Delhi High Court Rules Overlooking Assesssee’s Reply Exhibits AO’s Non-Application of Mind

Delhi High Court Rules Overlooking Assesssee’s Reply Exhibits AO’s Non-Application of Mind

Holds denial of sufficient time an abrogation of jus naturale and it infringed the procedure of the CBDT

The Delhi High Court has quashed the draft assessment orders, final assessment orders, and consequential demand, on the grounds that the assessing officer (AO), inadvertently, overlooked the email response of the assessee, disclosing vital facts.

The bench comprising Justice Rajiv Shakdher and Justice Girish Kathpalia observed that the denial of sufficient time to respond was not just an abrogation of jus naturale but also infringed clause B(1) of the 19 November 2020 Standard Operating Procedure of the Central Board of Direct Taxes (CBDT).

As per the law, a response time of 15 days has to be given to the assessee to respond to the notice under Section 142 of the Income Tax Act.

The respondent/department submitted that several notices under Section 148 and Section 142(1), and a show-cause notice were issued to the petitioner before making the assessment.

However, according to the petitioner/assessee, none, except the 12 July 2022 notice was received by it. In this notice, the AO requisitioned certain information and directed the petitioner to upload it on the web portal of the IT department and also email it.

The petitioner explained that a brief reply to the notice was sent, requesting an extension of time until 5 August, for filing a detailed reply. It also clarified not receiving any prior notices.

The petitioner stated that as it officially forgot the password, it could not log in to the web portal, and on 21 July, it approached the e-filing manager. However, the request for password resetting was rejected on the grounds that a foreign mobile phone number was not acceptable. Being a foreign company, the petitioner should obtain an Indian mobile phone number for password reset.

Realizing that uploading the reply on the web portal would take time, on 23 August, the petitioner sent its reply to the AO. It clarified that the source of funds was the capital contribution from two foreign companies that held the petitioner company.

In the meantime, the AO had already passed a draft assessment without acknowledging the petitioner’s response. Based on the draft assessment order, the AO passed the assessment order.

The Court noted that the assessment orders, the draft assessment orders, and the consequential demand notices, were clearly afflicted by two vices. One, the AO, overlooked the petitioner’s email response. Two, he denied the assessee sufficient time to respond.