Facts of the Case

The petitioner challenged the assessment order dated 29.05.2023 passed by the Assessing Officer under Section 147 read with Section 144 of the Income Tax Act, 1961. It was contended that the Assessing Officer enhanced the taxable income of the petitioner without issuing any show cause notice cum draft assessment order proposing such variation.

Subsequently, demand notice and penalty notices were also issued based on the impugned assessment order.

 Issues Involved

  1. Whether reassessment order passed without issuance of show cause notice cum draft assessment order is legally sustainable?
  2. Whether demand and penalty notices arising from such defective assessment order can survive?
  3. Whether failure to follow mandatory procedure violates principles of natural justice?

 Petitioner’s Arguments

  • The impugned assessment order is fundamentally flawed as no show cause notice cum draft assessment order was issued.
  • Enhancement of income without prior notice violates statutory requirements and principles of natural justice.
  • Consequently, the demand notice and penalty notices issued pursuant to such invalid order are also liable to be quashed.

Respondent’s Arguments

  • The Revenue fairly conceded that the law mandates issuance of a show cause notice cum draft assessment order before making any variation in income.

Court’s Findings / Order

  • The Court observed that the impugned assessment order resulted in enhancement of taxable income.
  • It was held that no show cause notice cum draft assessment order was issued prior to such enhancement.
  • This procedural lapse renders the assessment order unsustainable in law.

Final Directions:

  • The impugned assessment order dated 29.05.2023 was set aside.
  • Liberty granted to the Assessing Officer to pass a fresh assessment order.
  • AO directed to:
    • Issue show cause notice cum draft assessment order
    • Provide opportunity to file response
    • Grant personal hearing
    • Pass a reasoned speaking order
  • Demand notice and penalty notices automatically quashed.

 Important Clarification by Court

  • Issuance of show cause notice cum draft assessment order is a mandatory requirement before making variation in income.
  • Any assessment made without following this procedure is liable to be set aside.
  • Compliance with principles of natural justice is integral to reassessment proceedings.

Link to download the order - https://delhihighcourt.nic.in/app/showFileJudgment/60807072023CW89492023_114943.pdf

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