2024 (8) TMI 1436 - HC - Income Tax

Validity of the assessment order u/s 143(3) - Non issuing of Show cause notice - case of the petitioner was transferred by order from faceless Assessing Officer to the respondent Jurisdictional Assessing Officer u/s 144(B)(8) - HELD THAT - Since 2015 as per the desire of the Board, AO is mandatorily required to issue an appropriate show cause notice duly indicating the reasons for the proposed additions/ disallowance along with necessary evidence/reasons forming basis of the same before passing the final order. As the matter of fact, such position will continue even when the case is transferred to the respondent AO u/s 144B(8) as per Circular No. 27/2019 which was issued by the CBDT applicable to the cases where the assessment were framed not covered under the E-assessment notified by the Board. As per clause 4 of the Circular No. 27/2019 it is specifically provided that in case where assessment proceedings are being carried out through E-proceedings includes all the cases other than cases covered under the E-Assessment Scheme ,2019, personal hearing/attendance may take place where a show-cause notice contemplating any adverse view is issued by the AO and the assessee requests through the E-filing account for personal hearing to explain the matter. Thus, when the case of the petitioner is transferred to AO u/s 144 (B)(8), the Circular dated 06.09.2021 would be applicable which also provides for that the request for personal hearing shall be allowed after the assessee has filed written submissions to the show-cause notice meaning thereby that the show cause notice is a prerequisite for granting personal hearing to the petitioner assessee and in absence of the show-cause notice, no opportunity of personal hearing would be made available to the assessee in cases which are transferred from faceless Assessment Unit to the JAO. Reliance placed by the learned advocate for the respondent on the notices issued under section 142(1) of the Act would not be of any help as section 142(1) is with regard to the inquiry before the assessment where the Assessing Officer for the purpose of making the assessment under the Act may serve any person who has made a return for furnishing the return, a notice requiring to provide various details for the purpose of framing the assessment. As the petitioner assessee has furnished all the details it would be incumbent upon respondent Assessing Officer to issue show cause notice for the proposed addition duly indicating the reasons for the proposed addition/disallowance along with necessary evidence/reasons forming the basis of the same as per the Instruction No. 20/2021 read with Circular No. 27/2019 to enable the petitioner to avail the opportunity of hearing in compliance of the principle of natural justice. AO has committed fragrant breach of the principle of natural justice by not issuing show-cause notice indicating reasons for proposed addition/disallowance along with necessary evidence forming basis of the same and therefore, impugned assessment order is hereby quashed and set aside and the matter is remanded back to the stage of issuance of show-cause notice by the Assessing Officer to the petitioner duly indicating the reasons for proposed addition/disallowance along with necessary evidence reasons.

Issues Involved:
1. Validity of the assessment order under section 143(3).
2. Compliance with principles of natural justice.
3. Requirement of a show-cause notice before passing the final assessment order.
4. Applicability of CBDT instructions and circulars.
5. Opportunity for personal hearing.

Issue-wise Detailed Analysis:

1. Validity of the Assessment Order under Section 143(3)

The petitioner challenged the assessment order dated 29.12.2022 for the Assessment Year 2021-22, passed by the respondent-Assessing Officer, under Articles 226 and 227 of the Constitution of India. The petitioner contended that the assessment order was invalid as it was passed without issuing a show-cause notice indicating the reasons for proposed additions/disallowances, which deprived the petitioner of the opportunity for a personal hearing.

2. Compliance with Principles of Natural Justice

The petitioner argued that the absence of a show-cause notice resulted in a breach of the principles of natural justice. The petitioner was not given a fair opportunity to explain its position on the proposed additions/disallowances before the final order was passed. The petitioner relied on Instruction No. 20/2015 and other related instructions and circulars issued by the Central Board of Direct Taxes (CBDT), which mandate the issuance of a show-cause notice before passing the final order.

3. Requirement of a Show-Cause Notice Before Passing the Final Assessment Order

The petitioner emphasized that the respondent-Assessing Officer was required to issue a show-cause notice indicating the reasons for proposed additions/disallowances along with necessary evidence/reasons forming the basis of the same. The petitioner cited various instructions and circulars, including Instruction No. 20/2015, Instruction No. 3/2018, and Circular No. 27/2019, which mandate the issuance of a show-cause notice to ensure compliance with the principles of natural justice.

4. Applicability of CBDT Instructions and Circulars

The court noted that the provisions of section 144B(8) of the Income Tax Act, 1961, allow the Principal Chief Commissioner or the Principal Director General in charge of the National Faceless Assessment Centre to transfer the case to the Jurisdictional Assessing Officer. The court harmoniously construed the instructions and circulars issued by the CBDT, concluding that the requirement to issue a show-cause notice applies even when the case is transferred to the Jurisdictional Assessing Officer under section 144B(8).

5. Opportunity for Personal Hearing

The court observed that the Circular dated 06.09.2021 provides that the request for personal hearing shall generally be allowed to the assessee after the assessee has filed written submissions to the show-cause notice. The court held that the issuance of a show-cause notice is a prerequisite for granting a personal hearing to the petitioner-assessee. In the absence of a show-cause notice, the petitioner was deprived of the opportunity for a personal hearing, thereby violating the principles of natural justice.

Conclusion

The court concluded that the Assessing Officer committed a breach of the principles of natural justice by not issuing a show-cause notice indicating the reasons for proposed additions/disallowances along with necessary evidence. Consequently, the impugned assessment order was quashed and set aside. The matter was remanded back to the stage of issuance of a show-cause notice by the Assessing Officer, duly indicating the reasons for proposed additions/disallowances, to enable the petitioner to request a personal hearing if required. This exercise was directed to be completed within 12 weeks from the date of receipt of the court's order. The rule was made absolute to the aforesaid extent, with no order as to costs.

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