Summary: The Bombay High Court cancels show cause notices because a required step was skipped, showing how important it is for tax demands over Rs. 50 lakhs.
In the Bombay High Court, several legal requests, including one from M R Realtors, questioned the sending of show cause notices without having a pre-consultation first. The court, with Judges M.S. Sonak and Advait M. Sethna, decided in favor of M R Realtors, stressing that pre-consultation is a must for tax demands over Rs. 50 lakhs.
The court focused on an important step: pre-consultation. This step is explained in the Master Circular from March 10, 2017, and repeated in a 2020 circular. These documents say that for tax demands over Rs. 50 lakhs, a pre-consultation with the taxpayer is required. This step is meant to encourage voluntary compliance and reduce unnecessary show cause notices.
"Talking with the person before sending a Show Cause Notice is required for demands above Rs. 50 lakhs."
The court noted that not having a pre-consultation made the show cause notices invalid. It mentioned several cases, including Amadeus India Pvt. Ltd. and Dharamshil Agencies, where courts supported the need for pre-consultation.
The Union of India argued that pre-consultation wasn't required, mentioning cases like Brilliant Corporate Services Pvt. Ltd. However, the court disagreed, pointing out that the circulars were binding on the department.
The court canceled the existing show cause notices but allowed the Union of India to start a pre-consultation process within four weeks. If needed, new show cause notices can be sent after this process.
"The challenged show cause notices are hereby canceled and set aside."
This decision reinforces the importance of following the rules in tax cases. It highlights the court's role in making sure everyone is treated fairly and that established guidelines are followed.
The Bombay High Court decided that skipping the pre-consultation step makes show cause notices invalid. The court canceled the notices but allowed for the process to start again with a pre-consultation.
