Ex-Parte Order Quashed Due to Accountant’s Negligence; Validity of Limitation Extension Sub-Judice
Issue
Whether an ex-parte adjudication order is valid when the taxpayer failed to reply to the Show Cause Notice (SCN) because their accountant failed to inform them, and whether the challenge to the extended limitation period (under Notifications 9/2023-CT & 56/2023-CT) can be kept open pending a Supreme Court decision.
Facts
Assessment Year: 2019-20.
The Default: The Department issued a Show Cause Notice (SCN) and subsequently passed an ex-parte adjudication order creating a tax demand.
Reason for Non-Compliance: The petitioner (Swarn Cosmetic) contended that they were unaware of the proceedings because their accountant failed to bring the SCN and the order to their notice. Consequently, the deadline to file a reply and contest the demand was missed.
The Challenge: The petitioner filed a writ petition challenging the order on the grounds of violation of natural justice (denial of opportunity to be heard) and also challenged the validity of CBIC Notification No. 9/2023-CT and 56/2023-CT, which extended the limitation period for passing orders for FY 2019-20.
Decision
The Delhi High Court disposed of the writ petition in favour of the assessee by way of remand.
Natural Justice Over Technicality: The Court accepted the plea regarding the accountant’s negligence. It held that although an opportunity was technically given, the petitioner was prevented from using it due to a communication gap. To ensure substantive justice, the Court set aside the adjudication order and remanded the matter to the Adjudicating Authority.
Fresh Opportunity: The petitioner was granted liberty to file a reply to the SCN, and the Authority was directed to pass a fresh order after affording a personal hearing.
Limitation Challenge Kept Alive: The Court noted that the validity of the limitation extension notifications (Nos. 9/2023 & 56/2023) is currently pending before the Supreme Court (specifically in M/s HCC-SEW-MEIL-AAG JV vs. Assistant Commissioner of State Tax).
Subject to Outcome: The Court directed that any fresh order passed by the Adjudicating Authority upon remand would be subject to the final outcome of the pending Supreme Court proceedings regarding the validity of these notifications.
Key Takeaways
Accountant’s Fault Condoned: High Courts often view the negligence of professional agents (accountants/consultants) leniently, preferring that tax demands be settled on merits rather than ex-parte defaults, provided the taxpayer is willing to cooperate now.
Protective Litigation Strategy: Taxpayers are successfully keeping the “limitation defense” alive. Even if they lose on merits in the remand proceedings, they may still win later if the Supreme Court strikes down the limitation extension notifications for FY 2019-20.
Sub-Judice Status: The validity of the time extensions for FY 2018-19 and 2019-20 is a high-stakes legal battle currently before the Apex Court, creating a shadow of uncertainty over all orders passed during the extended period.