The failure to issue a show cause notice constituted a significant procedural defect – Assessment Order quashed by Bombay HC
Bombay High Court in the case of Teerth Developers WP 3591 2022 highlights the importance of procedural fairness in tax assessments and reinforces the rights of taxpayers to be properly notified and heard in the assessment process.
Background
Assessment Process: The petitioner filed its income tax return on October 29, 2018. The case was selected for scrutiny, and various notices were issued. Due to the COVID-19 pandemic, the petitioner sought adjournments and provided additional information in early 2021.
Concerns Raised: The assessment order was passed making additions and raising demand, without issuing a show cause notice-cum-draft assessment order, which is a requirement under Section 144B of the Income Tax Act, as amended in 2021.
Key arguments
1. Violation of Natural Justice: The petitioner argued that the assessment order was invalid because it did not follow the mandatory procedures outlined in Section 144B, particularly the requirement to issue a show cause notice before making any prejudicial assessments.
2. Lack of Evidence: The petitioner contended that the assessment order incorrectly stated that a show cause notice was issued, which was later confirmed to be untrue through an RTI application.
High Court’s findings
Mandatory Procedures: The court emphasized that the provisions of Section 144B are designed to ensure fairness in the assessment process. The failure to issue a show cause notice constituted a significant procedural defect.
Judicial Precedents: The court referenced the Supreme Court’s ruling in Tin Box Co. v. Commissioner of Income-tax, which underscored the necessity of providing a proper opportunity for the assessee to present their case.
Final Order:
The Bombay High Court quashed the assessment order and the demand notice, directing the Income Tax authorities to follow the proper procedure as per law, including issuing a show cause notice and allowing the petitioner to respond before making any assessments.
The court mandated that the procedure be undertaken and completed within three months, ensuring adherence to legal requirements.
The copy of the order is as under:
