Facts of the Case

The petitioner, Kapoor Industries Limited, filed writ petitions challenging reassessment notices dated 30 March 2021 issued under Section 148 for Assessment Years 2015–16, 2016–17, and 2017–18, along with assessment orders passed under Section 147 read with Section 143(3).

The petitioner contended that the notices were issued in the name of a non-existing partnership firm (M/s Kapoor Industries), which had already been converted into a company on 05 March 2012 under Part IX of the Companies Act, 1956.

Further, it was stated that:

  • The Income Tax Department had prior knowledge of such conversion.
  • Separate returns had been filed before and after conversion.
  • Scrutiny assessments had already been completed in both capacities.

Additionally, the petitioner highlighted a procedural defect, where show cause notices were digitally signed after the compliance deadline had already expired, making compliance impossible.

Issues Involved

  1. Whether reassessment notices issued in the name of a non-existing entity are valid in law.
  2. Whether issuance of show cause notice with expired compliance time violates principles of natural justice.
  3. Whether reassessment proceedings can sustain where opportunity of hearing is illusory.

Petitioner’s Arguments

  • The reassessment notices are void ab initio as they were issued in the name of a non-existent partnership firm.
  • The department was fully aware of the conversion into a company since 2012.
  • Income allegedly escaped had already been offered to tax in the hands of the company.
  • The show cause notice was defective and invalid, as:
    • It was digitally signed after the compliance deadline.
    • No real opportunity to respond was provided.

Respondent’s Arguments

  • As per ITBA records, the PAN of the partnership firm was still active at the time of issuance of notice.
  • It was the responsibility of the assessee to ensure deactivation of PAN upon conversion.
  • Continued existence of TDS and financial data under the firm’s PAN justified issuance of notices.

Court’s Findings / Order

The Delhi High Court held:

  • Even if the Revenue’s arguments are accepted, the proceedings are unsustainable due to violation of natural justice.
  • The petitioner was not given a fair opportunity to respond since the show cause notice was issued after the compliance time had already expired.

Order

  • Impugned reassessment orders were set aside.
  • Matter remanded back to the Assessing Officer for fresh adjudication.
  • Petitioner directed to file response within four weeks along with supporting documents.
  • Assessing Officer directed to:
    • Provide opportunity of hearing
    • Pass a reasoned order in accordance with law

Important Clarifications by the Court

  • Procedural fairness is mandatory, even in reassessment proceedings.
  • Issuance of notice without meaningful opportunity amounts to violation of natural justice.
  • Administrative or technical justifications (like active PAN) cannot override due process.

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:1744-DB/MMH05052022CW65552022_165210.pdf

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