2021 (6) TMI 1109 - HC - Income Tax

Validity of Faceless Assessment u/s 144B - Violation of the principles of natural justice - denial of granting personal hearing to petitioner and on considering his submissions - HELD THAT - We had put to Mr. V. Lakshmikumaran who appears for the petitioner as to whether it would suffice if we were to set aside the impugned order and direct the Assessing Officer to consider the petitioner s reply to the show cause notice-cum-draft assessment order dated 12.03.2021. Mr. Lakshmikumaran says that such a direction would satisfy the petitioner. Therefore the assessment order passed under Section 143(3) of the Act dated 13.03.2021 is set aside. AO will be at liberty to pass a fresh order after considering the reply/submissions filed by the petitioner dated 12.03.2021. The AO will accord a personal hearing to the authorized representative of the petitioner and for this purpose he/she will indicate in writing the date and time of the hearing. The AO will transmit this information via the registered e-mail ID of the petitioner. Furthermore the A.O. will ensure that the link for the hearing is also sent to the petitioner.

Summary

Issues:
Breach of principles of natural justice in the assessment order under Income Tax Act, 1961 for the assessment year 2018-2019 regarding unsecured loans.

Analysis:
The petitioner contended a breach of natural justice principles due to the assessment order being passed without considering their response and request for a personal hearing. The petitioner explained the unsecured loans received, but the AO made an addition to the declared income under Section 68 of the Income Tax Act. The respondent argued the addition was due to discrepancies between the audit report and balance sheet concerning unsecured loans for the financial year 2017-2018.

The High Court noted the failure of the AO to consider the petitioner's explanation and material submitted, along with the request for a personal hearing. The Court emphasized the importance of natural justice principles and the need for the AO to take into account all relevant information before finalizing an assessment order. Despite the respondent's submission in the counter-affidavit, the Court decided to set aside the impugned assessment order.

The Court directed the AO to reconsider the petitioner's reply and submissions dated 12.03.2021, providing a personal hearing to the petitioner's authorized representative. The AO was instructed to send the hearing details via registered email and ensure proper communication with the petitioner. It was emphasized that the AO must pass a speaking order, providing a copy to the petitioner for transparency and procedural fairness.

In conclusion, the High Court disposed of the writ petition in favor of the petitioner, setting aside the assessment order and instructing the AO to conduct a fresh assessment considering the petitioner's submissions and ensuring compliance with natural justice principles.