Delay in Reply to Draft Audit Report Doesn’t Forfeit Right to Respond to SCN | HC

Case Details: Tripath Logistics (P.) Ltd. vs. Assistant Commissioner - [2025] 173 taxmann.com 870 (Madras)

Judiciary and Counsel Details

• Krishnan Ramasamy, J.
• Raghav Rajeev, for the Petitioner.
• Sai Srujan Tayi, SPC & Ms Pooja Jain, JPC for the Respondent.

Facts of the Case

The petitioner, a partnership firm, was issued an Audit Memo by the department, instructing them to submit a reply within two working days. However, the petitioner failed to meet this deadline. As a result, the respondent proceeded to finalize the draft Audit Report, which was approved in a subsequent Monthly Audit Monitoring Committee Meeting. Following this, the petitioner submitted multiple replies to the respondent, but these replies were not considered when the final Audit Report was issued, demanding a substantial amount along with interest. Based on this Audit Report, the respondent issued a Show Cause Notice to the petitioner. The petitioner then filed a writ petition in Madras High Court, challenging both the Audit Report and the Show Cause Notice on ground of violation of principles of natural justice.

High Court Held

The Hon’ble Madras High Court held that although the petitioner had failed to file reply within stipulated time prior to preparation of draft audit report, this did not permanently forfeit their right to respond. The Court emphasised that the petitioner could still address their grievances by filing a reply to the Show Cause Notice. The Court granted the petitioner the liberty to file their reply within four weeks and directed the respondent to independently consider the reply and pass a decision in accordance with the law, ensuring that the petitioner was provided sufficient opportunities to present their case.