2022 (6) TMI 803 - HC - Income Tax

Court intervenes in tax assessment, sets aside order, directs Department to restart from initial notice.

The Court set aside the assessment order due to lack of opportunity and specificity, directing the Department to proceed from the initial notice under ... Reopening of assessment u/s 147 - Lack of full disclosures - whether purported lack of reasons for reopening can be raised more so as a ground in support of a challenge to assessment after the assessee has fully participated in the assessment proceedings post reopening, invited an assessment order and has challenged the same, i.e., impugned assessment order? - HELD THAT:- To be noted, Chapter XIV of Income Tax Act. 1961 captioned 'PROCEDURE FOR ASSESSMENT' consists 20 sections, i.e., Sections 139 to 158. Section 139 talks about assessee filing return of income, section 142 talks about inquiry 'before assessment'. 'Assessment' thereafter is under section 143. The scheme of the statute also is of relevance as in the case on hand, writ petitioner assessee has responded to reopening notice, filed his returns and thereafter even sent what according to him his objections qua notices in this regard. The details of the trajectory together with dates have already been captured supra elsewhere in this order where there is a narrative capturing factual matrix and the trajectory the matter has taken. This court reminds itself of a judgment of a Constitution Bench of Hon'ble Supreme Court in the celebrated Padma Sundara Rao [2002 (3) TMI 44 - SUPREME COURT] case, wherein the manner of referring to a case law (precedent) and as to how the fact setting even owing to minor differences can make a world of difference in a case as a precedent has been dealt with. Though we are concerned with the issue as to whether reopening order can be assailed after assessment, on a demurer even if Kelvinator principle is applied [2002 (4) TMI 37 - DELHI HIGH COURT] (in Kelvinator, facts are not available), this Court interfering in writ jurisdiction will arise only when foundational fact for reopening itself is unacceptable. In this case, prima facie 'lack of full disclosure' ingredients is present as DRP has examined all three aspects, namely (I) Transfer Pricing (ii) Railway Siding Charge (whether capital or revenue expenditure) and (iii) interest from debenture, tax impact of same and after examining all three aspects has held in favour of assessee only with regard to Transfer Pricing. This cannot be completely ignored. This is in the light of Padma Sundara Rao principle. To be noted, Padma Sundara Rao case was rendered by Hon'ble Constitution Bench and it has been elevated from the status of ratio to that of declaration of law. Assessee seeking details - Learned Senior Counsel pointed out that the Department has not even given the details of the immovable property said to have been purchased by the writ petitioner which is now going to be made subject matter of Section 80IA of IT Act addition /variation. The answer of the learned Revenue Counsel that these details should emanate from the assessee is not very convincing. Therefore, this Court would be interfering to that limited extent in this matter. This will be set out in the latter portion of this order infra. This douses the second point. Time given vide SCN dated 13.09.2021 is too short is clearly acceptable - The reason is the 13.09.2021 SCN has been digitally signed at 13:55:35 IST, assuming it was uploaded immediately, half a day would have gone by as it was in the afternoon of 13.09.2021. To be noted, vide paragraph 3 of the SCN, writ petitioner-assessee was called upon to respond by 23:59 hours on 16.09.2021. 13.09.2021 is a Monday and obviously 16.09.2021 is Wednesday and that fairly three working days. It is clearly insufficient. Under the normal circumstances, this Court would have been inclined to send the matter back to the Assessing authority to proceed from the SCN stage but in this case, as the argument that it is a scrutiny assessment and that even the details of the immovable property said to have been purchased by assessee / writ petitioner have not been given has some force and therefore, going into the facts and circumstances of the case, this Court is of the considered view that this is a matter where it can be sent back to the Department to proceed from the first of 142(1) notices. The above notice vide the Annexure more particularly Serial No.8 calls upon the writ petitioner to furnish details of immovable property purchased by the writ petitioner firm or by any partners of the firm qua said AY with source. Nothing prevents the writ petitioner-assessee to responding to this. Equally it is open to the Department to issue the additional notice giving particulars of the immovable property. This course will balance the rights of the writ petitioner and interest of the Revenue. In the light of the discussion and dispositive reasoning set out supra, the following order is passed: a) the impugned assessment order made by the first respondent is set aside on the grounds of lack of opportunity / specificity; b) though obvious, the basis of the above limb is this Court has not expressed any view or opinion on the merits of the matter; c) the Department shall now proceed from the stage of notice under Section 142(1) of the IT Act dated 10.08.2021 (scanned and reproduced supra); d) When the Department proceeds from the 10.08.2021 notice under Section 142(1), it is open to the respondents to issue an additional notice giving more details with specificity, if so advised; e) all questions are left open and therefore, the writ petitioner's purported objections and the writ petitioner's contentions raised in the captioned writ petition can well be raised in response to the 142(1) notice; Issues:Assessment order challenge based on lack of new material for Section 148 notice, details of immovable property in Section 142(1) notices, and short notice period in show cause notice (SCN).Analysis:1. The petitioner challenged the assessment order, arguing lack of new material for Section 148 notice, insufficient details in Section 142(1) notices, and short notice period in the SCN. The Senior Counsel for the petitioner highlighted these issues.2. The Revenue Counsel countered, citing legal precedents and asserting that the petitioner had been given sufficient opportunity to respond. The Counsel emphasized that details should come from the assessee and defended the short notice period in the SCN.3. The Senior Counsel responded, referencing legal cases like Kelvinator and distinguishing the Doosan Bobcat case relied on by the Revenue Counsel. The Senior Counsel argued against the adequacy of reasons for reopening and the short notice period.4. The Court analyzed the arguments, considering the trajectory of the assessment proceedings and legal principles. It discussed the relevance of case laws like Doosan Bobcat and Orchid Pharma in the context of the present case.5. The Court referred to the Income Tax Act's procedural aspects and emphasized the petitioner's participation in the assessment process post-reopening. It highlighted the importance of factual differences in legal precedents, citing the Padma Sundara Rao case.6. The Court concluded that the legal principles cited by the Revenue Counsel were relevant to the present case. It discussed the trajectory of the assessment proceedings and the petitioner's participation post-reopening.7. The Court addressed the petitioner's request for details of the immovable property and found the Department's response inadequate. It acknowledged the petitioner's right to seek such details and decided to intervene in this matter.8. The Court found the short notice period in the SCN unacceptable, considering the limited time given for response. It decided to send the matter back to the Department to proceed from the initial Section 142(1) notice.9. The Court passed an order setting aside the assessment order due to lack of opportunity and specificity. It directed the Department to proceed from the initial notice under Section 142(1) and allowed the petitioner to raise objections accordingly.10. The Court concluded the judgment, setting a timeline for the Department to conclude the proceedings. The main writ petition was disposed of with directives, and no costs were awarded.This detailed analysis highlights the key arguments, legal principles, and the Court's reasoning in addressing the issues raised in the assessment order challenge.