Facts of the Case

The petitioner, Shyam Communication Systems, challenged the assessment order dated 22.04.2021 passed under Section 143(3) of the Income Tax Act, 1961 for AY 2018–19. The Assessing Officer (AO) made additions of ₹23.06 crores treating compensation received as revenue income and ₹2.96 crores on account of variation in turnover between Income Tax Returns and GST returns.

The petitioner had responded to notices issued under Section 142(1) and furnished details including capital accounts, partner ledgers, and reconciliation statements. However, no further opportunity or personal hearing was granted before passing the assessment order.

 Issues Involved

  1. Whether the assessment order passed under Section 143(3) without granting personal hearing violates principles of natural justice.
  2. Whether additions made on account of compensation and turnover variation were sustainable without proper opportunity to explain.
  3. Whether availability of alternate remedy bars writ jurisdiction in case of violation of natural justice.

 Petitioner’s Arguments

  • The AO failed to provide adequate opportunity and did not call for specific documents before making adverse findings.
  • No show cause notice or personal hearing was granted prior to passing the assessment order.
  • Reconciliation for turnover differences was duly furnished but ignored.
  • The additions were made arbitrarily without considering the material on record.

 Respondent’s Arguments

  • The petitioner had delayed proceedings and sufficient opportunity was already granted through notices.
  • The assessment was completed within limitation constraints, including COVID-19 related difficulties.
  • The petitioner has an alternate statutory remedy by way of appeal and hence writ petition should not be entertained.

 Court’s Findings / Order

  • The Court held that there was a clear infraction of principles of natural justice as no personal hearing or show cause notice was granted.
  • The AO made additions without seeking relevant documents or granting opportunity to clarify discrepancies.
  • The explanation regarding turnover variation was brushed aside without proper consideration.
  • The assessment order dated 22.04.2021 was set aside.
  • Liberty was granted to the AO to pass a fresh assessment order after granting proper opportunity, including personal hearing.
  • Consequently, demand notice under Section 156 and penalty notice under Section 274 read with Section 270A were also set aside.

 Important Clarification

The Court emphasized that even where alternate remedy exists, writ jurisdiction can be exercised when there is a violation of principles of natural justice, particularly absence of hearing before adverse order.

 Sections Involved

  • Section 143(3) – Assessment
  • Section 142(1) – Inquiry before assessment
  • Section 156 – Notice of demand
  • Section 274 – Penalty proceedings
  • Section 270A – Penalty for under-reporting/misreporting

Link to download the order -https://delhihighcourt.nic.in/app/showFileJudgment/RAS22032023CW71762021_223824.pdf

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