Delhi High Court Quashes Best Judgment Assessment as Company Was Under Insolvency Process

The Delhi High Court quashed an ex parte income tax assessment order as the order was passed without giving a fair opportunity for a hearing.

The assessing officer had passed an order under Section 143(3) read with Section 144B of the Income Tax Act, 1961. However, since the taxpayer did not respond to this, the AO passed the best judgment assessment, raising a high demand.

However, at that time, the company was going through insolvency, for which the National Company Law Tribunal (NCLT) had appointed an Interim Resolution Professional (IRP). Due to this, the company’s management did not have control over the company, and the company could not present its side effectively before the AO.

Before the Delhi High Court, the petitioner company contended that the situation was beyond its control and the order passed by the AO violated the principles of natural justice. The company said that the cost of acquisition was not considered, which led to a very high assessment. It also argued that filing an appeal against this order would require 10% of the demand, adding more financial burden.

The court observed that the company did not get an effective opportunity to explain its case. Therefore, the court set aside the order and directed the AO to issue a new notice. The AO must give at least 30 days’ time to the petitioner to respond and submit the required documents or information. After the AO receives the reply, he must make a fresh order.