Granting 12 hours to reply to a SCN is violation of the principles of Natural Justice

The Hon'ble Gujarat High Court in DineshkumarChhaganbhai Nandani v. Income Tax Officer [R/Special Civil Application No. 7864 of 2022 dated June 19, 2023] set aside the assessment order and held a proper opportunity must be given to the Assessee whenever a Show cause notice or an assessment order is issued and further commented that it is very difficult to file a reply to the Show Cause Notice within 12 hours.

Facts

Dineshkumar Chhaganbhai Nandani("the Petitioner") filed his return of income for the Assessment Year 2014-15 ("the Impugned Year") on July 24, 2014, declaring total income of INR 3,39,730. 

A Show Cause Notice dated March 29, 2022 ("the Impugned SCN") was issued to the Petitioner by the Income Tax Officer ("the Respondent") at 11:41 am, which stated the Petitioner to reply by 11:59 pm on the same date as to why the proposed variation should not be made. The Petitioner filed a reply to the Impugned SCN within the stipulated time and thereafter an Assessment Order dated March 31, 2022 ("the Impugned Order") was passed by the Respondent. Aggrieved by the Impugned Order the Petitioner filed the present petition.

The Petitioner submitted that the Respondent has failed to grant a proper opportunity of being heard by giving only 12 hours to file a reply to the Impugned SCN. Furthermore, the Petitioner submitted that he had asked for certain documents for cross-verification and as well as requested a cross-examination of witnesses, which the Respondent did not provide and thereby contended that the Respondent had clearly violated the principles of natural justice.

Issue

Whether granting only 12 hours for submitting a reply to the Impugned SCN violative of principles of natural justice?

Held

The Hon'ble Gujarat High Court in R/Special Civil Application No. 7864 of 2022held as under:

• Observed that it was difficult for the Petitioner to submit a complete reply to the Impugned Show Cause Notice within less than 12 hours.
• Relied on its own judgement in the case of Dipak Natwarlal Dholakiya v. Additional /Joint/Deputy/Assistant Commissioner of Income-tax [R/Special Civil Application No. 9041 of 2022 dated February 6, 2023] wherein the time of 12 hours was given to the Petitioner for complying with the Show Cause Noticeand therefore the court held it to be a gross violation of the principles of natural justice as no proper opportunity of being heard to the Petitioner and declared the entire action of the completion of assessment not in consonance with the legislative intent.
• Held that, when a Show Cause Notice or an Assessment Order is issued to the Petitioner, a reasonable opportunity is required to be given to him.
• Set aside and quashed the Impugned Order.

Relevant Provisions

Section 148 of the IT Act

"Issue of Notice when Income has escaped Assessment

Before making the assessment, reassessment or re-computation under section 147, and subject to the provisions of section 148A, the Assessing Officer shall serve on the assessee a notice, along with a copy of the order passed, if required, under clause (d) of section 148A, requiring him to furnish within a period of three months from the end of the month in which such notice is issued, or such further period as may be allowed by the Assessing Officer on the basis of an application made in this regard by the assessee, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139:

Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice.

Provided further that no such approval shall be required where the Assessing Officer, with the prior approval of the specified authority, has passed an order under clause (d) of section 148A to the effect that it is a fit case to issue a notice under this section.

Provided also that any return of income, required to be furnished by an assessee under this section and furnished beyond the period allowed shall not be deemed to be a return under section 139.

Explanation 1.-For the purposes of this section and section 148A, the information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment means,-

(i) any information  in the case of the assessee for the relevant assessment year in accordance with the risk management strategy formulated by the Board from time to time;

(ii) any audit objection to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of this Act; or

(iii) any information received under an agreement referred to in section 90 or section 90A of the Act; or

(iv) any information made available to the Assessing Officer under the scheme notified under section 135A; or

(v) any information which requires action in consequence of the order of a Tribunal or a Court.

Explanation 2.-For the purposes of this section, where,-

(i) a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A, on or after the 1st day of April, 2021, in the case of the assessee; or

(ii) a survey is conducted under section 133A, other than under sub-section (2A) of that section, on or after the 1st day of April, 2021, in the case of the assessee; or

(iii) the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner, that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned under section 132 or under section 132A in case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or

(iv) the Assessing Officer is satisfied, with the prior approval of Principal Commissioner or Commissioner, that any books of account or documents, seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee,

the Assessing Officer shall be deemed to have information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee where the search is initiated or books of account, other documents or any assets are requisitioned or survey is conducted in the case of the assessee or money, bullion, jewellery or other valuable article or thing or books of account or documents are seized or requisitioned in case of any other person.

Explanation 3.-For the purposes of this section, specified authority means the specified authority referred to in section 151."