Tax assessments must comply with principles of natural justice, including the right to cross-examine witnesses, or they may be quashed.

ORDER :

The petitioner is before this Court challenging the impugned Assessment Order dated 29.04.2023 in DIN ITBA/AST/M/143(3)/2023-24/1052445327(1) passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as “IT Act”) and Penalty Orders dated 31.03.2024 issued under Sections 270A and 271AAD(1)(i) of the IT Act for the Assessment Year 2021-22. Details of the impugned orders reads as under:-

2. At the time of admission, in W.P.(MD)No.11496 of 2023, this Court has granted an order of interim stay.

3. The dispute in the present cases pertains to the Assessment Year 2021-2022. The petitioner filed its Return of Income under Section 139(1) of the IT Act for the AY 2021-2022 admitting a total income of Rs. 78,77,08,610/-. The Return of Income for the AY 2021-2022 filed by the petitioner was processed under Section 143(1), determining a total income of Rs.78,77,08,610/-.

4. Thereafter, pursuant to Notice dated 28.06.2022 issued to the petitioner under Section 143(2) of the IT Act and a search conducted at the premises of the petitioner under Section 132 of the IT Act between 20.07.2022 and 16.09.2022, a decision was taken to finalize the assessment on 20.09.2022.

5. In view of the above, Notice under Section 153A of the IT Act was issued to the petitioner for the Assessment Years starting from 2016-2017 upto 2022-2023. The dispute in the present Writ Petitions pertains to the Assessment Year 2021-2022.

6. A Show Cause Notice dated 26.02.2023 was issued to the petitioner by the 1^st respondent under Section 142(1) of the IT Act stating evidences of Bogus purchases of sand and gravel from unregistered dealers amounting to a sum of Rs.58,70,58,032/- and Bogus Sub-Contractor expenses amounting to a sum of Rs.80,02,09,950/- was claimed in the Return of Income filed by the petitioner for the A.Y. 2021-2022.

7. In response to the Show Cause Notice dated 26.02.2023 issued under Section 142(1) of the IT Act, the petitioner submitted a written submissions and raised objections to the proposed disallowance. Further, on 10.03.2023, the petitioner filed an application under Section 144A for a certain direction from the 2^nd respondent and requested for personal hearing and to provide sufficient opportunity to prove the genuineness of the expenses proposed to be disallowed in the Show Cause Notice.

8. On 22.03.2023, directions were issued by the 2^nd respondent. Paragraph No.4 of the directions of the 2^nd respondent reads as under:

“4. Further, the MR for the above assessment years are sought from the Assessing Officer on the date of hearing i.e. 17.03.2023 and perused the details. On hearing the assessee and on perusal of the details in the MR for AY 2021-22, the following directions are given to the Assessing Officer for conducting further proceedings:-

(a) Expenses towards purchase of sand/gravel/earth etc.,

(i) The assessing officer shall call for the details from the assessee regarding the entries made in the Tally account for expenses claimed towards purchase of Gravel/Sand/Soil (categorized as unregistered dealers) in respect of the genuineness of the expenses claimed along with documentary evidences.

(ii) The assessing officer shall call for the details from the assessee to submit the genuineness of the self-made vouchers in respect of expenses claimed towards purchase of Gravel/Sand/Soil, by reconciling the data in the vouchers with the Daily reports (containing the details of the Vehicle Number & the party name) seized during the search proceedings and examine the genuineness of transport of the said materials.

(iii) The assessee in their petition under Section 144A has claimed that a letter dated 07.03.2023 was filed before the Assessing Officer, “the Material Receipt Report” containing the GRN maintained for all the purchases, supplier-wise. However,