Central Board of Direct Taxes – Representation should not be rejected without hearing and that the case should be disposed of by a reasoned order.

The Petitioner company was a victim of unprecedented fraud perpetrated by the former chairman and previous management of the company. Serious Fraud Investigation Office (SIFO) which investigated the fraud, found that the previous management paid taxes on fictitious income to convey a false impression that the income was genuine. As per initial quantification, sales was overstated by Rs.4,915 crore (2001-02 to 2007-08), interest income of Rs.920.14 crore was shown on non-existing fixed deposits (2001-02 to September, 2008) and non-existent interest of Rs.186.91 crore was paid on fictitious fixed deposits (2001-02 to 2007-08).

In the circumstances, Petitioner Company represented to the Central Board of Direct Taxes (CBDT) stating that income declared by the earlier management in return of income had been overstated and tax credit thereon was excessively claimed, as evident from the subsequent restatement of accounts at the instance of the Company Law Board and consequent upon investigation by the SIFO. It was the case of the company before the CBDT that the Department had acted on the basis of false claims of payment of taxes made by the previous management by rectifying the assessment and raising tax demands. The case of the petitioner was that, in the circumstances, the overstated income in the specified assessment years should be reduced.

CBDT vide order dated 10-3-2011 passed u/s. 119 rejected the representation of the company for re-quantification/reassessment of income for various years for the reasons given in the order. However, no hearing was given to the petitionercompany. Aggrieved, the petitioner–company filed a writ petition in the Andhra Pradesh High Court. The High Court directed the petitioner-company to pay Rs. 350 crore and to give bank guarantee for Rs. 267 crore, pending hearing and disposal of the writ petition. The petitioner-company filed a Special Leave Petition before the Supreme Court.

The Supreme Court was of the view that the CBDT in the peculiar facts and circumstances of the case, ought to have heard the petitioner-company which they had not done. The Supreme Court also found that the representations made by the petitionercompany required further details to be furnished and in the circumstances, it directed the petitionercompany to file within two weeks, a comprehensive petition/representation before the CBDT giving all requisite/details/particulars in support of the case for re-quantification/reassessment of income for the assessment years 2003-04 to 2008-09 and directed the CBDT to hear the petitioner-company and dispose of the case within a period of two weeks from the date of hearing by a reasoned order. The Supreme Court further required the chairman of the company to file an undertaking with the Registry of Supreme Court to furnish bank guarantee of the nationalised bank in a sum of Rs. 617 crore and on filing such undertaking, attachment levied by the Department would stand lifted. The Supreme Court disposed of the petition without expressing any opinion on the merits of the case and keeping all the contentions open.