INTERGROW BRANDS PRIVATE LIMITED, vs. THE ADDITIONAL/JOINT/DEPUTY/ASSISTANT COMMISSIONER OF INCOME TAX,

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WP(C)/12052/2021HC KeralaKLHC01032778202111 January 2022Author: HONOURABLE MR.JUSTICE MURALI PURUSHOTHAMAN7 pages
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What did the High Court hold?

The High Court held that the assessment order (Ext.P7) was issued in violation of the principles of natural justice. The Court noted that the petitioner was not granted adequate opportunity to submit an explanation to the show cause notice (Ext.P4), despite requesting additional time (Ext.P5). Consequently, the Court set aside Ext.P7 and directed the respondent to pass fresh assessment orders after granting a reasonable opportunity of being heard and sufficient time to file objections to Ext.P4. As Ext.P7 was set aside, the consequential penalty notice (Ext.P8) was also set aside. The Court acknowledged the alternate remedy of appeal under Section 246A but found sufficient grounds to interfere in writ jurisdiction due to the violation of natural justice. The ratio decidendi is that faceless assessments must also adhere to principles of natural justice, including providing adequate time to respond to show cause notices.

What were the facts?

The petitioner, Intergrow Brands Private Limited, engaged in spice manufacturing, filed a return for assessment year 2018-19 declaring a net loss of Rs. 16.72 crores. The assessment was initially under scrutiny under Section 143(2) of the Income Tax Act, 1961, but was later brought under the Faceless Assessment Scheme under Section 143(3A). The petitioner received a show cause notice (Ext.P4) under Section 144B(xvi) regarding a draft assessment, with 15 days to respond. The petitioner requested an additional 10 days (Ext.P5). However, without granting sufficient time, the draft assessment was finalized by an assessment order (Ext.P7), followed by a penalty notice (Ext.P8) under Section 274. Both Exts.P7 and P8 are challenged.

What were the issues?

1. Whether the assessment order (Ext.P7) and penalty notice (Ext.P8) were issued in violation of the principles of natural justice, specifically concerning the opportunity to respond to the show cause notice (Ext.P4)? (Question of law and fact, concerning Section 144B and principles of natural justice). Assessee's Contentions: The petitioner argued that Exts.P7 and P8 were issued in total violation of the principles of natural justice. They contended that insufficient time was granted to respond to the show cause notice (Ext.P4), despite a request for an extension (Ext.P5), leading to the finalization of the assessment and issuance of the penalty notice without adequate opportunity to be heard. Revenue's Contentions: The respondent revenue submitted that Ext.P8 is only a notice for penalty.

Which sections of the Income-tax Act were involved?

Section 143(2),Section 143(3A),Section 144B,Section 274,Section 246A

AI-generated summary — verify with the full judgment below

Cause title — parties, addresses and appearances
IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE MURALI PURUSHOTHAMAN TUESDAY, THE 11TH DAY OF JANUARY 2022 / 21ST POUSHA, 1943 WP(C) NO. 12052 OF 2021 PETITIONER: INTERGROW BRANDS PRIVATE LIMITED, 62/1814A AJAY VIHAR, M.G. ROAD, ERNAKULAM-682016, REPRESENTED BY ITS MANAGING DIRECTOR, MR. ASHOK MANI. BY ADVS. JOSEPH MARKOSE (SR.) V.ABRAHAM MARKOS ABRAHAM JOSEPH MARKOS ISAAC THOMAS ALEXANDER JOSEPH MARKOS SHARAD JOSEPH KODANTHARA RESPONDENT/S: 1 THE ADDITIONAL/JOINT/DEPUTY/ASSISTANT COMMISSIONER OF INCOME TAX, INCOME TAX OFFICER, NATIONAL E-ASSESSMENT CENTRE, NEW DELHI-110001. 2 THE PRINCIPAL CHIEF COMMISSIONER OF INCOME TAX, NATIONAL E-ASSESSMENT CENTRE, NEW DELHI-110001. 3 ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-1(1), KOCHI-682018. 4 THE PRINCIPAL COMMISSIONER OF INCOME TAX, KOCHI-682018. R BY JOSE JOSEPH, SC THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 11.01.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: WP(C) NO. 12052 OF 2021 ..2..

JUDGMENT The petitioner is a company, engaged in the manufacture of spices and spice extracts.

2.

For the assessment year 2018-19, the petitioner filed Ext.P2 return declaring net loss of Rs.16.72 crores. The return filed by the petitioner was taken up for scrutiny assessment by issuance of notice under Section 143(2) of the Income Tax Act, 1961 (hereinafter referred to as the 'Act' for short). However, the petitioner was later informed that the scrutiny assessment is being taken under the Faceless Assessment Scheme under Section 143(3A) before the 1st respondent. According to the petitioner, the petitioner was issued with Ext.P4 show cause notice under Section 144B(xvi), asking the petitioner to show cause as to why the draft assessment therein shall not WP(C) NO. 12052 OF 2021 ..3.. be finalised. 15 days time was granted to the petitioner to submit explanation to Ext.P4 show cause notice. The petitioner sought for additional 10 days time for submitting explanation vide Ext.P5 letter. However, without granting sufficient time as sought for in Ext.P5, the draft assessment in Ext.P4 was finalised by Ext.P7 assessment order. Ext.P7 was followed by Ext.P8 penalty under Section 274 of the Act. Exts.P7 and P8 orders are impugned in this writ petition. It is contended by the petitioner that Exts.P7 and P8 are issued in total violation of principles of natural justice.

3.

The learned Standing Counsel for the respondents submits that Ext.P8 is only a notice for penalty.

4.

Heard the learned senior counsel for the petitioner and Sri.Jose Joseph, the learned Standing Counsel for the Income Tax Department.

WP(C) NO. 12052 OF 2021 ..4..

5.

It is true that the petitioner has got an alternate remedy by way of appeal under Section 246A of the Act. However, Ext.P7 order is evidently issued without giving reasonable opportunity to submit explanation to Ext.P4 show cause notice, in spite of the request for additional time sought for in Ext.P5. Since the petitioner was not granted adequate opportunity to submit explanation to the show cause notice, I find that there is violation of principles of natural justice in issuing Exts.P7 and P8 orders. Accordingly, Ext.P7 order is set aside and the 1st respondent is directed to pass fresh orders of assessment after granting a reasonable opportunity of being heard after giving sufficient time to file objection to Ext.P4 show cause notice. The objections, if any to Ext.P4 show cause notice shall be filed by the petitioner within a period of WP(C) NO. 12052 OF 2021 ..5.. 15 days from the date on which the Department opens up the link for filing objections. Since Ext.P7 has been set aside, consequently, Ext.P8 notice for penalty will also stands set aside. The writ petition is allowed to the above extent. MURALI PURUSHOTHAMAN JUDGE SB/11/01/2022

WP(C) NO. 12052 OF 2021 ..6..

Appendix — schedule of exhibits
APPENDIX OF WP(C) 12052/2021 PETITIONER EXHIBITS Exhibit P1 TRUE COPY OF THE ORDER DATED 28/05/2021 IN WPC NO.11540/2021 PASSED BY THIS HONOURABLE COURT. Exhibit P2 TRUE COPY OF THE RETURN ACKNOWLEDGMENT FOR AY 2018-19 DATED 31/10/2018. Exhibit P3 TRUE COPY OF NOTICE ISSUED UNDER SECION 142(1) DATED 24/12/2020. Exhibit P4 TRUE COPY OF THE SHOW CAUSE NOTICE DATED 04/05/2021 ISSUED BY THE 1ST RESPONDENT. Exhibit P5 TRUE COPY OF THE SCREENSHOT OF THE E- PROCEEDINGS EVIDENCING SEEKING OF ENLARGEMENT OF TIME TO RESPOND TO SCN OBTAINED FROM THE INCOME TAX E-PROCEEDINGS PORTAL. Exhibit P6 TRUE COPY OF THE SCREENSHOT OF THE E- PROCEEDINGS EVIDENCING THE REASONS FOR SEEKING OF ENLARGEMENT OF TIME TO RESPOND TO SCN OBTAINED FROM THE INCOME TAX E- PROCEEDINGS PORTAL. Exhibit P7 TRUE COPY OF THE ASSESSMENT ORDER DATED 27/05/2021 TOGETHER WITH COMPUTATION SHEET AND NOTICE OF DEMAND. Exhibit P8 TRUE COPY OF THE PENALTY NOTICE UNDER SECTION 274 OF THE ACT ISSUED BY THE 1ST RESPONDENT. Exhibit P9 TRUE COPY OF THE JUDGMENT DATED 10/05/2021 IN WPC NO.5234/2021 PASSED BY THE DELHI HIGH COURT AND REPORTED IN (2021) 127 TAXMANN.COM 194 (DELHI). WP(C) NO. 12052 OF 2021 ..7.. Exhibit P10 TRUE COPY OF THE JUDGMENT REPORTEDIN 1994 KLJ TAX CASES 24 MS JEWELLERY VS. ASSISTANT COMMISSIONER (ASSESSMENT)

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