2021 (10) TMI 921 - HC - Income Tax

Validity of Faceless assessment - no draft assessment order as required u/s 144B issued - whether Assessment Order was passed after giving due opportunities to Petitioner and after considering its submissions? - Penalty u/s 274 read with Section 271AAC(1) - HELD THAT - As under the Faceless Scheme, Section 144B of the Act provides for providing a draft Assessment Order if the Respondent was going to make any variation prejudicial to the interest of the assessee by serving a notice calling upon him to show-cause as to why the proposed variation should not be made. Such an opportunity has not been granted to Petitioner. This is one more ground for us to interfere. In the Affidavit-in-Reply filed by one Mahesh T. Variava, affirmed on 03/09/2021, it is stated that the addition on account of remaining 4 unsecured creditors was included in the Assessment Order. In the Assessment Order, however, the addition has been made with regard to 7 unsecured creditors. In the Affidavit-in-Reply it also says the Assessment Order was passed after giving due opportunities to Petitioner and after considering its submissions. This is an incorrect statement because Respondent did not provide a draft Assessment Order which was mandatorily required to be provided under Section 144B. Respondent has also not considered all submissions of Petitioner because in the Assessment Order, Respondent has not dealt with the request of Petitioner to issue summons to the third party lenders. There is certainly infirmity in the Assessment Order dated 23/04/2021 which is impugned in this petition. We hereby set aside the said Assessment Order along with notice of demand in Form 7 dated 23/04/2021 as well as show-cause notice dated 23/04/2021 issued under Section 274 read with Section 271AAC(1) of the Act. Respondent shall issue a draft of the Assessment Order to Petitioner and give an opportunity to Petitioner to file its objections along with documentary evidence and thereafter pass such order as it deems fit by also giving a personal hearing as per rules, to Petitioner.

Summary

Issues: Impugning Assessment Order disallowing sum under Section 68 of the Income Tax Act, initiation of penalty proceedings, non-application of mind in issuing notices, failure to provide draft Assessment Order, passing Assessment Order without considering submissions, infirmity in Assessment Order, withdrawal of Appeal, lack of observations on case merits, directions for issuing draft Assessment Order to file objections and provide lender details.

The judgment involves the impugning of an Assessment Order dated 23/04/2021 for AY 2018-19, disallowing a sum under Section 68 of the Income Tax Act and initiating penalty proceedings under Section 27AA(1). The petitioner raised concerns regarding the issuance of notices under Section 142(1) and the subsequent transition to the Faceless Scheme. Despite the petitioner's responses and requests for time, the Respondent issued a notice dated 20/04/2021, which the court found to be a non-application of mind, lacking the characteristics of a draft Assessment Order. The court noted the unreasonable time constraints imposed on the petitioner to respond to the notice.

The court highlighted that the petitioner received the notice on 22/04/2021 and requested additional time to compile and submit details, including the issuance of summons to third-party lenders. However, the Respondent proceeded to pass the Assessment Order on 23/04/2021 without addressing the petitioner's request, adding a party not previously mentioned in any show-cause notices. The court emphasized the failure to provide a draft Assessment Order as required by Section 144B and the lack of consideration of all submissions made by the petitioner.

Consequently, the court found infirmities in the Assessment Order dated 23/04/2021 and set it aside, along with related notices. The court directed the withdrawal of the Appeal against the Assessment Order and clarified that no observations on the case merits were made. Additionally, the court instructed the Respondent to issue a draft of the Assessment Order to the petitioner, allowing for objections and documentary evidence submission, followed by a personal hearing. The petitioner was given two weeks to provide details of all lenders again, including PAN numbers, for the Respondent's further action in accordance with the law.

In conclusion, the court provided specific directions to rectify the procedural deficiencies in the Assessment Order, ensuring compliance with legal requirements and granting the petitioner an opportunity to present their case effectively.