Gujarat High Court Ruling on Procedural Fairness in Tax Assessments

Overview of Pratul Krishnakant Shroff Vs DCIT (Gujarat High Court)

The Gujarat High Court has clarified the legal implications of Section 148A(d) of the Income Tax Act (Act) by quashing an order where the petitioner’s reply was disregarded due to insufficient time being afforded for submission. The case underscores the importance of adhering to procedural fairness and the principles of natural justice in tax assessments.

Case Background

This petition, filed under Article 226 of the Constitution of India, contests the orders dated March 30, 2022, under Section 148A(b) of the Income Tax Act, along with a notice dated March 31, 2022, issued under Section 148 of the Act. The petitioner argues that their response was not taken into account when determining whether to reopen the assessment for the Assessment Year 2018-19.

Key Facts:

• Return Filing: The petitioner submitted a return of income on August 24, 2018, reporting total income of ₹588,10,15,830 for the Assessment Year 2018-19. This return was scrutinized, resulting in an assessment order under Section 143(3) dated March 17, 2021.
• Show Cause Notice: On March 3, 2022, the petitioner received a show cause notice under Section 148A(b), requesting a reply by March 15, 2022, regarding income that allegedly escaped assessment.
• Adjournment Request: The petitioner requested a 15-day adjournment on March 15, indicating the need for additional time to prepare a detailed response.
• Submission of Detailed Reply: On March 22, 2022, the petitioner submitted an extensive reply, spanning 500 pages, asserting no income had escaped assessment.

Court Findings

In the hearing, the petitioner’s advocate, Mr. B.S. Soparkar, argued that the Assessing Officer should have granted the requested adjournment and considered the comprehensive reply provided. Conversely, the respondent’s Senior Standing Counsel, Mr. Varun Patel, contended that the failure to respond by the stipulated deadline justified the impugned order.

Central Legal Arguments:

1. Principle of Natural Justice: The court identified a clear breach of natural justice, as the Assessing Officer did not consider the reply dated March 22, 2022, nor did they grant the adjournment sought by the petitioner.
2. Obligation to Provide Information: The court emphasized that the Respondent was required to provide the petitioner with the necessary information to facilitate an informed response.

Reference to Precedent:

The court referenced its earlier decision in Yuva Trading Co. (P) Ltd. Vs. Income Tax Officer, as well as the Bombay High Court's ruling in Anurag Gupta Vs. Income Tax Officer, to underline procedural obligations in tax assessments.

Conclusion and Order

The High Court quashed both the order under Section 148A(d) dated March 30, 2022, and the notice under Section 148 dated March 31, 2022. The matter was remanded to the Assessing Officer for the following actions:

• Provide the relevant information that formed the basis for the notice under Section 148A(b).
• Allow the petitioner to submit any further responses deemed necessary following the information provided.

The Assessing Officer must complete this process within six months from the receipt of this judgment. The rule is made absolute concerning these directives, with no costs awarded.