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Delhi HC Highlights Procedural Importance.
Your Assessment Order Needs Prior Show Cause Notice.
Your Assessment Order Needs Prior Show Cause Notice.
The Delhi High Court recently emphasized the significance of procedural due diligence in taxation matters. In a case involving SB Distributors, the court ruled that the income revision initiated by the Income Tax Officer (ITO) under section 147 was invalid due to the absence of a Show Cause Notice (SCN) issued before the revision. This decision underscores the necessity of following every procedural step to uphold the principle of natural justice.
In a landmark judgement, the Delhi High Court shed light on the importance of procedural adherence in taxation.
The case revolved around SB Distributors, where the Income Tax Officer (ITO) initiated an income revision under section 147. The crux of the matter was the assessment order dated 29.05.2023, passed under Section 147 read with Section 144 of the Income Tax Act, 1961.
The petitioner argued that this order was flawed as it lacked a SCN cum draft assessment order proposing income variation. This oversight led to an unsupportable demand notice, sparking the legal dispute.
Upon reviewing the impugned assessment order, the Delhi High Court concurred with the petitioner. The court identified the failure to issue a show cause notice cum draft assessment order before enhancing the petitioner’s taxable income as a fundamental flaw. This flaw rendered the assessment order null and void.
However, the court granted the Assessing Officer (AO) the liberty to pass a fresh assessment order, but only after issuing a SCN cum draft assessment order detailing the proposed income variation.
This ruling is a testament to the importance of due process in taxation matters.
The Delhi High Court's decision to nullify the assessment order due to the absence of a SCN reiterates that every procedural step must be meticulously followed. Such adherence ensures the upholding of the principle of natural justice.
As you navigate the intricate world of taxation, remember that procedural diligence is not just a best practice – it's a necessity.
Court Name : Delhi High Court
Parties : S.B. Distributors Acting Through Its Partners Vs ITO
Decision Date : 07 July 2023
Judgement ref : W.P.(C) 8949/2023
RAJIV SHAKDHER, J. (ORAL):
CM No.33933/2023
1. Allowed, subject to just exceptions.
W.P.(C) 8949/2023 & CM Appl. 33932/2023 [Application filed on behalf of the
petitioner seeking interim relief]
2. Issue notice.
2.1 Mr Zoheb Hossain, learned senior standing counsel, accepts notice on behalf of the respondents/revenue.
3. In view of the directions that we propose to pass, Mr Zoheb Hossain says that counter-affidavit need not be filed in the matter, and that he will argue the matter based on the record presently available with the court.
4. Dr Rakesh Gupta, who appears on behalf of the petitioner, says that apart from anything else, the impugned assessment order dated 29.05.2023 passed under Section 147 read with Section 144 of the Income Tax Act, 1961 [in short, “the Act”] is flawed, as no show cause notice cum draft assessment order was served on the petitioner, proposing variation in income.
5. Dr Gupta says that on account of this fundamental flaw, the consequent steps taken by the Assessing Officer (AO), i.e., the issuance of demand notice dated 29.05.2023 and the penalty notices dated 29.05.2023 and 30.05.2023, are also unsustainable in law.
6. Mr Zoheb Hossain, learned senior standing counsel, who appears on behalf of respondent/revenue, cannot but accept that the law requires the AO
to issue a show cause notice cum draft assessment order, proposing variation in income.
7. A perusal of the impugned assessment order shows that additions have been made, enhancing the taxable income of the petitioner.
8. Given the fact that no show cause notice cum draft assessment order was issued prior to upward revision of the petitioner’s income, the impugned assessment order is set aside, albeit with liberty to the AO to pass a fresh assessment order.
9. Before the AO passes a fresh assessment order, he will issue a show cause notice cum draft assessment order, indicating therein the proposed variation in income.
10. This exercise will be completed by the AO within the next four (4) weeks.
11. The petitioner will be at liberty to file a response. The response will be filed within four (4) weeks of receipt of the draft show cause notice cum draft assessment order.
12. The AO will, thereafter, accord personal hearing to the authorized representative of the petitioner. For this purpose, the AO will issue a notice to the petitioner, whereby the date and time of the hearing will be indicated.
13. Needless to say that the AO will pass a speaking assessment order, which would deal with the contentions embedded in the reply, if any, filed by the petitioner.
14. As a result of the directions issued hereinabove, the demand notice dated 29.05.2023, and the penalty notices dated 29.05.2023 and 30.05.2023, shall also collapse.
15. The above-captioned petition is disposed of, in the aforesaid terms.
16. Consequently, the pending application shall stand closed.
17. Parties will act based on the digitally signed copy of the order.
(RAJIV SHAKDHER)
JUDGE
(GIRISH KATHPALIA)
JUDGE
JULY 7, 2023
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IN THE HIGH COURT OF DELHI AT NEW DELHI
% Decision delivered on:07.07.2023
+ W.P.(C) 8949/2023
S.B. DISTRIBUTORS ACTING THROUGH ITS PARTNERS PETITIONER 2,
3 AND 4 AND ORS ..... Petitioners
Through: Dr Rakesh Gupta, Mr Somil Agarwal and
Mr Anshul Mittal, Advocates
versus
INCOME TAX OFFICER WARD 35( 1) DELHI & ORS. ..... Respondents
Through: Mr Zoheb Hossain, Sr Standing Counsel
with Mr Sanjeev Menon, Jr Standing
Counsel for Revenue.
CORAM:
HON'BLE MR. JUSTICE RAJIV SHAKDHER
HON'BLE MR. JUSTICE GIRISH KATHPALIA
[Physical Hearing/Hybrid Hearing (as per request)]
