M/S. A K Metals Products vs Assessment Unit Of Income Tax Department

NEUTRAL CITATION

C/SCA/9375/2024 ORDER DATED: 09/07/2024

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IN THE HIGH COURT OF GUJARAT AT AHMEDABAD

R/SPECIAL CIVIL APPLICATION NO. 9375 of 2024

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M/S. A K METALS PRODUCTS

Versus

ASSESSMENT UNIT OF INCOME TAX DEPARTMENT

========================================================== Appearance:

MR DHARAN GANDHI ADVOCATE WITH MR DARSHAN B GANDHI(9771)

for the Petitioner(s) No. 1 MR KARAN SANGHANI ADVOCATE WITH MR NIKUNT K RAVAL(5558) for the Respondent(s) No. 1 NOTICE SERVED for the Respondent(s) No. 1 ==========================================================

CORAM:HONOURABLE MR. JUSTICE BHARGAV D. KARIA

and

HONOURABLE MR. JUSTICE NIRAL R. MEHTA

Date : 09/07/2024

ORAL ORDER

(PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA)

[1] Heard learned advocate Mr. Darshan Gandhi for the petitioner and learned Senior Standing Counsel Mr. Karan Sanghani for the respondent.

[2] Rule returnable forthwith. Learned Senior Standing Counsel Mr. Karan Sanghani waives service of notice of Rule for the respondent.

[3] Having regard to the controversy in narrow compass in the

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matter and with the consent of learned advocates appearing for the respective parties, the matter is taken up for hearing.

[4] By this petition under Article 226 of the Constitution of India, the petitioner has prayed to quash and set aside the assessment order dated 28th March 2024 passed under Section 143(3) read with Section 144B of the Income Tax Act, 1961 (for short, "the Act") for the Assessment Year 2022-23.

[5] The brief facts of the case are that the petitioner, who is engaged in the business of manufacturing, wholesale of metal, scrap and recycling of metal, filed return of income on 7 th November 2022 for the year under consideration declaring total income of Rs.5,57,014/-.

[5.1] The petitioner, thereafter, received an intimation dated 2 nd June 2023 for scrutiny assessment followed by notice dated 19 th October 2023 under Section 142(1) of the Act and another notice dated 23rd October 2023. Thereafter, the show cause notice dated 11th December 2023 was issued by the respondent - Assessing Officer which was replied on 16th December 2023 by the petitioner.

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C/SCA/9375/2024 ORDER DATED: 09/07/2024

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Thereafter, notice dated 18th January 2024 and 19th January 2024 was also issued directing the petitioner to furnish details of unsecured loan, advances and sundry creditors.

[5.2] The petitioner, thereafter, received show cause notice dated 1st March 2024 to show as to why addition of unsecured loan and other amount under the head of unexplained cash credit under Section 68 / 69C of the Act should not be made. The petitioner submitted reply dated 5th March 2024 and 12th march 2024 along with ledger account details of unsecured loan, advances and copies of invoices of sundry creditors. The petitioner also submitted the list and confirmation along with PAN details of lender parties of unsecured loan and creditors to prove that the petitioner also filed GST returns to the respondent authority.

[5.3] It is the case of the petitioner that the respondent authority, after receipt of the reply to the show cause notice, issued summons under Section 133(6) of the Act to the various parties and thereafter, the respondent - Assessing Officer, considering the response to such summons, made addition of Rs.8,96,65,832.2 as unexplained expenditure by invoking the provisions of Section 69C

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read with Section 115BBE of the Act and penalty proceedings under Section 271AAC(1) of the Act was also initiated for levy of penalty of Rs.3,82,00,000/-.

[6] Learned advocate Mr. Gandhi for the petitioner, therefore, submitted that the petitioner has not been provided any opportunity of hearing after submission of the reply to the show cause notice for the proposed addition to be made and the respondent - Assessing Officer has undertaken an inquiry and accordingly, the entire assessment order is vitiated and such order is required to be quashed and set aside.

[7] In support of his submissions, reliance was placed on the decision of this Court in the case of MAA Padmavati Exports vs. The Income Tax Officer, Ward 1(2)(3), Ahmedabad rendered in R/Special Civil Application No.6918 of 2024.

[8] On the other hand, learned Senior Standing Counsel Mr.

Karan Sanghani for the respondent submitted that the contention of the assessee that there is a breach of the principles of natural justice, is not correct as the assessee has not responded to the

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notices and responded to show cause notice under Section 144 of the Act only. It was further submitted that in view of non- cooperation shown by the assessee during the course of assessment proceedings, the Assessing Officer was required to exercise his power to conduct the third party inquiry by way of notice under Section 133(6) of the Act.

[9] It was further submitted that the notice issued by the Assessing Officer on 1st March 2024 and at the same time, the show cause notice issued under Section 133(6) of the Act to the third party and hence, such issuance of notice was not mentioned in the show cause notice for the proposed addition to be made by the Assessing Officer under Section 69C of the Act.

[10] It was further submitted that it is not binding upon the Assessing Officer that he has to disclose about the third party inquiries conducted by him to the assessee because it is the part of his investigation to arrive at the conclusion in the assessment as the assessee has not discharged its onus to prove that the transactions in respect of unsecured loans, purchase are genuine in absence of any documentary evidence to substantiate such transactions.

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[11] It was, therefore, submitted that in response to the show cause notice also, the petitioner failed to submit any documentary evidence to prove the identity, creditworthiness and genuineness of the transactions and therefore, it was incumbent upon the Assessing Officer to make inquiry by issuance of notice under Section 133(6) of the Act to arrive at the conclusion in respect of the unsecured loan and purchases.

[12] It was, therefore, submitted that the assessee has an alternative efficacious remedy to challenge the impugned assessment order by preferring an appeal before the CIT(A) and the assessee can raise all the contentions which are raised in this petition. It was, therefore, prayed that the this petition may not be entertained while exercising extraordinary jurisdiction under Article 226 of the Constitution of India.

[13] In view of the above submissions made by both the sides, we are of the opinion that there is a clear variance between the show cause notice in form of a draft assessment order and the impugned assessment order passed by the Assessing Officer after issuance of

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notice under Section 133(6) of the Act. Therefore, the entire assessment order passed by the Assessing Officer is contrary to the scheme of the faceless assessment as prescribed under Section 144B of the Act.

[14] It is also not in dispute that the Assessing Officer has not issued notice under Section 133(6) of the Act prior to the issuance of show cause notice under Section 144B of the Act comprising the draft assessment order. Therefore, the assessee could not respond to the findings which are accorded in the impugned assessment order by the Assessing Officer on the basis of the inquiry made by him pursuant to the notice under Section 133(6) of the Act.

Accordingly, the impugned assessment order is in clear violation of the principles of natural justice.

[15] In the decision in the case of MAA Padmavati Exports (supra), it was observed by this Court as under:

"[12] It is not in dispute that the Assessing Officer did not supply copy of reply received pertaining to the pursuant to the notice issued under Section 133(6) of the Act. After issuance of the show cause notice in the form of draft

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assessment order, no any opportunity of cross-examination of the parties whose reply is considered to make addition under Section 68 of the Act was granted to the petitioner. This Court, in the case of Dineshkumar Chhaganbhai Nandani (supra) and in the case of Darshan Enterprise (supra) and in the case of Prakashchandra Chhotalal Shah (supra), in similar facts, after referring to the relevant provisions under Section 144B of the Act, allowed the petitions quashing and setting aside the assessment order and remitting the matter back to the Assessing Officer for de novo consideration."

[16] For the foregoing reasons, we are left with no other option but to quash and set aside the impugned assessment order and remit the entire matter back to the Assessing Officer for de novo consideration and to pass a fresh assessment order after providing all the relied upon documents like the reply received pursuant to the summons and notice under Section 133(6) of the Act as well as the other relevant documents of the parties who did not reply to the summons providing opportunity of cross-examination, if requested, and after giving an opportunity of hearing to the petitioner, fresh de novo assessment order may be passed in accordance with law. Such exercise shall be completed within a

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period of 12 weeks from the date of receipt of the copy of this order.

[17] This petition is, accordingly, disposed of. Rule is made absolute to the aforesaid extent. No order as to costs.

(BHARGAV D. KARIA, J)

(NIRAL R. MEHTA,J)

CHANDRESH

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