2021 (8) TMI 1424 - HC - Income Tax

Validity of faceless assessment - non-following the procedure laid down u/s 144B - Assessment Order passed u/s 143(3) read with Section 143(3A) and 143(3B) questioned - Denial of principles of natural justice - HELD THAT - This Court is of the view that Section 144B(1)(xvi)(b) of the Act mandatorily provides for issuance of a prior show cause notice and draft assessment order before issuing the final assessment order. Since in the present case no prior show cause notice as well as draft assessment order had been issued, there has been a violation of the mandatory procedure prescribed in law. This Court is also of the view that once the assessment has been done by the respondent No. 1 in accordance with Section 144B of the Act, it has to be done in accordance with the procedure prescribed therein alone. It is settled law that when power is given to do a certain thing in a certain way, the thing must be done in that way or not at all and other methods of performance are forbidden. Consequently, even if it is assumed that the principles of natural justice have been complied with in the present case, then also the mandate of the statute would have to be complied with. Keeping in view the aforesaid, the impugned assessment order passed under Section 143(3) read with Section 143(3A) and 143(3B) of the Act and disputed demand raised under Section 156 of the Act, are set aside.

Summary

Issues:
Challenge to assessment order under Income Tax Act, 1961 for lack of natural justice requirements in faceless assessment scheme.

Analysis:
The petition challenges the Assessment Order dated 03rd April 2021 under Section 143(3) read with Section 143(3A) and 143(3B) of the Income Tax Act, 1961, along with the disputed demand raised under Section 156 of the Act. The petitioner argues that the assessment order is jurisdictionally flawed and violates natural justice requirements in the faceless assessment scheme and relevant CBDT instructions. The petitioner emphasizes the absence of a valid show cause notice and draft assessment order before creating a tax demand of Rs. 92,14,550.

The respondent contends that principles of natural justice were adhered to, as the petitioner received adequate notice for the tax demand and responded with a detailed reply. The respondent relies on the Constitution Bench judgment of the Supreme Court to support their argument regarding the effect of non-furnishing of reports in disciplinary cases on the punishment awarded.

The Court notes that Section 144B(1)(xvi)(b) of the Act mandates the issuance of a prior show cause notice and draft assessment order before the final assessment order. As no such notices were issued in the present case, the Court finds a violation of the prescribed procedure. The Court emphasizes the importance of following statutory procedures when conducting assessments, citing established legal principles.

Consequently, the Court sets aside the impugned assessment order and the disputed demand, remanding the matter back to the Assessing Officer for compliance with the statutory procedure. The Court directs the Assessing Officer to issue a show cause notice and draft assessment order before passing a reasoned order in accordance with the law. The writ petition is disposed of with these directions, and the order is to be uploaded on the website and forwarded to the counsel via email.