2022 (8) TMI 91 - HC - Income Tax

Validity of order passed - Faceless Assessment Scheme - Penalty u/s 274 read with Section 270A imposed - draft assessment order u/s 144B - Whether in the facts of the case the Department was justified in not granting time to file reply especially when, the seeking of time by the assessee was during the pandemic period-is the question posed? - HELD THAT - We fail to understand when the assessment was to be finalized before 30.06.2021, what prevented the Department from granting time to the petitioner-assessee up to 06.06.2021. The assessee congenial approach should be reflected not only in the application of taxation laws but also in the procedural mechanism to be applied towards assessee in treating him for the purpose of tax. It hardly stood to reason that the department refused the request of the assessee for grant of time to file his response to the draft assessment order. There was sufficient time available for the final assessment to be made. Furthermore, it was pandemic time when the department should have adopted liberal approach in refusing the request for time for filing objection to the draft assessment order and finally passing the assessment order. The department acted thick skinned. For the above reasons, the petitioner deserves to be granted a relief. The assessment order dated 27.05.2021 under Section 143(3) read with Section 144B of the Act as well as the notice dated 27.05.2021 u/s 274 read with Section 270A of the Act are hereby set aside. The assessment proceedings are remanded to the AO to be taken up afresh from the stage of the draft assessment order. The Assessing Officer shall pass appropriate order after giving opportunity to the petitioner to file reply. The entire assessment proceedings culminating into the final assessment order shall be completed within twelve weeks from the date of receipt of this order.

Summary

Issues:
Confrontation with draft assessment order under Section 144B of the Income Tax Act during the pandemic period and denial of time to file a response.

Analysis:
The petitioner, an assessee, was presented with a draft assessment order under Section 144B of the Income Tax Act and sought time to respond during the pandemic. The High Court examined whether the Department's refusal to grant time for a reply was justified. The petitioner prayed to set aside the assessment order dated 27.05.2021, related notices, and penalty under Sections 143(3) and 144B of the Act for the Assessment Year 2018-19. The petitioner, a Hindu Undivided Family, filed the return of income on 30.08.2018, followed by a notice under Section 143(2) and a request for documents under the Faceless Assessment Scheme, 2019. The petitioner requested an adjournment on 29.01.2021, responding to the Department's reminders regarding new grounds raised by the Revenue. Subsequently, on 16.05.2021, a draft assessment order was passed, and the petitioner sought fifteen days to respond, which was not granted or decided upon by the Department. The final assessment order was passed on 27.05.2021 without allowing the petitioner to present their case.

The Court referred to a notification dated 13th August 2020, emphasizing the opportunity for the assessee to respond to proposed modifications in the draft assessment order. The faceless assessment scheme, made statutory from 01.04.2021, mandated providing the assessee with an opportunity to reply before the final assessment order. Failure to adhere to this statutory provision was deemed prejudicial to the assessee. The Court noted that the Department's refusal to grant time for response during the peak of the Covid-19 pandemic was unreasonable, especially when there was ample time for final assessment. The Court criticized the Department's inflexible approach and emphasized the need for a more lenient stance during such challenging times.

Consequently, the Court set aside the assessment order and related notices, remanding the assessment proceedings to the Assessing Officer to allow the petitioner to file a reply. The Court directed the completion of the assessment proceedings within twelve weeks, solely based on the breach of natural justice without delving into the case's merits. The petition was allowed, and the rule was made absolute in favor of the petitioner.