2022 (4) TMI 908 - HC - Income Tax

Validity of E-assessment proceedings - Mandation of providing personal hearing - valuable right - video conference for the personal hearing - Denial of principles of natural justice - opportunity of hearing through video conferencing could not be afforded to the petitioner - petitioner was unable to find any hyperlink on the Income Tax Portal which could be activated for the purpose of confirming the virtual conference, therefore, he wrote for number of times to activate the hyperlink for making request for personal hearing - HELD THAT - It was incumbent upon the respondent/revenue to accord a personal hearing to the petitioner. As noted above, several requests had been made for personal hearing by the petitioner, none of which were dealt with by the respondent/revenue. The net impact of this infraction would be that, the impugned orders will have to be set aside. It is ordered accordingly. We would, therefore, hold that the provisions which have been envisioned to bring transparency and accountability in the system if are not observed as contemplated under the law, it will become imperative for the Court to intervene. A detailed study on the subject of faceless assessment regime in India in comparison of the other foreign countries is brought on record by learned Senior Advocate Mr. Soparkar. The study eulogizes that It is a revolutionary move by the Indian Government to improve the tax transparency by way of disconnecting the taxpayer and the tax authorities. The electronic correspondence, personal hearing through video conference and central point of contract aim to ease the representation process for the taxpayers and tax authorities while maintaining objectivity and anonymity. The comparative study has been taken taken while comparing with the six countries i.e. Australia, UK, USA, Canada, Netherlands and Singapore. The author summed up saying that some of the aspects newly introduced in India are nearly similar to the procedure prevailing in other countries. On video conference, it says that personal hearing in India is through video conference and not in person whereas in all other countries, there is no restriction to the number of hearings and there is no specific condition needed for invoking the provision of personal hearing. The personal hearing also is in person and not limited to the video conference. VC conducted in the instant case and as CBDT circular mandates a request for VC hearing and personal hearing is not under contemplation nor requested for by the petitioner. However, once such opportunity of hearing through VC is available, it cannot be for namesake nor can that tire assessee or the authorized representative and must be given in its true spirit. There shall need to be response for the person to be sure that he/she is not talking to the screen and resultant outcome also must bear its testimony. According to this Court, this is an argument on merit as on the ground of non-observance of principles of natural justice the Court is choosing to relegate the matters to the concerned authority, it would prefer not to enter into this arena of merit. The same shall be reserved to be agitated before the Income Tax Authorities and thereafter, if eventuality arises in future. The other two decisions are along the line and therefore are not required to be diluted being along the very line. We are of the firm opinion that this is a matter where the order needs to be quashed and the petitioner needs to be availed an opportunity afresh by the respondent from the stage where it was left. Accordingly, the petition is Allowed. The order dated 17.09.2021 is quashed and set aside with all its consequences. Notice issued of penalty under Sections 274 and 278(A) dated 17.09.2021 also shall be quashed. This will not in any manner prejudice the rights of either side.

Summary

Issues Involved:
1. Non-availment of opportunity for personal hearing.
2. Violation of principles of natural justice.
3. Technical glitches in the faceless assessment system.
4. Non-consideration of additional material submitted by the petitioner.
5. Mandatory requirement of personal hearing under Section 144(B)(7) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Non-availment of Opportunity for Personal Hearing:
The petitioner, a public trust, filed a return of income for the assessment year 2018-19, which was selected for scrutiny. Despite multiple requests, the petitioner faced issues in scheduling a personal hearing through video conferencing due to technical errors on the Income Tax Portal. The petitioner was unable to find the necessary hyperlink to activate the video conference and despite several communications, the hearing was not properly conducted. The petitioner contended that the video conference was abruptly terminated, and no further opportunity was provided, leading to the issuance of the assessment order without a proper hearing.

2. Violation of Principles of Natural Justice:
The petitioner argued that the assessment order dated 17.09.2021 was issued without jurisdiction and violated principles of natural justice. The respondent contended that the petitioner had an alternative remedy of appeal and that the principles of natural justice were observed. However, the court noted that the video conference was not properly conducted and the petitioner was not given a fair opportunity to present their case, thus violating principles of natural justice.

3. Technical Glitches in the Faceless Assessment System:
The court acknowledged the technical glitches reported by the petitioner, which included the inability to activate the video conference hyperlink and the abrupt termination of the hearing. The court emphasized that while the faceless assessment system aims to bring transparency and efficiency, it is still in its nascent stage and needs improvements to avoid such issues. The court highlighted the importance of ensuring a robust system that does not jeopardize the assessee's rights.

4. Non-consideration of Additional Material Submitted by the Petitioner:
The petitioner submitted additional documents and evidence in response to the draft assessment order. However, the final assessment order did not reflect any consideration of these materials. The court noted that the opportunity to present additional material after the draft assessment order is crucial and should not be treated as a mere formality. The non-consideration of these materials indicated a lack of proper hearing and assessment.

5. Mandatory Requirement of Personal Hearing under Section 144(B)(7):
The court referred to various judgments, including the High Court of Orissa and the Bombay High Court, which emphasized the mandatory nature of providing a personal hearing under Section 144(B)(7) of the Income Tax Act, 1961. The court held that the requirement for personal hearing is not merely directory but mandatory. The failure to provide a proper hearing in this case rendered the assessment order invalid.

Conclusion:
The court quashed the assessment order dated 17.09.2021 and the penalty notice issued under Sections 274 and 278(A) due to the violation of principles of natural justice and improper conduct of the video conference. The court directed the respondent to provide a fresh opportunity for a hearing through video conference within two weeks and complete the entire process within eight weeks. The court also ensured that the fixed deposits provided as security by the petitioner would not be withdrawn until the completion of the reassessment process.