Draft assessment order set aside due to improper lingerie stock valuation and inadequate notice under Section 144C(1)

The Madras HC set aside a draft assessment order u/s 144C(1) concerning lingerie stock valuation discrepancies. The court found the income-tax authorities improperly estimated unit prices at Rs. 1,500/- based on website data, resulting in an addition of Rs. 27,04,84,500/- without adequate notice to the petitioner. Additionally, expenditure of Rs. 9,01,61,500/- was disallowed without proper notice, and the requested video conferencing hearing was denied, violating Section 144B(6)(viii). The court directed the draft assessment order be treated as a show cause notice, allowing the petitioner three weeks to respond.

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Issues Involved:
The petitioner challenges a draft assessment order under Section 144C(1) of the Income-tax Act, 1961, alleging breach of principles of natural justice and failure to provide a personal hearing through video conferencing.

Issue 1: Breach of Principles of Natural Justice

The petitioner, engaged in the manufacture of apparel, received a notice under Section 143(2) of the Income-tax Act regarding a discrepancy in stock. The petitioner requested further time and a personal hearing through video conference. Despite this, an impugned draft assessment order was issued without quantifying the proposed addition to the total income. The respondent argued that the petitioner had alternative remedies, citing relevant judgments. However, the Court held that the existence of an alternative remedy does not preclude jurisdiction, especially in cases of breach of natural justice. As the draft assessment order lacked quantification and disallowed expenses without notice, the Court directed it to be treated as a show cause notice for the petitioner to respond within three weeks.

Issue 2: Failure to Provide Personal Hearing

The petitioner contended that the draft assessment order was flawed as it did not provide the requested personal hearing through video conferencing, as mandated by Section 144B of the Income-tax Act. The respondent argued that the petitioner had sufficient opportunities to explain the discrepancies. The Court recognized the petitioner's right to a personal hearing and directed the assessing officer to allow this, along with providing a fresh draft assessment order after the petitioner's response to the show cause notice.

Separate Judgement:
Honourable Mr. Justice Senthilkumar Ramamoorthy delivered the judgment, directing the draft assessment order to be treated as a show cause notice, thereby nullifying the subsequent assessment order. The petitioner was granted three weeks to respond, with the assessing officer instructed to provide a reasonable opportunity, including a personal hearing through video conferencing, before issuing a fresh draft assessment order. The writ petition was disposed of accordingly, with no costs incurred.

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