2025 (1) TMI 1240 - HC - Income Tax

Assessment order upheld despite natural justice challenge as show-cause notice provided adequate information about unreliable sales figures

The Bombay HC dismissed a petition challenging an assessment order under sections 143(3) and 144B, where the petitioner alleged breach of natural justice ... Assessment order issued u/s 143 (3) r.w.s. 144B made by the second Respondent - Petitioner contended that since this was a clear case of breach of principles of natural justice, the rule for the exhaustion of alternate remedies should not be applied, and this Court should entertain this Petition. HELD THAT:- Show-cause notice clearly informed the Petitioner that the sales figures could not be relied upon. The methodology by which the correct figures were proposed to be assessed was also clearly indicated in the notice itself. Thus, it is clear that the notice referred to a tentative assessment. Still, the Petitioner was clearly put on guard regarding the tentative opinion that the sales figures were unreliable. An assessment exercise was to be carried out according to the methodology indicated. Therefore, at least prima facie, this is not a clear case of the impugned assessment order travelling beyond the show cause notice or a case where it could be ex-facie concluded that the Petitioner was prejudiced on account of the variation in the tentative figures suggested in the show cause notice and the final determination. Finally, this is also not a case in which the Petitioner, in response to the show-cause notice and the further submissions, clearly and categorically requested a personal hearing. In the response dated 20 December 2022, in the last three lines, the Petitioner stated that it hoped the reply would satisfy the authorities, and if any further clarification is required in the matter, a video conferencing opportunity may please be given to clarify the stand. Since the AO may not have required any further clarification, no video conferencing opportunity was granted to the Petitioner. Again, based on this material, we cannot hold that this is a case of patent violation of natural justice based on which the rule of exhaustion of alternate remedies ought to be bypassed. ISSUES PRESENTED AND CONSIDERED 1. Whether a writ under Article 226 is maintainable for an assessment order where the assesseee alleges breach of principles of natural justice, notwithstanding the availability of a statutory appeal. 2. Whether the notice served (timing and content) amounted to inadequate notice or a patent breach of natural justice warranting interference under writ jurisdiction. 3. Whether the assessment order travelled beyond the scope of the show-cause notice (variation between tentative demand in the notice and final additions) such that the assessee was prejudiced and natural justice breached. 4. Whether the denial of a request for personal hearing by video conference constituted a violation of natural justice in the circumstances. 5. Whether precedent authorities relied upon by the assessee (including decisions addressing very short notice) apply or are distinguishable on facts. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Maintainability of writ despite allegation of breach of natural justice - Legal framework: Constitutional writ jurisdiction under Article 226 is discretionary and summary; ordinarily alternate statutory remedies (appeal) must be exhausted unless there is a clear, patent breach of natural justice or other exceptional circumstances making alternate remedy inadequate. - Precedent Treatment: The Court applied established principles summarized in the Court's earlier decision cited in the judgment and followed the line of authorities that mandate exhaustion of alternate remedies unless a manifest breach of natural justice prevents effective remedy by appeal. - Interpretation and reasoning: The Court held that mere arguable or debatable allegations of breach of natural justice do not justify bypassing the statutory appeal; where the question of breach/prejudice is factual and contestable, the appeal is the appropriate remedy to adjudicate those issues on merits. - Ratio vs. Obiter: Ratio - where alleged breach of natural justice is not manifest on the record and is a triable factual question, writ jurisdiction should be declined in favour of the statutory appeal. Obiter - general observations on what constitutes 'mere technical breach' and need to show prejudice. - Conclusion: Writ petition declined on maintainability ground; petitioner relegated to statutory appeal absent a patent, unanswerable breach of natural justice. Issue 2 - Adequacy of notice (timing and opportunity to reply) - Legal framework: Principles of natural justice require adequate notice and a reasonable opportunity to be heard; adequacy judged by service, content, time given, and whether prejudice resulted. - Precedent Treatment: Decision distinguishing a precedent where less than 24 hours' notice led to inference of breach; the Court treated that precedent as inapplicable on the facts. - Interpretation and reasoning: The show-cause notice was served (digitally signed) and the assessee applied for time and filed a detailed reply within five days. The filed reply contained no complaint of inadequate notice or prejudice. On this material the Court could not find that notice timing amounted to inadequate notice producing prejudice; allegation was thus factually weak. - Ratio vs. Obiter: Ratio - absence of contemporaneous or clear complaint in the response undermines a claim of inadequate notice; factual record showing response without protest negates manifest breach. Obiter - reference to cases where less than 24 hours' notice was held violative (distinguished). - Conclusion: No actionable inadequacy of notice proved; issue is arguable and suitable for appeal rather than summary writ relief. Issue 3 - Whether final assessment exceeded the scope of show-cause notice causing prejudice - Legal framework: Natural justice and the principle of fair play require that the assessee be informed of the case against it, including the basis and methodology of any tentative assessment; however, notices may indicate tentative methodology and invite response. - Precedent Treatment: The Court applied established law that a show-cause notice that communicates the tentative approach and methodology satisfies the requirement of fair notice; added reliance on prior summaries of precedent reasoning. - Interpretation and reasoning: The show-cause notice expressly stated that sales figures in the assessee's register could not be relied upon and set out the methodology proposed (adding making charges to gold price per gram). The final addition for unaccounted sales flowed from that methodology. Thus, the final assessment did not, prima facie, travel beyond the scope of the tentative assessment communicated; no ex facie prejudice was established. - Ratio vs. Obiter: Ratio - where methodology and tentative conclusion are clearly indicated in a notice, subsequent use of that methodology in final assessment does not constitute a patent departure warranting writ intervention. Obiter - explanation that variation in quantum alone, flowing from adopted methodology, is insufficient to show breach absent prejudice. - Conclusion: No demonstrable prejudice from the variation between the show-cause notice figures and final additions; matter fit for appellate scrutiny. Issue 4 - Denial of personal hearing by video conference - Legal framework: Right to a hearing may include a reasonable opportunity for personal hearing where requested; however, where the assessee does not make a clear and categorical request, or where assessing officer does not require further clarification, refusal to grant a hearing may not amount to breach. - Precedent Treatment: The Court referred to general principles distinguishing clear, categorical requests for hearing from tentative or conditional requests. - Interpretation and reasoning: The assessee's reply hoped that the reply would suffice and only conditionally requested video-conferencing 'if any further clarification is required.' This conditional and non-categorical request does not establish that a request for personal hearing was denied; the Assessing Officer's decision not to call for further clarification thus does not, on the record, amount to a patent denial of hearing. - Ratio vs. Obiter: Ratio - a conditional or non-assertive request for hearing does not create a clear entitlement whose denial will, without more, justify writ relief. Obiter - guidance that a clear, categorical request must be shown to have been refused to establish a breach. - Conclusion: Denial of video-conference hearing not shown to be a patent breach; issue is debatable and belongs to appellate adjudication. Issue 5 - Applicability of relied-upon precedents (including short-notice cases) - Legal framework: Precedents apply depending on factual parity; short-notice precedents are applicable only where notice period/facts are comparable. - Precedent Treatment: The Court distinguished the short-notice precedent relied upon by the petitioner where notice was less than 24 hours and the assessee had no realistic time to respond. - Interpretation and reasoning: In the present facts the notice was served on 15 December and reply filed on 20 December with no contemporaneous protest; therefore the short-notice authority was inapposite. - Ratio vs. Obiter: Ratio - factual distinctions control the applicability of precedents addressing procedural unfairness. Obiter - remarks on the need to plead and prove prejudice where alleging inadequate notice. - Conclusion: Reliance on the short-notice authority is misplaced; the precedent is distinguished on facts. Remedial Direction and Observations - The Court declined writ relief but granted liberty to pursue the statutory appeal and directed that if the appeal is filed within a specified short period the appellate authority should consider the petition's earlier filing date for limitation and decide the appeal on merits without raising limitation objection. - The Court clarified that its observations on natural justice were made solely to determine whether to exercise writ jurisdiction and do not preclude the petitioner from raising breach-of-natural-justice arguments afresh before the appellate authority; appellate authority must consider such contentions uninfluenced by the Court's interim observations.