W.p(Md) v. Theassistant Commissioner Of Income Tax In W.p.nos.1260 And 1264 Of2020, Wherein In Paragraph 4 In Response To Paragraph 14 Of Theaffidavit Filed In Support Of

BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT THE HONOURABLE MR.JUSTICE C.SARAVANAN M/s.Vamsha Retail Ventures Private Limited,Formerly known as M/s.Maharaja Silks,Represented by its Director,Mr.Mohammed Mansoor AliNo.11 & 12, Thanjai Salai Vijayapuram,Thiruvarur,Tamil Nadu-610 001. ... Petitioner The Assistant Commissioner of Income Tax,Central Circle-2, Trichy,Trichy-Main Building, Williams Road,Contonment Trichy,Tamil Nadu-620015. ...Respondent Prayer: Writ Petition filed under Article 226 of the Constitutionof India, praying this Court to issue a Writ of Certiorari, callingfor the records on the file of the respondent and quash the impugnedorder in ITBA/AST/S/143(3)/2020-21/1030736209 (1) dated 18.02.2021passed by the respondent as illegal and without jurisdiction. ORDER The petitioner has challenged the impugned assessment order,dated 18.02.2021 for the assessment year 2018-2019. 2.The specific case of the petitioner is that a survey wasconducted on 06.03.2018 in the premises of the petitioner and harddisk of the computer containing Tally software details, was taken bythe Income Tax Department. https://hcservices.ecourts.gov.in/hcservices/ 3.The learned counsel for the petitioner submits that theaccounts in the Tally software was a draft and unaudited balancesheet, wherein the petitioner had declared a gross profit ofRs.5,65,98,598.35/-, which had to be further refined and audited.It is submitted that after the audit was completed, the petitionerfiled a regular income tax return on 29.10.2018 and declared the netprofit as Rs.3,32,84,528/- as against the gross income ofRs.3,41,36,190/-. 4.The learned counsel for the petitioner further submits thatfor the assessment year 2018-2019 onwards, the assessment was to becompleted electronically in E-Proceedings facility through E-filingWebsite of the Income Tax Department. In this connection, thepetitioner was issued with a notice under Section 143(2) of theIncome Tax Act on 26.09.2019. The learned counsel for thepetitioner submits that thereafter on 06.02.2021, another notice wasissued to the petitioner under Section 143(2) of the Income Tax Actand in connection with the above, the petitioner was called upon togive details. Specifically, it was stated that the net profit hasbeen reported for the assessment year 2018 – 2019 to the tune ofRs.2,33,14,070/- [Rs.5,65,98,598–3,32,84,528] should not be treatedas undisclosed business income and considered for addition.Paragraph 3 of the said notice reads as under:- ''(iii) From the above it is apparent that the net profithas been under reported in the return of income for A.Y.2018-19 to the tune of Rs.2,33,14,070 (Rs.5,65,98,598-3,32,84,528).You are required to explain with necessary evidence as to whythe above under reported profit of a sum of Rs.2,33,14,070should not be treated as undisclosed business income andconsidered for addition.'' 5.The learned counsel for the petitioner submits that thepetitioner has clearly explained that the details that were obtainedat the time of survey on 06.03.2018 were not audited and they areincomplete records. Therefore, it cannot be treated as incomeaccrued way for the determination of the profit for the assessmentyear, as several other entries were required to be made. 6.The learned counsel for the petitioner submits that as perthe instruction of the Central Board of Direct Taxes, dated29.12.2015, the respondents were required to issue a show causenotice, which was also reiterated by another instruction, dated11.07.2016 in CBDT Circular in F.No.225/162/2016/ITA.II. A specificreference was made to another instruction dated 20.08.2018, bearingInstruction No.03/2018 [No.225/249/2018-ITA.II]. 7.It is therefore submitted that the impugned order has to go. https://hcservices.ecourts.gov.in/hcservices/ 6.The learned counsel for the petitioner submits that as perthe instruction of the Central Board of Direct Taxes, dated29.12.2015, the respondents were required to issue a show causenotice, which was also reiterated by another instruction, dated11.07.2016 in CBDT Circular in F.No.225/162/2016/ITA.II. A specificreference was made to another instruction dated 20.08.2018, bearingInstruction No.03/2018 [No.225/249/2018-ITA.II]. 7.It is therefore submitted that the impugned order has to go. https://hcservices.ecourts.gov.in/hcservices/ 8.The learned counsel for the petitioner has also drawn theattention of this Court to the instruction of the Central Board ofDirect Tax addressed to the Principal Chief Commissioner of IncomeTax, Chennai, in the case of eShakti.com Private Limited Vs TheAssistant Commissioner of Income Tax in W.P.Nos.1260 and 1264 of2020, wherein in Paragraph 4 in response to Paragraph 14 of theaffidavit filed in support of W.P.Nos.1260 and 1264 of 2020, it wascategorically stated as follows:- ''(iv) However, by following the principles of naturaljustice, it is expected that an opportunity of being heard isgiven to the assessee before making any addition/disallowanceswhich are prejudicial to the interests of the assessee. Togive effect to the legislative intent as enshrined in Section143(2) and 143(3) of the Act, CBDT in its guidelines forconduct of assessment proceedings provides for issue of showcause notice, if any adverse view is taken against theassessee in the interest of principles of natural justicethough it is not mandatory as per the provisions of Section143(3) of the Act.'' 9.The learned counsel for the petitioner submits that in thesaid Writ Petitions, the Court interfered and ultimately, allowedthe Writ Petition by taking note of Paragraph 4 of the instructionof CBDT, dated 29.12.2015. It is therefore, submitted that as thereis a manifest violation of the procedure prescribed for E-Proceedings, which was implemented from 2018 – 2019, the impugnedorder has to go. It is submitted that without issuing a proper showcause notice, where there is a proposal for deviation, the order hasto go. 10. The learned counsel for the petitioner submits that thenotice issued under Section 143 (2) of the Income Tax Act was anotice without any details to be furnished warranting the documents.Unless the petitioner was given a proper opportunity to reply tonotice issued under Section 143 (2) of the Income Tax Act, 1961, thequestion of treating the subsequent notice, dated 06.02.2021 as theshow cause notice does not arise. It is therefore submitted that theimpugned order has been passed and the matter is remitted back tothe respondent. 11. The learned counsel for the petitioner also submits that interms of CBTD Circular, dated 20.08.2019, where the show causenotice contemplates any adverse issue by the Assessing Officer andassessee should be given personal hearing. The learned counsel forthe petitioner submits that personal hearing is mandatory wherebooks of accounts were examined in terms of Paragraph 6 (1) of theCBTD Instruction No.3 of 2018 bearing reference No.225/249/2018-ITA.II. https://hcservices.ecourts.gov.in/hcservices/ 12. The learned counsel for the petitioner further submits thatas per the CBTD clarification, dated 11.01.2021, wherein it has beenspecifically clarified personal hearing is a must. He drew attentionto Paragraph 4 in response to Paragraph 14 of the affidavit filed insupport of the writ petition eShakti.com Private Limited Vs TheAssistant Commissioner of Income Tax. https://hcservices.ecourts.gov.in/hcservices/ 12. The learned counsel for the petitioner further submits thatas per the CBTD clarification, dated 11.01.2021, wherein it has beenspecifically clarified personal hearing is a must. He drew attentionto Paragraph 4 in response to Paragraph 14 of the affidavit filed insupport of the writ petition eShakti.com Private Limited Vs TheAssistant Commissioner of Income Tax. 13. Opposing the prayer, the learned Senior Standing Counselfor the respondent submits that the petitioner has an alternateremedy under Section 246 A of the Income Tax Act. It is thereforesubmitted that the writ petition is liable to be dismissed on thispreliminary ground. That apart, it is submitted that there is noviolation of principles of natural justice inasmuch as thepetitioner was issued with a notice under Section 143 (2) of theIncome Tax Act, 1961 on 26.09.2019. However, the petitioner hasfailed to reply the same. Thereafter, the show cause notice issuedto the petitioner on 06.02.2021, wherein, the basis on which theproposed assessment was to be completed was articulated. 14. The learned Senior Standing Counsel for the respondentsubmits that the show cause notice, dated 06.02.2021 specificallyrefers to the statement of the Managing partner of the petitionerand the documents and evidences recovered during the course ofsurvey held under Section 133 A of the Income Tax Act on 06.03.2018and 07.03.2018. It is submitted that the petitioner has also repliedto the allegations in the said notice and it is only thereafter theimpugned assessment order has been passed on 18.02.2021. It istherefore submitted that there is no irregularity committed by theAssessing Officer, while passing the assessment order, dated18.02.2021. 15. The learned Senior Standing Counsel for the respondentfurther submits that the decision of this Court in E.Shakti.comPrivate Limited Vs The Assistant Commissioner of Income Tax in W.P.(MD).Nos.1260 and 1264 of 2020, vide order dated 17.06.2021 alsodoes not apply to the facts of the case of the petitioner inasmuchas the Court merely reiterated and concluded as follows:“10. Thus and in view of the confirmation by the CBDT, animportant issue stands settled. Though the Income Tax Act doesnot anywhere contemplate issuance of a show cause notice priorto finalisation of scrutiny assessments, as a matter ofprocedure and good office, the Assessing Authority is expectedto crystalise the issues arising from the return of incomefiled by an assessee, the questionnaires issued under Section142(1) and notices under Section 143(2) and responses thereto,issue a show cause notice setting out the issues, solicit theresponse of the assessee and pass orders only thereafter,after hearing the assessee concerned.” 16. The learned Senior Standing Counsel for the respondenthttps://hcservices.ecourts.gov.in/hcservices/submits that indeed the petitioner was issued with a show cause notice in this case to which the petitioner has also replied on12.02.2021. Therefore, there is no merits in this present writpetition. The learned Senior Standing Counsel for the respondentsubmits that the failure on part of the petitioner to respond tonotice under Section 143 (2) of the Income Tax Act, dated 26.09.2019shows that the petitioner was not serious. 17. The learned Senior Standing Counsel for the respondentfurther submits that it is not open for the petitioner to state thatthe reply to the show cause notice, dated 06.02.2021 has to betreated as a reply to the notice under Section 143 (2) of the IncomeTax Act, 1961 issued on 26.09.2019. He therefore submits thatcircular of the board, which has relied upon by the respondent wouldnot come to rescue the petitioner in CBTD circular, dated11.07.2021, bearing reference F.No.225/162/2016/ITA.II. 17. The learned Senior Standing Counsel for the respondentfurther submits that it is not open for the petitioner to state thatthe reply to the show cause notice, dated 06.02.2021 has to betreated as a reply to the notice under Section 143 (2) of the IncomeTax Act, 1961 issued on 26.09.2019. He therefore submits thatcircular of the board, which has relied upon by the respondent wouldnot come to rescue the petitioner in CBTD circular, dated11.07.2021, bearing reference F.No.225/162/2016/ITA.II. 18. The learned Senior Standing Counsel for the respondentsubmits that notice under Section 143 (2) of the Income Tax Act, wassquarely covered survey under Section 133 A conducted on 06.03.2018and 07.03.2018. It is therefore submitted that the present writpetition is liable to be dismissed. The issue relating to merits canbe considered only in adjudication in an appellate proceedings inthe hierarchy of authorities prescribed under the Income Tax Act,1961. 19. I have considered the arguments advanced by the learnedcounsel for the petitioner and the learned Senior Standing Counselfor the respondent. I have also perused the decisions of the learnedSingle Judge of this Court in eShakti.com Private Limited Vs TheAssistant Commissioner of Income Tax. I have also pursued thedocuments filed in support of the present writ petition andcirculars issued by the CBTD and instructions of the CBTD inconnection with the eShakti.com Private Limited Vs The AssistantCommissioner of Income Tax. 20. The facts are not in dispute. A survey under Section 133 Aof the Income Tax Act took place on 06.03.2018 and 07.03.2018. Atthat time there was a verification and information were retrievedfrom the petitioner’s books of accounts. The Managing partner alsoappears to have given certain statements to the effect that the netprofit of the petitioner’s company was around Rs.5,65,98,598/- andfew other entries were to made that the net profit would be aroundRs.4,00,00,000/-for the Assessment Year 2018-2019. However, thepetitioner filed the returns of income under Section 139 of theIncome Tax Act, the petitioner declared a sum of Rs.3,32,84,528/-.It is in this back ground the notice under Section 143 (2) of theIncome Tax Act was issued to the petitioner. However, the petitionerfailed to reply to the same. The notice specifically states Surveyunder Section 133 A of the Income Tax Act. Thus, the petitioner wasaware of the context in which the notice under Section 143 (2) ofthe Income Tax Act, 1961 was issued on 26.09.2019. However, thepetitioner failed to reply to the same. Thereafter, the petitionerhttps://hcservices.ecourts.gov.in/hcservices/ was issued with a show cause notice dated 06.02.2021 wherein, whichproposed assessment to be completed. 21. The notice issued on 06.02.2021 is the show cause noticefor the purpose for completing the assessment. The notice statedthat the petitioner should reply on 12.02.2021 and in case noresponse was given by the due date and it is presumed that thepetitioner has no objection to the proposed condition and assessmenthas been completed accordingly. The petitioner has also filed adetailed reply on 12.02.2021. The reply reads as under:- “9. In the notice under Section 143 (2) dated 26.09.2019there were no specific queries and only a general directionto submit response with supporting document further, paraNo.4 of the said notice states that “in course of assessmentproceedings, if required, specific questionnaire(s) orrequisition(s) for further information/document may be issuedsubsequently”. We honestly believed that such queries will beraised susbequently and a reasonable opprotunity will begiven to address them. Therefore, we have requested to beinformed about such queries so that it can respond to it.” “9. In the notice under Section 143 (2) dated 26.09.2019there were no specific queries and only a general directionto submit response with supporting document further, paraNo.4 of the said notice states that “in course of assessmentproceedings, if required, specific questionnaire(s) orrequisition(s) for further information/document may be issuedsubsequently”. We honestly believed that such queries will beraised susbequently and a reasonable opprotunity will begiven to address them. Therefore, we have requested to beinformed about such queries so that it can respond to it.” 22. The petitioner has not insisted for a personal hearing intheir response, dated 12.02.2021. It is in this back ground that theimpugned assessment order has been passed on 18.02.2021. It isnoticed that the date of hearing was mentioned as 09.10.2019, whichis a typographical mistake. It appears to be the date given for thepetitioner to respond to notice under Section 143 (2) of the IncomeTax Act, 1961 issued on 26.09.2018. As per paragraph 4 ofInstruction No.3 of 2018 bearing reference No.225/249/2018-ITA.IIdated 20.08.2019 for the purpose of completing assessment underSection 143 of the Income Tax Act, where the assessment proceedingshave to be completed through e-proceedings, personal hearingattendance is required under the following situations: “i. Where books of account have to be examined;ii. Where Assessing Officer invokes provisions ofSection 131 of the Act; iii. Where examination of witness is required to be madeby the concerned assessee or the Department; iv Where show-cause notice contemplating any adverseview is issued by the Assessing Officer and assessee requeststhrough their 'E-filing' account for personal hearing toexplain the matter.” 23. The facts on record seems to indicate that the departmenthas proceeded to conclude that the income in book of account as thehttps://hcservices.ecourts.gov.in/hcservices/ net profit as on date of survey. Thereafter, few more weeks werethere before the period came to an end. The facts on record alsoindicates that the value of the stock that was determined on thedate of survey was Rs.13,95,97,064/- on the MRP and the book valueof the stock maintained by the petitioner as on date wasRs.9,99,08,215/-. The value of the physical stock was arrived bydeducting the G.P. ratio at 21.53% and thus the excess stock ofRS.96,63,062/- was arrived as detailed below: (iii) A comparison of the actual physical stock availableat your premises with the stock as per books revealed excessstock to the tune of Rs.96,33,602/- as under:- 24. The undisclosed business profit have been arrived from thenet profit in the books of accounts as on the date of survey and theamounts declared in the income tax. This would have definitelyrequired a proper assessment by calling the petitioner for apersonal hearing. Therefore, the impugned order seems to indicatethat there is a procedural infraction. It has not complied with therequirements of instructions of the board in its clarification dated11.07.2016 bearing reference F.No.225/162/2016/ITA.II. (iii) A comparison of the actual physical stock availableat your premises with the stock as per books revealed excessstock to the tune of Rs.96,33,602/- as under:- 24. The undisclosed business profit have been arrived from thenet profit in the books of accounts as on the date of survey and theamounts declared in the income tax. This would have definitelyrequired a proper assessment by calling the petitioner for apersonal hearing. Therefore, the impugned order seems to indicatethat there is a procedural infraction. It has not complied with therequirements of instructions of the board in its clarification dated11.07.2016 bearing reference F.No.225/162/2016/ITA.II. 25. Though the petitioner has not specifically requested for apersonal hearing, the fact remains that where the books of accountshave to be examined for arriving at a proper conclusion, a personalhearing is mandatory. Under these circumstances, I am inclined toquash the impugned orders and the case is remit back to therespondent to pass an appropriate order preferably within a periodof three months from the date of receipt of copy of this order. Theimpugned order which stands quashed shall now be treated as a showcause notice for the purpose of completing the assessment. Thepetitioner may file any reply or objection to it within a period ofthirty days from the date of receipt of copy of this order. Thepetitioner shall upload relevant entries of the books of accountsthat may be required for completing the assessment. (*)''thepetitioner shall appear before the respondent, submit the documentsand thereafter, after affording an opportunity of personal hearing,the assessement would be processed in accordance with law. The timelimit of three months for the respondent to pass appropriate orders,is extended from 27.06.2022.'' https://hcservices.ecourts.gov.in/hcservices/ 26. The writ petition stands allowed in terms of the aboveobservations. No costs. Consequently, the connected MiscellaneousPetitions are closed. Sd/- Assistant Registrar (CS III) (*)Modified as per order of this Court dated 24/06/2022 made inWP(MD)6728 of 2021 // True Copy // Sd/-Assistant Registrar (CO) 27/06/2022Sub Assistant Registrar(CS) snTo(*)To be Substituted to the order which already despatched on 25/04/2022 The Assistant Commissioner of Income Tax,Central Circle-2, Trichy,Trichy-Main Building, Williams Road,Contonment Trichy,Tamil Nadu-620015.+1 CC to M/s.M.P. SENTHIL, Advocate ( SR-17627[F] dated 08/04/2022 )+1 CC to M/s.N. DILIPKUMAR, Advocate ( SR-28352[F] dated27/06/2022 ) RD(22.04.2022) 8P 4C MGJ(24.06.2022) 8P 4C W.P(MD).No.6728 of 202107.04.2022