2022 (8) TMI 265 - HC - Income Tax

Validity of faceless assessment u/s 144B - denial of natural justice - as submitted no draft assessment along with show cause notice as required under section 144B(1) and section 144B(7) is given to the petitioner - HELD THAT - Section 144B(1)(xii) provides that on receipt of show cause notice, assessee may furnish his response to the National Faceless Assessment Centre and as per clause (xiv), assessment unit shall make a revised draft assessment order after considering the response of the assessee and send it to the National Faceless Assessment Centre. As per the provisions of section 144B(7) in case of variation prejudicial to the assessee as proposed in the draft assessment order, the assessee is entitled to request for personal hearing and upon such request, the personal hearing may be provided by the authority, if the case of the assessee is covered by circumstances provided therein in exercise of powers under sub-clause (h) of clause (xii) of section 144B(7) of the Act, 1961. It can be safely be said that the impugned order was passed by the respondent in violation of principles of natural justice without affording an opportunity of personal hearing by not following the prescribed procedure laid down as per the provisions of section 144B of the Act, 1961 for Faceless assessment. This petition succeeds and is accordingly allowed. The impugned order of assessment passed by the respondent under section 143(3) read with section 254 read with section 144B dated 20.09.2021 at Annexure-A and demand notice under section 156 of the even date at Annexure-B are quashed and set aside.

Summary

Issues:
1. Breach of mandatory provision of section 144B(1) (xvi) of the Income Tax Act, 1961.
2. Violation of principles of natural justice in passing the impugned order without affording an opportunity of personal hearing.

Issue 1: Breach of mandatory provision of section 144B(1) (xvi) of the Income Tax Act, 1961:

The petitioner filed a petition under Article 226 of the Constitution of India challenging the assessment order passed by the Respondent under section 143(3) read with section 254 of the Act, 1961. The petitioner contended that there was a breach of mandatory provision of section 144B(1) (xvi) of the Act, 1961 as the impugned order was passed without serving any draft assessment order as prescribed. The petitioner argued that this breach alone warranted quashing the order. The respondent opposed the petition, stating that after examining the explanations, the order was valid. The Court analyzed section 144B which mandates a faceless assessment procedure and concluded that the impugned order was passed without providing an opportunity of personal hearing, violating principles of natural justice. The Court held that the order was passed in violation of the prescribed procedure under section 144B, necessitating its quashing.

Issue 2: Violation of principles of natural justice in passing the impugned order without affording an opportunity of personal hearing:

The Court examined the provisions of section 144B of the Act, 1961, which outline the procedure for Faceless Assessment introduced with effect from 1st April, 2021. Section 144B(1) mandates assessments to be made in a faceless manner, with detailed steps for providing opportunities to the assessee for response and personal hearing through video conferencing. The Court noted that in the present case, no draft assessment order with a show cause notice was given to the petitioner, depriving them of the chance to explain proposed additions. As per section 144B(7), the assessee is entitled to request a personal hearing in case of proposed variations prejudicial to them. The Court concluded that the impugned order was passed without following the prescribed procedure, violating principles of natural justice. Consequently, the Court allowed the petition, quashed the assessment order, and directed the Revenue to proceed with assessment under section 144B after issuing a show cause notice-cum-draft assessment order to provide the petitioner with an opportunity of hearing as per the Act.

The Court's decision highlighted the importance of adhering to procedural requirements in assessments to ensure fairness and uphold principles of natural justice.