2021 (12) TMI 1326 - HC - Income Tax

Validity of Faceless Assessment - petitioner contended that it was unaware of the completion of the proceedings relating to the assessment year 2017-18 under the faceless scheme - Denial of natural justice - failure of an opportunity to contest the assessment proceedings - HELD THAT - This Court is of the opinion that though the assessing officer cannot be faulted petitioner did not get an effective opportunity to put forth his response for the year 2017-18. Since the assessment order is the platform from which the rights and obligations of not only the assessee but also of the department arise it is essential that such a platform is built upon strong foundations especially when the amount involved is large. The burden of an assessment order issued without hearing the assessee will fall not only upon the petitioner alone but even upon the system itself and may create further waste of resources. It is relevant to bear in mind that the principles of natural justice cannot be cribbed or cabined in a straitjacket formula. The concept of natural justice depends on the context and the circumstances of each case. When the tax department of the Country is in a transition phase with conventional and traditional notices being replaced by e-notices or intimations in the web portal the technological inadequacies and incompetence of the litigants cannot be brushed aside lightly especially when the prejudice to the litigant is enormous. As the tax department and the assessees are both passing through the transition phase and shifting to electronic modes a rigid consideration and application of rules of natural justice do not augur well for the system. The principles of natural justice are flexible enough to adapt to situations like the present to insist for an effective opportunity for the assessee. This Court is of the opinion that an effective opportunity of hearing could not be availed of by the petitioner in its full sense and therefore there has been a violation of the principles of natural justice while issuing Ext. P6 order of assessment. The fact that if a fresh opportunity is granted to the petitioner to reply to the notices issued and also to consider same in a time bound manner would not cause any prejudice to the department. On the contrary it will cater to the advancement of the cause of justice for both sides. Ext.P6 is liable to be set aside and a fresh opportunity of hearing be granted to the petitioner. While setting aside Ext.P6 order of assessment dated 22.04.2021 the petitioner is given an opportunity to respond to all the notices issued to the petitioner on or before 14.01.2022 and the assessing officer shall consider the objections of the petitioner and pass fresh orders thereon after hearing the petitioner on or before 31.01.2022.

Summary

Issues Involved:
1. Violation of principles of natural justice.
2. Adequacy of notice service under the Faceless Assessment Scheme.
3. Technical glitches and transition challenges in the Income Tax Department's e-proceedings.
4. Petitioner's non-response to assessment notices for 2017-18.

Detailed Analysis:

1. Violation of Principles of Natural Justice:
The petitioner argued that the assessment order for the year 2017-18 violated the principles of natural justice. The petitioner was unaware of the notices issued due to the primary email being defunct and no communication sent to the secondary email. The court emphasized that the principles of natural justice must adapt to the circumstances of each case. The court cited Lord Diplock’s observation in O'Reilly v. Mackman and the House of Lords in Lloyd v. McMahon, highlighting that natural justice is not rigid but flexible. The court concluded that the petitioner did not receive an effective opportunity to respond, thus violating natural justice principles.

2. Adequacy of Notice Service under the Faceless Assessment Scheme:
The petitioner contended that notices for the assessment year 2017-18 were not properly served as they were sent to a defunct email address. The respondents argued that it was the petitioner’s responsibility to update the email address on the web portal. The court noted that while it is not mandatory to send notices to the secondary email, in this case, it would have been ideal due to the petitioner’s non-response to repeated notices. The court found that the petitioner’s lack of response indicated a lack of knowledge about the proceedings, supporting the petitioner’s claim of improper notice service.

3. Technical Glitches and Transition Challenges in the Income Tax Department's E-Proceedings:
The petitioner highlighted technical issues with the Income Tax Department’s portal, which contributed to the non-receipt of notices. The court acknowledged the transition phase from traditional notices to e-notices and the technological challenges faced by both the tax department and assessees. The court emphasized that rigid application of natural justice principles during this transition phase is not appropriate. The court recognized the need for flexibility in ensuring effective communication and opportunity for the assessee.

4. Petitioner's Non-Response to Assessment Notices for 2017-18:
The court observed that the petitioner participated in the assessment proceedings for 2018-19 but did not respond to any notices for 2017-18. This discrepancy indicated that the petitioner was unaware of the 2017-18 proceedings. The court noted that the assessing officer made multiple attempts to elicit a response from the petitioner, but the petitioner remained non-responsive. The court concluded that the petitioner’s non-response was due to a lack of knowledge about the proceedings, supporting the petitioner’s claim of not receiving proper notice.

Conclusion:
The court set aside the assessment order dated 22.04.2021 for the year 2017-18, citing a violation of natural justice principles. The petitioner was granted an opportunity to respond to the notices by 14.01.2022, and the assessing officer was directed to consider the objections and pass fresh orders by 31.01.2022. The writ petition was allowed, providing the petitioner with a fresh opportunity to present their case.