Assessment order quashed as SCN gave less than seven days time to submit response to proposed variation to income
In a recent judgment, the Hon’ble Bombay High Court quashed assessment order as show cause notice gave less than seven days time to assessee to submit response to proposed variation to income which was against the SOP and amounted to violation of the principles of natural justice.
ABCAUS Case Law Citation:
4220 (2024) (08) abcaus.in HC
In the instant case, the Petitioner/assessee had challenged the order passed by the Assessment Unit of Income Tax Department under the provisions of Section 144 read with Section 144B of the Income Tax Act, 1961 (the Act).
The primary grievance of the Petitioner was that prior to the Assessment Order being passed, the Petitioner was issued a Show Cause Notice (SCN) dated 22 March, 2024 calling upon the Petitioner to show cause on the variations which were sought to be made, in the return of income, as filed by the Petitioner. Further as per the said Show Cause Notice the Petitioner was required to submit its response through its registered e-filing account by 17:30 hours of 23 March, 2024.
The Petitioner contended that such notice was generated and uploaded on the portal on 22 March, 2024 at 20:03:29 IST. Further, the next day (i.e. 24 March, 2024) was a Saturday. The Petitioner online filed it objection to the said Show Cause Notice by its reply dated 23 March, 2024, wherein the Petitioner stated that the Petitioner being granted less than 24 Hours to respond the Show Cause Notice, was in breach of the principles of natural justice, which would amount to a flaw in the decision making process. In its reply, the Petitioner pointed out that the Hon’ble Karnataka High Court had held that allowing less than 24 Hours to respond to SCN is violation of principles of natural justice and hence the entire proceedings was quashed for violation of principles of natural justice.
The Assessment Unit, in response to the objections raised by the assessee, extended the time to file response up to 26th March. The extension was communicated on 24 March, 2024 via the e-proceedings tab under e-filing portal. The communication recorded that as a matter of last opportunity to the Petitioner to make proper and complete submissions with all documentary evidence, time to reply to the Show Cause Notice was extended upto 26 March, 2024 upto 11:30 AM.
The said intimation was uploaded by the Assessment Unit on 24 March, 2024 at 13:01:43 IST. The Petitioner, however, could not submit its response within the short extended time as specified by the communication dated 24 March, 2024. In these circumstances, the assessment of the Petitioner’s return was completed by the Assessment Unit by the impugned Assessment Order dated 24 March, 2024.
Before the Hon’ble High Court, the Petitioner contended that under the provisions of Section 144B(6)(xi) of the Act, the Principal Chief Commissioner or the Principal Director General, as the case may be, in-charge of the National Faceless Assessment Centre, is conferred power to be exercised with prior approval of the Board, to lay down the standards procedures and processes for effective functioning of the National Faceless Assessment Centre and the units set up, in an automated and mechanised environment.
It was submitted that in pursuance of such powers, a Standard Operating Procedure SoP) for Assessment Unit under the Faceless Assessment provisions of Section 144B of the Act”, dated 3 August, 2024 has been notified. The SoP provides that a period of seven days be given to the assessee for obtaining response from issuance of Show Cause Notice.
It was contended that in view of the SOP, hurried exercise of passing of the assessment order was arbitrary and in breach of the principles of natural justice, inasmuch as the time-limit of seven days to respond to the Show Cause Notice as specified under the said instructions was not complied, in passing the impugned Assessment Order. It is submitted that in such view of the matter, the impugned Assessment Order needs to be quashed and set aside and the proceedings be remanded for a fresh assessment order to be passed, after an opportunity being granted to the Petitioner, to reply to the Show Cause Notice.
The Hon’ble High Court observed that pragraph N.1.3 of the SoP clearly provides a response time of seven days from the issuance of the Show Cause Notice to the assessee to submit his reply. Whereas, in the instant case, sufficient time was available to the Assessing Officer to pass an assessment order even if he was to grant seven days time to the Petitioner to file reply to the Show Cause Notice. However, the Assessing Officer granted only two days time at the first instance and thereafter extended the same by another two days, which apart from being not sufficient, was certainly, not in accordance with the time to respond the Show Cause Notice, as prescribed under the SOP.
The Hon’ble High Court opined that the Assessing Officer, appeared to have arbitrarily exercised jurisdiction by granting an extension of only two days. Such approach on the part of the Respondents was clearly in breach of the SOP, which has also resulted in breach of the principles of natural justice, which guaranteed to the Petitioner a fair and reasonable opportunity to respond to the Show Cause Notice under the procedure prescribed, in undertaking the assessment proceedings. This has surely caused a prejudice to the Petitioner.
Accordingly, the impugned Assessment Order was quashed and set aside and the proceedings were remanded for a fresh Assessment Order to be passed under Section 144 read with Section 144B of the Act. It was directed that the portal be opened within a period of two weeks from today and within a period of seven days thereafter, the Petitioner shall submit its detailed response to the Show Cause Notice.
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