Assessee must comply with summons issued by tax authority: Supreme Court

The Supreme Court has held that an assessee must comply with a summons and furnish a response to a show cause notice when it is issued by the central or the state tax authority.

 

"Assessee" under the Income Tax Act of 1961 refers to any individual or entity that holds the legal liability of tax payment or any other financial commitments as specified by the Act.

 

Thus, laying down guidelines to prevent duplication of adjudication by central and state GST authorities, a bench of Justices J B Pardiwala and R Mahadevan said that mere issuance of a summons does not enable either the issuing authority or the recipient to ascertain that proceedings have been initiated.

 

"Where a summons or a show cause notice is issued by either the Central or the State tax authority to an assessee, the assessee is, in the first instance, obliged to comply by appearing and furnishing the requisite response, as the case may be.

 

"Where an assessee becomes aware that the matter being inquired into or investigated is already the subject of an inquiry or investigation by another authority, the assessee shall forthwith inform, in writing, the authority that has initiated the subsequent inquiry or investigation," the bench said. 

 

The top court said the respective tax authorities shall communicate with each other to verify the veracity of the assessee's claim after receipt of such intimation.

 

"We say, so as this course of action would obviate needless duplication of proceedings and ensure optimal utilisation of the Department's time, effort, and resources, bearing in mind that action initiated by one authority enures to the benefit of all.

 

"If the claim of the taxable person regarding the overlap of inquiries is found untenable, and the investigations of the two authorities pertain to different 'subject matters,' an intimation to this effect, along with the reasons and a specification of the distinct subject matters, shall be immediately conveyed in writing to the taxable person," the bench added.

 

The apex court said the taxing authorities are well within their rights to conduct an inquiry or investigation until it is ascertained that both authorities are examining the identical liability.

 

Any show cause notice issued in respect of a liability already covered by an existing show cause notice shall be quashed, it said.

 

"However, if the Central or the State tax authority, as the case may be, finds that the matter being inquired into or investigated by it is already the subject of inquiry or investigation by another authority, both authorities shall decide inter se which of them shall continue with the inquiry or investigation.

 

"In such a scenario, the other authority shall duly forward all material and information relating to its inquiry or investigation into the matter to the authority designated to carry the inquiry or investigation to its logical conclusion," the bench said in its August 14 judgement.

 

The judgement came on a plea by Armour Security, a public limited company providing security services and registered with the Delhi GST authorities, involved in a dispute concerning tax demands and investigations.