2021 (10) TMI 919 - HC - Income Tax

Validity of Faceless assessment - no draft assessment order as required under Section 144B issued - petitioner argued assessment order has been passed without strictly complying with the mandatory provisions under Section 144B of the Act and also without giving a personal hearing - HELD THAT - As perused the said notice dated 29th March 2021 with the assistance of Learned Counsel for petitioner and we agree with the counsel that even though this communication is referred to as show cause notice as to why assessment should not be completed as per draft assessment order , this communication by no stretch of imagination can be referred to as draft assessment order. By this communication, respondent is only seeking further details regarding the amount spent on certain theme park, relevant plans, copies of contract with employees etc. Petitioner replied to this notice by its communication dated 19th April 2021. Respondent, thereafter, passed the assessment order on 4th June 2021 disallowing expenses in the sum of ₹ 72,33,00,000/- and assessed total income of ₹ 74,62,11,790/-. This assessment order, however, was not preceded by any draft assessment order as required under Section 144B. No reply has been filed to the petition but Mr. Suresh Kumar submitted that even notice dated 19th February 2021 states why the assessment should not be completed as per the draft assessment order and, therefore, the requirements of Section 144B has been complied with. We do not agree with Mr. Suresh Kumar because the notice dated 19th February 2021 is also a show cause notice and not a draft assessment order. In the circumstances, there is a non compliance with the mandatory provisions of Section 144B of the Act, where sub Section 1(xvi)(b) provides for an opportunity to the assessee, in case any variation prejudicial to the notice of assessee is proposed, by serving a notice calling upon him to show cause as to why the proposed variation should not be made.

Summary

Issues:
Challenging assessment order under Income Tax Act - Compliance with mandatory provisions under Section 144B - Non-compliance leading to quashing of assessment order, demand notice, and penalty proceedings.

Analysis:
The petitioner was aggrieved by an assessment order, a notice of demand, and a show cause notice for penalty proceedings issued under the Income Tax Act. The petitioner contended that the assessment order was passed without adhering to the mandatory provisions of Section 144B and without granting a personal hearing, despite a request for the same in the petitioner's reply. The petitioner's case for the assessment year 2018-2019 underwent scrutiny, with various notices being issued to the petitioner and responses being submitted. However, the assessment order issued on 4th June 2021 disallowed expenses and assessed the total income without following the procedure of issuing a draft assessment order as required by Section 144B.

The court noted that the communication referred to as a 'show cause notice as to why assessment should not be completed as per draft assessment order' did not fulfill the requirements of a draft assessment order under Section 144B. The respondent's argument that the notice dated 19th February 2021 satisfied the Section 144B requirements was rejected by the court, emphasizing that the notice was a show cause notice and not a draft assessment order. The court highlighted the importance of Section 144B, which provides an opportunity to the assessee to show cause in case of any proposed variation prejudicial to the assessee.

Due to the non-compliance with the mandatory provisions of Section 144B, the court held that the assessment order dated 4th June 2021 was non-est. Consequently, the demand notice issued under Section 156 of the Act and the show cause notices for penalty proceedings were also quashed and set aside as non-est. The respondents were directed to take appropriate steps within six weeks in accordance with the law. Ultimately, the petition was disposed of by the court.