2022 (4) TMI 1184 - HC - Income Tax

Validity of faceless assessment u/s 144B - Denial of natural justice - breach of mandatory statutory provision - argument of non-compliance of provisions, more particularly, Section 144B(xiv), Section 144B(xvi)(b) and Section 144B(xxii) as the assessment order impugned is passed without issuing notice cum draft assessment order upon the writ applicant - HELD THAT - Faceless Scheme, 2019 was modified by Notification No.60/2020 dated 13.08.2020 wherein it had prescribed procedure for making Faceless Assessment. In fact, the intention of Legislation as regards principle of natural justice is embodied in section itself. Thus, after 1st April, 2021, mandatory procedure in the form of aforesaid provision has to be strictly adhered while doing assessment In the facts of the present case, nothing has been brought on record by the respondent to suggest that the show cause notice along with draft assessment order was served upon the writ applicant. We find from the impugned assessment order that there are variations from the return filed by the writ applicant as regards disallowance. The final assessment order is not made in accordance with the procedure envisaged under section 144 (xvi) (b) of the act as inspite of the variation being prejudicial to the assessee, no opportunity has been given to the assessee by serving show cause notice along with draft assessment order calling upon him to show cause as to why the proposed variation should not be made. Thus, we have no doubt in holding that the impugned order of assessment dated 07.04.2021 is invalid and nonest, passed in gross violation of principles of natural justice as well as mandatory provision in the form of section 144B of the act. In such circumstances referred to above, we are left with no other option but to quash the assessment order and remit the matter to the Assessing Officer. In the result, the impugned assessment order dated 07.04.2021 is hereby quashed and set aside. We further quashed and set aside the consequential action including demand notice and remit the matter to the Assessing officer from the stage of issuance of draft assessment order along with show cause notice - Decided in favour of assessee.

Summary

Issues Involved:
1. Non-compliance with provisions of Section 144B of the Income Tax Act.
2. Violation of principles of natural justice.
3. Validity of the assessment order dated 07.04.2021 and consequential demand notice.

Detailed Analysis:

1. Non-compliance with Provisions of Section 144B of the Income Tax Act:
The writ applicant, a Cooperative Society, challenged the assessment order dated 07.04.2021 on the grounds of non-compliance with Section 144B of the Income Tax Act. The Court emphasized that Section 144B mandates a faceless assessment procedure, including the issuance of a draft assessment order and a show cause notice before finalizing any prejudicial variation. The Court noted that the Assessing Officer failed to issue a show cause notice and draft assessment order, which is a mandatory requirement under Section 144B(xiv), Section 144B(xvi)(b), and Section 144B(xxii). The non-compliance with these provisions renders the assessment order invalid.

2. Violation of Principles of Natural Justice:
The writ applicant argued that the assessment order was passed without providing an opportunity to respond to the proposed disallowance of deductions under Section 80P(2)(a)(i). The Court agreed, stating that the failure to issue a show cause notice and draft assessment order violated the principles of natural justice. The Court highlighted that the principles of natural justice are embedded in Section 144B, which aims to ensure transparency, efficiency, and accountability in the assessment process. The absence of an opportunity to respond to the proposed variations prejudiced the writ applicant, making the assessment order nonest.

3. Validity of the Assessment Order Dated 07.04.2021 and Consequential Demand Notice:
The Court examined whether the assessment order dated 07.04.2021 and the consequential demand notice were valid and sustainable in law. The Court found that the assessment order contained variations from the return filed by the writ applicant, specifically regarding the disallowance of deductions under Section 80P(2)(a)(i). However, since the mandatory procedure under Section 144B was not followed, the assessment order was deemed invalid. The Court cited the case of Gandhi Reality (India) (P.) Ltd. Vs. Assistant, which held that a breach of mandatory statutory provisions is fatal to the assessment order. Consequently, the Court quashed the assessment order and the consequential demand notice.

Conclusion:
The Court concluded that the assessment order dated 07.04.2021 was invalid and nonest due to non-compliance with Section 144B of the Income Tax Act and the violation of principles of natural justice. The Court quashed the assessment order and the consequential demand notice and remitted the matter to the Assessing Officer. The Assessing Officer was directed to issue a draft assessment order along with a show cause notice in accordance with the provisions of Section 144B, thereby ensuring compliance with the mandatory procedural requirements. The petition was allowed and disposed of accordingly.