Quote for the Day:

"What is the difference between Punya and Paap? 
Punya is a debit card - pay first and enjoy later. 
Paap is a credit card - enjoy first and pay later"

Important Case Law:

“In tax assessments, transparency beats technology and this judgment proves it.”

Can a tax assessment be justified if it relies on judgments that don’t exist and your valid evidence is not considered.

The Bombay High Court came down strongly against tax assessments passed in breach of natural justice, especially where non-existent case law is cited and key documentary evidence is ignored.

Case Analysis: KMG Wires P. Ltd. v. National Faceless Assessment Centre

Citation: 2025 179 taxmann.com 565 (Bombay)

Bench: B. P. Colabawalla & Amit S. Jamsandekar, JJ.
Date: 06 Oct 2025

Facts of the Case:

• The Assessing Officer (AO) passed an order under section 143(3) read with section 144B, making two major additions in AY 2023-24:
  • Purchases from Dhanlaxmi Metal Industries (~Rs. 2.16 crore) were disallowed, citing the supplier had not replied to a Section 133(6) notice.
  • Unsecured loans from directors: added peak balances (~Rs. 22.66 crore) including opening balance; relied on judicial decisions (later found non-existent), with no working shared with the assessee.
• The assessee argued a complete breach of natural justice:
  • The supplier had in fact replied and submitted 100 pages of evidence, confirming transactions, invoices, GST returns, and transport documents.
  • No show-cause notice or calculations were shared for the loan addition; judicial precedents cited did not exist.
  • AO admitted in a subsequent affidavit that the supplier’s reply had not been considered and acknowledged citation error.

What the Court Held:

• The entire assessment suffered from breach of natural justice.
  • Addition on purchases ignored crucial reply and supporting evidence on file.
  • AO negligently relied upon non-existent case law and did not provide assessee any opportunity to counter or view the basis/workings.
  • Blind reliance on automated/AI output or ignoring available replies cannot be permitted in quasi-judicial tax functions.
• The assessment order and demand notice were set aside and the case remanded:
  • AO to issue a fresh show-cause with clear reasons and adequate time for response.
  • Full opportunity for a hearing and a speaking order to be passed on merits, with all evidences and authorities to be disclosed and discussed in advance.
• Natural justice was fundamentally breached; additions, demand notice, and penalty show-cause could not survive.

Conclusion:

• Assessment Order, Demand Notice & Penalty Show Cause Notice (SCN)—all quashed.
• Matter remanded to AO with directions to:
  • Issue a fresh show-cause notice,
  • Give reasonable opportunity of hearing,
  • Grant personal hearing, and
  • Pass a speaking order addressing all submissions.

Key Takeaway:

Ignoring crucial evidence and relying on AI-fetched judgments violates natural justice.
Verification & due process remain non-negotiable even in the era of AI-assisted assessments.

For Judgment,  Please click here

Useful Updates:

( Contribution by CA. R S Kalra, Co-Founder - Voice of CA )

• 																				  A very insightful and informative article on “TCS on Sale of Overseas Tour Package Read More       
  										

( Contribution by CA. Ayush Agarwal & CA. Mohit Gupta )

• Indirect Tax Updates From 16th October 2025 to 31st October 2025 Read More

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