Coming down heavily on tax officials, the Bombay High Court (HC) has warned that it will impose substantial cost if the income tax (I-T) department continues to pass orders "without application of mind."
In a strongly worded order, the bench of justice KR Shriram and justice Amit B Borkar says, "Respondents are put to notice, and Akhileshwar Sharma (counsel for National Faceless Assessment Centre-NFAC- set up by the Central Board of Direct Taxes-CBDT) to circulate this order right from the revenue secretary to everybody in the finance ministry, that if such orders are continued to be passed, this court will be constrained to impose substantial costs on the concerned assessing officer (AO) to be recovered from his or her salary and also direct the department to place such judicial orders in the career records of such assessing officer."
Mumbai-based Mantra Industries Ltd had approached the HC against the I-T department's initialisation of penalty proceedings against it under Section 274 read with Section 270A of the Income Tax Act, 1961.
Mantra Industries contended that the assessment order was passed without following the principles of natural justice in as much as its request for an adjournment had not been considered and a request for personal hearing had not been considered. Most importantly, the reply and objection filed in response to the show-cause notice with the draft assessment order, had not been considered, the company contended.
On 22 April 2021, Mantra Industries received a notice for assessment year (AY) 2018-19 asking the company why the assessment should not be completed as per its draft assessment order. The company was asked to submit its reply by 23.59 hours on 24 April 2021.
The next day, Mantra Industries responded to the notice stating that travelling was a problem due to an increase in COVID-19 cases and its staff was unable to attend work and offices in Mumbai were generally closed. It also informed the tax authorities that the company wished to object to the modification and also, a request to give personal hearing was made. It sought 20 days to fulfil the requirements as per the notice.
On 27 April 2021, the company provided quantitative details sought by the I-T department in the show-cause notice. While the company was given only two days to respond, almost after six weeks, the tax authorities passed an assessment order on 8 June 2021.
The bench observed, "The assessment order is an exact reproduction of the draft assessment order except for one sentence which has been added 'Regarding this show cause notice issued to the assessee on 22 April 2021, but assessee has not given any justification for non-furnishing of quantitative details in form 3CD'."
"This itself shows that tax authorities have passed the assessment order without application of mind, without considering the two replies dated 23rd April and 27 April 2021 filed by Mantra Industries and without considering the request for personal hearing also sought by the company," it says.
“Strangely,” the bench says, "in the affidavit in reply filed by one Yashpal Singh and affirmed on 29 July 2021, it is stated that 'the noting records show that the submission dated 23rd April and 27 April 2021 both taken on record and considered'. But the assessment order does not reflect this. We wonder how does the affiant (a person who makes an affidavit) know something, which the assessment order does not reflect."
In its affidavit in reply, the I-T department submitted that Mantra Industries has not furnished the quantitative details in item 35(b) in form 3CD and also not given any justification for non-furnishing quantitative details form 3CD. On failure of the company to furnish the details in the prescribed form 3CD, the assessment was completed as per the provisions under Section 144 of the I-T Act on 8 June 2021, it stated.
The HC, however, pointed out that this was contrary to what was stated in the same affidavit that the noting records show that the submission dated 27 April 2021 has been taken on record and considered.
Mr Sharma, the counsel of NFAC, tried to justify the stand by stating that the quantitative details filed on 27 April 2021 are not strictly according to the format prescribed.
The bench says, "We have compared the details provided by Mantra Industries and form 35(b) annexed to the affidavit in rejoinder. We do not find any difference except that in the response dated 27 April 2021, the product manufactured, wet grinders, is mentioned. We have also to note that this is not the case in the assessment order, which has proceeded on the basis that no response at all has been filed to the notice dated 22 April 2021. There cannot be anything far from the truth."
The HC says it is compelled to set aside the impugned order passed on 8 June 2021 and also the consequential notices issued by the tax authorities. "Sub-section 9 of section 144B of the I-T Act provides that any assessment made shall be non-est (the return of a writ or process) if such assessment is not made in accordance with the procedure laid down under this section.
"Therefore, the impugned order being non-est, the AO may take such steps as advised in accordance with the law. We are not making any observations on the merits of the case," the bench says while disposing the petition.