Gujarat High Court Quashes Reassessment Order:
Shree Sarkhej Kelwani Mandal vs. Revenue [Special Civil Application No. 6003 of 2021]
Background of the Case
The appellant had filed its return for the Assessment Year 2018-19, declaring nil income while claiming exemption based on its charitable activities. Along with the return, the trust submitted an audit report in Form 10B, as required under Section 12A(b) of the Act. However, due to an inadvertent error by the Chartered Accountant, certain financial figures were incorrectly reported in the audit report. A revised audit report was filed, correcting the discrepancies. Despite this, the Income Tax Department processed the original return under Section 143(1) and issued an intimation order, denying the exemption.
Subsequently, the case was selected for scrutiny assessment, and a notice under Section 143(2) was issued. The appellant responded by explaining the reasons for the revised audit report. However, the Assessing Officer issued a show-cause notice on 27th February 2021, proposing an addition of Rs. 4.75 crore by denying exemption benefits. The appellant sought an adjournment to file a detailed response, requesting time until 11th March 2021. However, the Assessing Officer ignored this request and passed the final assessment order on 4th March 2021, confirming the proposed addition. Aggrieved by this violation of natural justice, the appellant approached the Gujarat High Court.
Arguments by the Appellant
The appellant vehemently argued that the denial of exemption and the hasty passing of the assessment order were arbitrary and illegal. The AO violated principles of natural justice by refusing to grant reasonable time to respond to the SCN. The appellant argued that the revised audit report had already rectified the initial clerical errors, and the Department’s refusal to consider it was contrary to the scheme of the Income Tax Act. It was also submitted that the penalty order passed during the pendency of the High Court’s stay demonstrated willful disregard for judicial authority, amounting to contempt of court.
Furthermore, the appellant also highlighted systemic failures in the Income Tax Department, including defective software that failed to reflect adjournment requests and non-compliance with court orders.
Respondent’s Response
The respondent, Revenue initially defended the assessment order, asserting that the appellant had failed to comply with procedural requirements under the Income Tax Act. It was argued that the revised audit report was filed belatedly, and hence, the denial of exemption was justified.
The Department acknowledged lapses in its handling of the case. It admitted that the Assessing Officer had overlooked the adjournment request due to technical glitches in the e-filing portal, which failed to synchronize the request with the case records. The Department also tendered an unconditional apology for the penalty order passed in violation of the High Court’s stay, stating that it was an unintentional oversight.
Court Findings and Decision
The Gujarat High Court, held that the assessment order was passed in blatant violation of natural justice, as the appellant was denied a reasonable opportunity to present its case. The judges observed that three days’ time to respond to a complex tax demand was grossly inadequate, and the Assessing Officer’s refusal to grant an adjournment was arbitrary. Regarding the penalty order, the court strongly condemned the Department for flouting the interim stay, terming it a serious contempt of judicial authority. The penalty order was quashed outright, and the court directed the Department to ensure strict compliance with judicial orders in the future.
To download official order, Click Here
“The site is for information purposes only and does not provide legal advice of any sort. Viewing this site, receipt of information contained on this site, or the transmission of information from or to this site does not constitute an attorney-client relationship. The information on this site is not intended to be a substitute for professional advice.”