13 August 2024 Income Tax >> Tax Laws  

In a recent ruling in the matter of Cheftalk Food & Hospitality Services Pvt. Ltd., Mumbai v/s Income Tax Officer, Ward (9)(2)(1), Mumbai & Others, a High Court has quashed an assessment order issued under Section 144 read with Section 144B of the Income Tax Act, 1961, highlighting significant procedural lapses in the assessment process. The case centered around the alleged denial of adequate time for the petitioner to respond to a Show Cause Notice.

Case Background:

The petition was filed challenging the Assessment Order dated 27 March 2024, which was passed by the Assessing Officer (Respondent No.2). The primary issue revolved around the issuance of a Show Cause Notice dated 22 March 2024, which called upon the petitioner to respond by 17:30 hours on 23 March 2024. The petitioner argued that the notice, generated and uploaded on 22 March 2024 at 20:03:29 IST, allowed less than 24 hours for response, given that 24 March 2024 was a Saturday. The petitioner’s response was submitted on 23 March 2024, objecting to the insufficient time granted, which they claimed breached principles of natural justice.

Procedural Concerns:

The petitioner’s objection emphasized that the Show Cause Notice’s timing curtailed their ability to adequately prepare and present their case, thus compromising the fairness of the proceedings. They referenced a Karnataka High Court decision (MMG Constructions LLP Vs. Union of India, WP No. 21638/2021) where similar issues of insufficient response time were deemed a violation of natural justice. In response, the Assessing Officer extended the deadline to 26 March 2024 at 11:30 AM. However, the petitioner could not submit their response within this extended timeframe, leading to the final assessment order being passed on 27 March 2024.

Standard Operating Procedure (SOP) Violations:

A critical aspect of the case involved the SOP issued under Section 144B(6)(xi) of the Income Tax Act. This SOP mandated a response time of seven days from the issuance of the Show Cause Notice. The petitioner contended that the Assessing Officer’s failure to comply with this SOP and the inadequate extension provided constituted a breach of procedural norms.

The court acknowledged the SOP’s stipulation for a seven-day response period and found that the Assessing Officer's actions—granting only a two-day period initially, with a minimal two-day extension—were inconsistent with the SOP requirements. This procedural lapse resulted in a violation of natural justice and a prejudicial impact on the petitioner.

Court’s Decision:

The court ruled in favor of the petitioner, emphasizing the breach of SOP and principles of natural justice. The court’s orders include:

1. Quashing of the Assessment Order: The Assessment Order dated 27 March 2024 was nullified.
2. Remand for Fresh Assessment: The case was remanded for a fresh assessment under Section 144 read with Section 144B.
3. Extended Response Time: The portal is to be reopened within two weeks, allowing the petitioner seven days to respond to the Show Cause Notice.
4. New Assessment Timeline: Following the petitioner’s response, a new Assessment Order must be issued within four weeks.
5. Cancellation of Related Documents: The Computation Sheet and Notice of Demand, both dated 27 March 2024, were also quashed.

The court explicitly preserved all contentions related to the assessment for consideration in the new proceedings.

Conclusion:

This decision underscores the judiciary’s role in ensuring adherence to procedural fairness and legal standards in administrative processes. It reaffirms the necessity for compliance with prescribed SOPs and the fundamental right to a fair opportunity to respond to notices in tax assessment proceedings.

  Income Tax Act, 1961