The Kerala High Court has set aside an assessment order, declaring that the failure to grant an opportunity for a hearing against the draft assessment order constitutes a violation of principles of natural justice.
The petitioner, who failed to file an income tax return for the assessment year 2017-18, faces potential tax evasion charges. The Income Tax Department, relying on information from Multiyear NMS cases in the AIMS module of ITBA, identified significant financial transactions during the fiscal year 2016-17. Subsequently, the assessing authority concluded that the petitioner’s income had escaped assessment under Section 147 of the Income Tax Act 1961. Despite issuing notices and granting opportunities, the petitioner remained non-compliant.
The assessing authority, after conducting a detailed analysis, identified grounds to suspect that the petitioner’s income for the assessment year 2017-18 warranted closer examination. In response to this concern, a notice pursuant to Section 148 of the Income Tax Act 1961 was officially dispatched on 29.03.2021. Unfortunately, the petitioner failed to acknowledge or respond to this initial communication.
Despite subsequent efforts to engage the petitioner through notices issued under Section 142(1) of the Income Tax Act 1961 on 19.07.2021 and 16.03.2022, there was continued silence on the petitioner’s part. Faced with non-cooperation, the assessing authority, left with no alternative, proceeded to augment the assessable income based on available information. This escalation prompted the initiation of tax and penalty proceedings under Sections 270A, 271B, 272A(1)(d), and 271F of the Income Tax Act 1961 against the petitioner. The sequence of events underscored the gravity of the situation and the imperative need for the petitioner’s compliance in the concluded proceedings.
The single member bench Justice Dinesh Kumar Singh comprising assessment order emphasized that the petitioner had been afforded a conclusive opportunity on 30.03.2022 through a show cause notice accompanied by a draft assessment order. However, the court, upon scrutiny, noted that allowing just one day for the petitioner to formulate a response contravened the fundamental principles of natural justice. In light of this observation.
The court has granted the petitioner an extension, now providing seven days to submit a reply to the show cause notice dated 30.03.2022. Following this, a hearing will be facilitated to ensure the petitioner’s perspective is considered before the issuance of the final assessment order. This intervention by the court aims to uphold fairness and due process in the ongoing proceedings.
The court held that the aforesaid directions, this writ petition is allowed to the extent of setting aside the assessment order in true copy of the assessment order dated 31.03.2022 and subsequent notices thereafter.
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