2021 (8) TMI 48 - HC - Income Tax

Faceless assessment u/s 144B - Need for personal hearing as provided - Whether any standards, procedures and processes have been framed by revenue in terms of sub-clause (h) of clause (xii) of Section 144B(7)? - HELD THAT - Going by the provisions under section 144B, when hearing has been envisioned and incorporated, it is imperative to observe principles of natural justice as stipulated. In the present matter, it is not disputed that show-cause notice had been issued to the petitioner on 25/03/2021 to which the petitioner has responded to from time to time vide letters dated 26th March, 2021, 28th March, 2021 requesting for personal hearing and by sending responses dated 7th and 8th April, 2021. There is nothing to reflect upon that after receipt of response to show-cause-notice dated 26th March, 2021, 28th March, 2021, 7th and 8th April, 2021, prescribed procedure has been followed. The petitioner appears to be losing out on an opportunity as would be available to it under clause (xxiii)(b) read with sub section (7) sub-clause (vii). When an assessee approaches with response to show cause notice, the request made by an assessee, as referred to in clause (vii) of sub section 7 of section 144B, would have to be taken into account and it would not be proper, looking at the prescribed procedure with strong undercurrent to have hearing on a request after notice, to say that petitioner would have opportunity pursuant to section 144C in the present matter, would intercept operation of the scheme contained under section 144B. Foregoing discussion leads to that impugned draft assessment order dated 22.04.2021 is unsustainable. The petition is allowed in terms of prayer clause (a) leaving it open to the authorities to carry forward the process in accordance with section 144B

Issues Involved:
1. Legality of the draft assessment order dated 22/04/2021.
2. Adequacy of disclosure in the return of income.
3. Discrepancies in the value of receipts from services.
4. Transfer pricing adjustments.
5. Opportunity for personal hearing in faceless assessment.

Issue-wise Detailed Analysis:

1. Legality of the Draft Assessment Order:
The petitioner contended that the draft assessment order dated 22/04/2021 was "ex-facie illegal, untenable, unsustainable, unreasonable and contrary to the provisions of the IT Act" and infringed upon their rights under Articles 14 and 19 of the Constitution of India. The court found that the impugned draft assessment order did not follow the prescribed procedure under Section 144B of the Income Tax Act, 1961. Specifically, the petitioner was not afforded a personal hearing despite repeated requests, which violated principles of natural justice. The court concluded that the draft assessment order was unsustainable and allowed the petition, directing the authorities to carry forward the process in accordance with Section 144B by giving an opportunity of hearing to the petitioner.

2. Adequacy of Disclosure in the Return of Income:
The petitioner argued that the fixed format of the return of income did not allow for detailed disclosures, leading to consolidated figures in the balance sheet. They maintained that their method of disclosure did not affect the income declared. The revenue countered that the discrepancies in opening and closing stock values justified the additions made. The court noted the petitioner's compliance with the fixed format but emphasized the need for a personal hearing to explain these complexities.

3. Discrepancies in the Value of Receipts from Services:
The petitioner highlighted a significant difference between the value of receipts from services in the service tax return and the values disclosed in the income-tax return. They claimed that the revenue did not provide the basis for these discrepancies, leading to arbitrary additions. The court acknowledged this issue and underscored the importance of a personal hearing to reconcile these figures properly.

4. Transfer Pricing Adjustments:
The petitioner contested the transfer pricing officer's adjustment of ?23.62 crore, arguing that their computation of arm's length price for corporate guarantees was reasonable. They cited precedents where 0.5% was considered a reasonable arm's length price, while the officer computed it at 1.68%. The court recognized the need for a detailed examination of these adjustments during a personal hearing.

5. Opportunity for Personal Hearing in Faceless Assessment:
The petitioner stressed the necessity of a personal hearing to address the complexities of their case. They cited various judgments, including those from the Delhi High Court and the Supreme Court, emphasizing the importance of personal hearings in ensuring fair play and adherence to natural justice principles. The court agreed, noting that the faceless assessment scheme under Section 144B mandates personal hearings upon request, especially when variations prejudicial to the assessee's interest are proposed. The court concluded that the petitioner's request for a personal hearing should have been granted, and the failure to do so rendered the draft assessment order unsustainable.

Conclusion:
The court allowed the petition, set aside the impugned draft assessment order dated 22/04/2021, and directed the authorities to provide the petitioner with an opportunity for a personal hearing before proceeding further. This decision underscores the critical importance of adhering to procedural fairness and the principles of natural justice in the faceless assessment regime.

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