2022 (8) TMI 1455 - HC - Income Tax

Validity of faceless assessment u/s 144B - gross violation of the principles of natural justice - As argued respondents ought not to have shown undue haste in framing the assessment for the year under consideration without affording an opportunity of personal hearing to the petitioner - HELD THAT - Personal hearing in era of Faceless assessment is to be provided through video conferencing. It is not in dispute that in facts of the case no draft assessment along with show cause notice as required under section 144B(1) and section 144B(7) is given to the petitioner so as to enable the petitioner to give explanation for proposed addition during the hearing before the National Faceless Assessment Centre. Section 144B(1)(xii) provides that on receipt of show cause notice assessee may furnish his response to the National Faceless Assessment Centre and as per clause (xiv) assessment unit shall make a revised draft assessment order after considering the response of the assessee and send it to the National Faceless Assessment Centre. As per the provisions of section 144B(7) in case of variation prejudicial to the assessee as proposed in the draft assessment order the assessee is entitled to request for personal hearing and upon such request the personal hearing may be provided by the authority if the case of the assessee is covered by circumstances provided therein in exercise of powers under sub-clause (h) of clause (xii) of section 144B(7) of the Act 1961. It can be safely be said that the impugned order was passed by the respondent in violation of principles of natural justice without affording an opportunity of personal hearing by not following the prescribed procedure laid down as per the provisions of section 144B for Faceless assessment. Petition succeeds and is accordingly allowed. The impugned order of assessment passed by the respondent under Section 147 r.w.s. 144B and demand notice un/s 156 are quashed and set aside.

Summary

Issues:
Challenge to assessment order under Section 147 read with Section 144B of the Income Tax Act, 1961 for Assessment Year 2017-2018.

Analysis:
1. The petitioner, an LLP, challenged the assessment order dated 22.02.2022 passed by the respondent under Section 147 read with Section 144B of the Income Tax Act, 1961 for the Assessment Year 2017-2018. The petitioner contended that the assessment order was passed in violation of the principles of natural justice as no opportunity of personal hearing was provided before finalizing the assessment.

2. The petitioner argued that the respondent made an addition under section 69 of the Act for alleged unexplained investment, which was actually recorded in the books of accounts. This, according to the petitioner, indicated a lack of proper application of mind by the respondent in making the addition.

3. The petitioner further contended that the impugned order violated mandatory provisions of clauses (xiv), (xvi), and (xxii) of sub-section (1) of section 144B of the Act, 1961. The petitioner highlighted that the Faceless Assessment scheme under section 144B required providing a draft assessment order to the assessee for proposed additions to enable a fair opportunity of hearing.

4. The respondent opposed the petition, stating that after examining the explanations of the petitioner, the assessment order was validly passed, and no interference was necessary. However, the Court observed that the impugned order was passed without following the prescribed procedure of providing an opportunity of personal hearing as mandated by section 144B of the Act, 1961 for Faceless assessment.

5. The Court referred to the detailed procedure outlined in section 144B of the Act, 1961 for Faceless Assessment introduced in 2020. It noted that the procedure required providing an opportunity for personal hearing through video conferencing in cases where variations were proposed in the draft assessment order.

6. Ultimately, the Court held that the impugned order was passed in violation of principles of natural justice by not affording the petitioner an opportunity of personal hearing as required by section 144B of the Act, 1961. The Court allowed the petition, quashed the assessment order, and directed the respondent to proceed with assessment under section 144B after issuing a show cause notice-cum-draft assessment order to provide the petitioner with a fair opportunity of hearing.

7. The Court clarified that it did not delve into the merits of the case but focused on the procedural irregularities in the assessment process. The respondent was given 12 weeks to complete the reassessment process in compliance with the provisions of section 144B of the Act, 1961.