2005 (4) TMI 29 - HC - Income Tax

Petitioner submitted that before resorting to section 144 it was incumbent upon the assessing authority to issue a notice calling upon the assessee i.e. the petitioner to show cause why the assessment should not be completed to the best of his judgment.. According to the petitioner no such notice was issued and therefore the order taking recourse to the provision of section 144 is liable to be set aside. He submitted that before the Commissioner of Income-tax in the petition under section 264 a specific plea was raised that except the above notice i.e. the notice under section 143(2) no other notices were served on the assessee which fact has also been noted by the Commissioner of Income-tax. - Specific averment having been made in the petition under section 264 of the Act that no notice except the notice issued under section 143(2) of the Act dated October 27 1995 having been issued which fact had also been noticed by the Commissioner of Income-tax it goes to prove the case set up by the petitioner that no notice under the proviso to sub-section (1) of section 144 of the Act had been issued. Thus the assessing authority could not have taken recourse to the provision of section 144 of the Act without giving an opportunity by serving a notice.

Summary

Issues:
1. Validity of the order passed by the Commissioner of Income-tax for the assessment year 1994-95.
2. Compliance with statutory requirements before resorting to best judgment assessment under section 144 of the Income-tax Act, 1961.

Analysis:
1. Validity of the Commissioner's Order:
The petitioner, a partnership firm, challenged the order passed by the Commissioner of Income-tax for the assessment year 1994-95. The firm filed its return of income in 1994, which was initially accepted under section 143(1)(a) of the Act. Subsequently, the case was selected for scrutiny, leading to an assessment by the Assistant Commissioner under section 144 of the Act. The firm, feeling aggrieved, appealed to the Deputy Commissioner and then to the Commissioner of Income-tax, who dismissed the revision. The petitioner contended that the best judgment assessment under section 144 was improper as the assessing authority did not issue a notice as required by law. The High Court held that the failure to provide an opportunity by serving a notice before resorting to best judgment assessment rendered the Commissioner's order unsustainable. The court set aside the order and directed the Commissioner to pass a fresh order in compliance with the law.

2. Compliance with Statutory Requirements for Best Judgment Assessment:
The key issue revolved around the statutory requirements before resorting to best judgment assessment under section 144 of the Income-tax Act. The petitioner argued that no notice calling upon the assessee to show cause was issued before the best judgment assessment was made. The petitioner cited a decision of the Rajasthan High Court to support the contention that failure to comply with statutory requirements necessitates a fresh assessment. The standing counsel for the respondent contended that sufficient opportunities were given to the petitioner, and multiple notices were issued under section 143(2) of the Act. However, the High Court found that the petitioner's claim of not receiving the necessary notice under section 144 was valid, as supported by the petition and supplementary affidavit. The court emphasized the importance of providing the assessee with an opportunity before resorting to best judgment assessment, as mandated by the law. Consequently, the court set aside the Commissioner's order and directed a fresh assessment in accordance with the statutory requirements.

In conclusion, the High Court's judgment focused on the necessity of complying with statutory provisions, particularly regarding the issuance of a notice before resorting to best judgment assessment under section 144 of the Income-tax Act. The court emphasized the importance of providing the assessee with an opportunity to be heard before making such assessments, ultimately leading to the setting aside of the Commissioner's order and the direction for a fresh assessment in accordance with the law.