. Halbe would assail the additions by the respondents on the alleged ground of misreporting, under reporting of income by the petitioner to the extent of Rs. 4,58,74,139/- and adjustment of brought forward loss of Rs. 2,43,14,139/-, resulting in the assessment of total income of Rs.2,15,60,000/- under Section 115BBE of the IT Act leading to issuance of show cause notices for imposing penalty under Section 274 read with Section 270A and Section 271AA(1) of the IT Act on the petitioner for said A.Y. 2020-21. Ms. Halbe would urge that such actions of the respondents unilaterally and arbitrarily making such additions without even hearing the petitioner, despite making a request for hearing under the statutory provisions noted (supra) deprived the petitioner of an opportunity of representing itself, before the respondents causing grave prejudice. Submissions of the Respondents:

20. Mr. Akhileshwar Sharma, learned counsel for the respondents would at the very outset emphatically support the impugned final assessment order, the impugned demand notice issued under Section 156 and the impugned show cause AIR 1999 SC 564 AIR 1978 SC 597 notices for invoking penalty under Section 270A, Section 274 read with Section 271AA(1) of the IT Act, all dated 9 September 2022, being within the four corners of law. According to him, no interference with any of these is warranted in the given facts and circumstances. Mr. Sharma would rely on and adopt the averments, submissions made in the affidavit-in-reply filed by one Jitendra Godbole, Income Tax Officer, Ward-3, Kalyan, dated 7 December 2022, which is on record.

21. Mr. Sharma would submit that the show cause notice-cum-draft assessment order clearly stated the following:-

Hence, according to Mr. Sharma, this would show that several opportunities were given to the petitioner. He submits that despite categorically informing the petitioner about the specific date and time to submit the request, the petitioner failed to comply with the same. As a result, the respondent no. 1 had no alternative but to proceed by considering all the relevant material on record. It is submitted that the petitioner requested for hearing through video conferencing only on 27 August 2022 instead of the stipulated date of 26 August 2022 as mentioned in the show cause notice-cum-draft assessment order of the said date. It is hence submitted that the contention of the petitioner that the petitioner was not heard is a complete afterthought which cannot be accepted.

22. Mr. Sharma would further submit that the show cause notice-cum-draft assessment order dated 26 August 2022 specifically called upon the petitioner to submit its response along with supporting documents and/or with request for personal hearing on or before the said date. However, the petitioner chose to not abide by such clear and specific timelines and therefore, for its own conduct, it cannot put the blame on the respondents. In this context, he would submit that just as the assessing officer is bound to act within the framework of law, the taxpayer also shoulders the same responsibility to act accordingly, which it failed to do, knowing that the time to conclude the assessment was 30 September 2022. In such facts and circumstances, there is no legal basis for the petitioner to contend that the impugned final assessment order, consequential impugned demand notice and the impugned show cause notices to invoke penalty, violate the principles of natural justice.

23. Mr. Sharma would further submit that it is not the petitioner’s case alone where the assessment proceedings were to be completed on or before the date of 30 September 2022 on which such proceedings would be time-barred. There were several such other cases. In view thereof, the submission of the assessee that there was ample time for the respondents to hear the petitioner and pass the impugned final assessment order is neither correct nor justifiable. He would reiterate that it is because of the petitioner’s own conduct that the clear deadline of submitting the response along with the documents and request for personal hearing set out in the show cause notice-cum-draft assessment order 18 August 2022 could not be complied with. Thus, for such non-compliance and that too without justification the petitioner cannot hold the respondent responsible for its own omissions, to act within the time frame.

24. In view of the above, Mr. Sharma would submit that there is no violation on the part of the respondents of the statutory provisions under Section 144B of the IT Act, as sought to be made out by the petitioner. He would urge that there is no breach of the principle of audi alteram partem by the respondents as the petitioner was given reasonable and sufficient opportunity which it failed to avail without any justification.

25. Mr. Sharma would then submit that the decisions of various Courts relied on by the petitioner are in the context of completely different and distinct facts and circumstances. Thus, the same have no application in the given case.

26. On merits Mr. Sharma would submit that certain discrepancies emerged warranting certain additions to the petitioner’s total income during the course of assessment. This was in the nature of investments amounting to Rs. 2,43,14,139/-; discrepancies in capital account of one of the partner resulting in addition of Rs. 50,60,000/-; discrepancies in transaction (loan) with M/s. Total Holding & Finvest Pvt. Ltd. resulting in addition of Rs.2,00,00,000/-. Upon total making addition of Rs.4,58,74,139/- an adjustment of loss brought forward of Rs.2,43,14,139/-. The total income of the petitioner was correctly assessed at Rs. 2,15,60,000/- for the A.Y. 2020-21 at special rate under Section 115BBE of the IT Act. Accordingly, on a demand notice of Rs.2,21,98,176/- was issued to the petitioner under Section 156 of the IT Act for said A.Y. 2020-21 on 9 September

2022.

27. Mr. Sharma would submit that, all such proposed additions to the total income of the petitioner are within the framework of the IT Act. Consequently, according to Mr. Sharma, the penalty notices issued under Section 274 read with Section 270A and Section 271AA(1) of the IT Act Act for under-reporting, misreporting of income and for failing to disclose/explain the source of such income were in accordance with law which warrants no interference. D) Analysis and Conclusion:

28. Considering the issue to be decided in the present petition, it is pertinent to refer to certain relevant and undisputed facts. Firstly, a notice dated 29 June 2021 was issued by respondent no. 1 to the petitioner under Section 143(2) of the IT Act, seeking clarification from the petitioner in regard to unsecured loans and for verification of the petitioners transactions. This was followed by several notices issued by the respondents under Section 142(1) of the IT Act as noted above from 12 November 2021 onwards seeking details and documents from the petitioner. The last of such notice by the respondent was dated 17 March 2022. The petitioner duly responded to all of such notices, the last one being of 22 March 2022. It was on 18 August 2022 that the respondent no. 1 proceeded to issue a show cause notice-cum-draft assessment order under Section 143(3) of the IT Act. The petitioner was directed to respond by 18:00 hours on 26 August 2022 either by a written reply or making a request for personal hearing through video conferencing. The petitioner accordingly replied to such notice-cum-draft assessment order on 26 August 2022 by filing such written submissions. The petitioner further in terms of paragraph 3(c) as set out in the notice-cum-draft assessment order dated 18 August 2022 made an application dated 27 August 2022 for personal hearing through video conferencing on e-filing portal. It was on 9 September 2022 that the respondent no. 1 proceeded to pass the impugned final assessment order under Section 143(3) read with Section 144B of the IT Act directing aggregate addition of Rs.4,58,74,139/- to the petitioner’s total income. This was followed by another demand notice of Rs.2,21,98,176/- issued under Section 156 of the IT Act and thereafter, two show cause notices both dated 9 September 2022 for initiating penalty proceedings against the petitioner under Section 274, 270A of the IT Act read with Section 271AA(1) of the IT Act.

29. In the aforesaid factual backdrop, it is imperative to refer to Section 143 of the IT Act. Section 143(3) reads thus:- “(3) On the day specified in the notice issued under sub-section (2), or as soon afterwards as may be, after hearing such evidence as the assessee may produce and such other evidence as the Assessing Officer may require on specified points, and after taking into account all relevant material which he has gathered, the Assessing Officer shall, by an order in writing, make an assessment of the total income or loss of the assessee, and determine the sum payable by him or refund of any amount due to him on the basis of such assessment…………...” In the above context, we may now refer to the show cause notice-cum-draft assessment order dated 18 August 2022 issued by respondent no. 1 more particularly paragraphs no. 3 and 4 of the said notice reproduced (Supra). A plain reading of the above paragraphs makes it clear that besides granting an option to the assessee to file its reply objecting to the proposed variation of the respondents, in writing a further opportunity is required to be given to the assessee by offering a personal hearing through video conferencing. Such response was required to be submitted by the petitioner, on the e-filing portal by 18:00 hours of 26 August 2022, which was in fact submitted by the petitioner on 27 August 2022. The contents of paragraph 3 of the said show cause notice-cum-draft assessment order are to be construed in the light of the clear legislative intent in Section 143(3) of the IT Act. In other words, the requirement of hearing the assessee being categorically provided for in the above statutory provision, the same ought to be followed in letter and spirit. Thus, on a proper reading and interpretation of Section 143(3) of the IT Act, one cannot by-pass such statutory mandate of granting an opportunity of hearing the assessee which is required to be followed before passing the assessment order.

30. We find that in the facts of the present case, the last response from the petitioner was dated 22 March 2022 to one of the notices under Section 142(1) of the IT Act issued by the respondents dated 17 March 2022. Thereafter, the respondent no. 1 had sufficient time to issue the draft assessment order which was not passed until 18 August 2022. In the said order, the respondent no. 1, inter alia, expressly provided to the petitioner an opportunity to seek personal hearing through video conferencing, in terms of the mandate of Section 144B(6)(viii) of the IT Act. Further, the time to respond to such show cause notice-cum-draft assessment order dated 18 August 2022 including making request by the petitioner for personal hearing was stipulated at 18:00 hours of 26 August 2022. The petitioner in compliance with such timelines did submit its response with requisite documents and uploaded a request for personal hearing on the e-filing portal of the respondents on 27 August 2022. However, the facts reveal that without considering such categorical request made by the petitioner for grant of personal hearing to it, before passing the impugned final assessment order was turned down by the respondents. Instead, the respondents proceeded to pass the impugned final assessment order dated 9 September 2022 without hearing the petitioner, overlooking the salutary principle of audi alteram partem, according to which the petitioner cannot be condemned unheard.

31. We may observe that the compliance of such principles of natural justice assumes special significance in the facts of the present case, as such requirement of personal hearing is also intrinsic and ingrained under Section 144B of the IT Act. The respondents have invoked the said provision of Section 144B read with Section 143(3) of the IT Act in passing the impugned final assessment order dated 9 September 2022. In this context, we refer to a judgment of the Supreme Court in the case of Tin Box Co v. Commissioner of Income-Tax[5], where the Supreme Court held that placing evidence before the first appellate authority or before the Tribunal is of no consequence, as it is the assessment order that counts. Such order must be made after the assessee has been given a reasonable opportunity of presenting his case. Clearly, in the facts of the given case such principle has not been followed by the respondents.

32. It would be apposite to refer to a decision of a co-ordinate bench of this Court in the case of Teerth Builders and Realties JV (AOP) vs. The Additional/Joint/Deputy/Assistant Commissioner of Income Tax/ Income Tax [2001] 116 Taxman 491 Officer[6], (of which G.S. Kulkarni, J. was a member). Paragraph 15 of this judgment reads thus:-

It is discernible that from the above judgment that this Court has categorically held that the action of the respondents which is contrary to the mandate of the statutory provisions or in breach of principles of natural justice would be without jurisdiction, hence non est and a nullity in law.

33. We are in agreement with Ms. Halbe who submitted that even on merits, the various additions proposed by the respondents to the total income of the assessee for which notices were issued under Section 143(2) of the IT Act were duly responded to by the petitioner but not considered by the respondents. In fact, the petitioner specifically asked for personal hearing to place on record the documentary evidence after personal hearing as also set out in the draft assessment order dated 18 August 2022. Section 144B of the IT Act, as noted above, statutorily recognizes the right of hearing of an assessee before passing the impugned final assessment order.

34. In our view, even if one has to test the correctness or otherwise of the proposed additions to the total income of the petitioner, it would be all the more incumbent upon the respondents to grant to the petitioner a reasonable opportunity of being heard on such variations, before passing the impugned assessment order. In the present case, the respondents proceeded to make unilateral additions to the total income of the petitioner, without hearing the petitioner which the law does not countenance.

35. We find merit in the submission of Ms. Halbe to the effect that audi alteram partem is a part of Article 14 of the Constitution of India. In this regard, more particularly, the judgment of the Supreme Court in the case of Delhi Transport Corporation (Supra) read with Union of India v. Tulsiram Patel[7] holding that the principles of natural justice have thus come to be recognized as being a part of the guarantee contained in Article 14 of the Constitution of India. In view thereof, depriving the petitioner of the right to be heard would violate their fundamental right under Article 14. Therefore, even on such count, the impugned final assessment order lacks legal foundation.

36. In light of the above, we are unable to agree with the submissions. (1985) 3 SCC 398 advanced by Mr. Sharma, one on the ground of availability of alternate statutory remedy to the petitioner which ought to have been exhausted before approaching this Court in writ jurisdiction. Such submission, in the given facts, would fall foul of the statutory mandate under Section 144B of the IT Act, which embraces the right to be heard, failing which the order would be without jurisdiction and non est. In the given facts and circumstance, it would be unfair and unjust to the petitioner to be left entangled in litigation before the appellate authority and thereafter, in further appeals which are available, as the foundational illegality in a situation like the present, would have to be nipped in the bud. In such situation, the appellate remedy may not be effective or efficacious, considering the patent illegality in the impugned final assessment order.

37. We express our inability to agree with the submission of Mr. Sharma to the effect that the petitioner in this case did not comply with the timelines clearly set out in paragraph 3(c) of the draft assessment order to submit its response on the e-filing portal on or before 18:00 hours of 26 August 2022. In fact, the petitioner did submit such response with a categorical request dated 27 August 2022 to be heard through video conferencing. Thus, according to Mr. Sharma, when such specific timelines are not adhered to by the petitioner, the consequences ought to follow. The sequel to such submissions would mean shutting the doors of this Court to the petitioner merely because of a delay of merely one day in submitting its response as provided in the show cause notice-cum-draft assessment order. Also, accepting such submissions of Mr. Sharma would tantamount to bypassing the clear statutory mandate under Section 143(3) read with 144B of the IT Act, as interpreted by the decisions cited above. We, therefore, cannot accept justice becoming a casualty to technicalities by adopting a hyper-technical approach.

38. We may now refer to Section 156 of the IT Act which provides for the demand notice to be issued in case of any failure to pay tax by the assessee. In the present case, it is pertinent to note that such demand notice dated 9 September 2022 is issued pursuant to the impugned final assessment order of the said date. Therefore, when such demand notice is premised upon the impugned assessment order which itself is without jurisdiction and non est as observed (Supra), any actions including issuance of consequential notices would not stand legal scrutiny.

39. In regard to the penalty notices is said under Section 274, 270A read with Section 271AA(1) of the IT Act, we note that notice/order under a statutory provision which would entail civil consequences causing prejudice to the person, ought to be passed in strict adherence to the principles of natural justice to include opportunity of being heard. At this juncture, we may refer to a decision of the Supreme Court in the case of UMC Technologies Private Limited v. Food Corporation of India and Another[8], to state that it is the first principle of civilized jurisprudence that a person against whom any action is sought to be taken or. (2021) 2 SCC 551 interest are being affected should be given a reasonable opportunity to defend himself to include the right to be heard, before an order entailing such consequence is passed. In view thereof, we are unable to accept the submission of Mr. Sharma on the penalty notices (Supra) issued by the respondents.

40. In light of the above discussion, this petition must succeed.

41. Rule is made absolute in terms of prayer clause (a) and (b). No order as to costs. (ADVAIT M. SETHNA, J.) (G. S. KULKARNI, J.)