2022 (8) TMI 139 - HC - Income Tax

Validity of Faceless Assessment - Penalty u/s 271C imposed - No opportunity to the assessee by serving a notice provided - whether the respondents have acted in accordance with Section 144B while issuing Exts.P13, P14 and P14(a) orders? - HELD THAT - The assessment unit is duty bound to make in writing a Draft Assessment Order and send a copy of such order to the National Faceless Assessment Centre. Where there is a proposal to make any variation which is prejudicial to the interest of the assessee, Section 144B contemplates forwarding of Draft Assessment Order to the assessee. If any proposal for variation prejudicial to the interest of the assessee is made, Section 144B(1)(xvi)(b) mandates that the National Faceless Assessment Centre has to provide an opportunity to the assessee by serving a notice calling upon the assessee to show-cause as to why the proposed variation should not be made. In the case of the petitioner, a Draft Assessment Order was not served on the petitioner before finalising the assessment, though Ext.P13 refers to a Draft Assessment Order. There is nothing on record to show that a Draft Assessment Order was drawn as contemplated under Section 144B(1)(xiv) and served on the petitioner. The petitioner is entitled to succeed in the writ petition on that ground.

Summary

Issues:
1. Validity of faceless assessment process under Income Tax Act, 1961.
2. Compliance with principles of natural justice and statutory requirements.
3. Proper issuance of notices and assessment orders.
4. Legal implications of objections raised by the petitioner.
5. Functionality of the new IT Portal and technical challenges faced by stakeholders.
6. Adherence to the Faceless Assessment Scheme and principles of natural justice.
7. Compliance with Section 144B in issuing assessment orders.

Analysis:

1. The judgment addresses the issue of the validity of faceless assessment under the Income Tax Act, 1961. It highlights concerns regarding the potential lack of human touch leading to soulless justice in certain cases. The petitioner was accused of suppressing investment sources, and an assessment order was passed allegedly violating natural justice principles and statutory requirements.

2. The court examined the compliance with principles of natural justice and statutory requirements during the assessment process. The petitioner objected to the validity of notices issued under Section 143(2) and sought clarification on the approval process for issuing Section 148 notices. The objections raised were rejected, leading to the reopening of the assessment for the relevant year.

3. The judgment delves into the proper issuance of notices and assessment orders by the Income Tax Department. It scrutinizes the sequence of events from the issuance of notices to the final assessment order and penalty notices. The petitioner contested the validity of proceedings, citing non-compliance with statutory provisions.

4. Legal implications of objections raised by the petitioner were also considered. The petitioner's objections were not addressed before the final orders were passed, contrary to the precedent set by the Apex Court in a relevant case. The court evaluated the impact of these objections on the assessment process and subsequent penalty notices.

5. The functionality of the new IT Portal and technical challenges faced by stakeholders were discussed. The court acknowledged the operational issues with the portal since its launch, causing difficulties for users. These challenges were taken into account while assessing the overall impact on the assessment process.

6. The judgment emphasized adherence to the Faceless Assessment Scheme and principles of natural justice. It highlighted the importance of providing opportunities for personal hearings through video conferencing and the preparation of Draft Assessment Orders for assessees to submit objections. The court assessed whether these aspects were followed in the case at hand.

7. Compliance with Section 144B in issuing assessment orders was a crucial aspect of the judgment. The court scrutinized whether the authorities followed the mandated procedures under Section 144B, especially regarding the preparation and serving of Draft Assessment Orders. The lack of serving a Draft Assessment Order to the petitioner before finalizing the assessment was a key factor in the court's decision to set aside the assessment order and penalty notices.

In conclusion, the judgment allowed the writ petition, setting aside the assessment order and penalty notices. The Income Tax Department was directed to finalize the assessment proceedings for the relevant year afresh, ensuring compliance with the law and statutory provisions.