FACELESS ASSESSMENT – PERSONAL HEARING VESTED RIGHT?

[Mr. M. GOVINDARAJAN]

Faceless assessment

Section 144B of the Income Tax Act, 1961 (‘Act’ for short) provides the procedure of faceless assessment scheme which is the departure from normal face to face assessment (with effect from 01.04.2021).  In this scheme it is not required for the assessee to appear in person before the Assessing Officer.  The entire proceedings are taken place in digital mode.  The identity of the Assessing Officer will not also be found out in this assessment.

Personal hearing

The issue to be discussed in this article is as to whether it is mandatory to give personal hearing to the assessee in faceless assessment with reference to decided case laws.

Giving opportunity of personal hearing is considered as adopting the principles of Natural Justice.  It is settled law that even though there is no provision in any act to give personal hearing it is presumed that it is hidden rule that personal hearing shall be given to the assessee.

Provisions

Section 144B(7)(vii) provides that  in a case where a variation is proposed in the draft assessment order or final draft assessment order or revised draft assessment order, and an opportunity is provided to the assessee by serving a notice calling upon him to show cause as to why the assessment should not be completed as per the such draft or final draft or revised draft assessment order, the assessee or his authorized representative, as the case may be, may request for personal hearing so as to make his oral submissions or present his case before the income-tax authority in any unit. 

Section 144B(7)(viii) provides that the Chief Commissioner or the Director General, in charge of the Regional Faceless Assessment Centre, under which the concerned unit is set up, may approve the request for personal hearing if he is of the opinion that the request is covered by the circumstances referred to in sub-clause (h) of clause (xii).

The Standard Operating Procedure for personal hearing through video conference under the Faceless Assessment Scheme, 2019 was issued by CBDT vide Circular F.No.Pr.CCIT/NeAC/SOP/2020-21 dated 23.11.2020.   According to the Standard Operating Procedure where any modification is proposed in the draft assessment order issued by any Assessing Unit and the Assessee or the authorized representative in his/her written response disputes the facts underlying the proposed modification and makes a request for a personal hearing, the CCIT ReAC may allow personal hearing through Video Conference, after considering the facts and circumstances of the case, as below:-

• The Assessee has submitted written submission in response to the DAO.
• The Video Conference will ordinarily be of 30 minutes duration. It may be extended on the request of the Assessee or authorized representative.
• The Assessee may furnish documents/evidence, to substantiate points raised in the Video Conference during the session or within a reasonable time allowed by the AU, after considering the facts and circumstances of the case.

Case laws

In RANI PROMOTER PRIVATE LIMITED VERSUS ADDITIONAL COMMISSIONER OF INCOME TAX [2021 (7) TMI 919 - DELHI HIGH COURT], it was held that the issuance of Show Cause Notice, mentioning the proposed additions under Section 144B(xvi), is a mandatory requirement and any assessment order passed without issuance of such Show Cause Notice is bad in law.

In SANJAY AGGARWAL VERSUS NATIONAL FACELESS ASSESSMENT CENTRE DELHI [2021 (6) TMI 336 - DELHI HIGH COURT], it was held that it was incumbent upon the Department to accord a personal hearing to the assessee where such a request was made under Section 144B(7) and failure to do so would amount to violation of principles of natural justice as well as mandatory procedure prescribed in the Faceless Assessment Scheme under Section 144B of the Act.

In ‘BHARAT ALUMINIUM COMPANY LTD. VERSUS UNION OF INDIA & ORS. [2022 (1) TMI 658 - DELHI HIGH COURT] (decided on 14.01.2022) the petitioner filed the present writ petition before the High Court against the final assessment order dated 27.11.2021 under Section 143(3) of the Act and the impugned notice dated 27.11.2021 under Section 156 of the Act for Assessment Year 2018-19.

The appellant submitted the following before the High Court-

• The impugned orders have been passed arbitrarily, without following the principles of natural justice and in gross violation of the scheme of faceless assessment under Section 144B of the Act, inasmuch as even after the ‘Nil’ or ‘Null’ variation proposed in the show cause notice, additions had been made to the assessed income in the draft assessment order as well as in the impugned final assessment order.
• The respondent No.3 in the draft assessment order as well as in the impugned final assessment order had proceeded to make additions to the assessed income on the false premise that the petitioner had not furnished relevant details / information in response to the statutory notice dated 19th August, 2021, issued under Section 142(1) of the Act.
• The respondent No.3 had failed to appreciate that the petitioner was unable to upload the file due to technical glitches on the respondent’s own portal.
• The petitioner had still filed reply to the notice that too within the due date vide email dated 03.09.2011 and, thus, there was no noncompliance on the part of the petitioner.
• Section 144B(1)(xvi) provides an opportunity to the assessee by serving a Show Cause Notice in case any variation of assessment is proposed which is prejudicial to the interest of assessee, 
• Section 144B(1)(xxv) provides for issuance of draft assessment order to the assessee after considering the reply to Show Cause Notice.
• The respondent No.3 issued a Show Cause Notice under Section 144B(1)(xvi) proposing ‘Null’ or ‘Nil’ variation and the petitioner duly confirmed the same vide letter dated 16.09.2021.
•  The espondent No.3 took a complete turnaround and issued the draft assessment order proposing variations for which no Show Cause Notice was ever issued to the petitioner.
• The petitioner had not been granted any opportunity of personal hearing, despite a specific request having been made under Section 144B(7) of the Act by the petitioner. 
• 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.

The respondents submitted the following before the High Court-

• The personal hearing in assessment proceedings under the Act is an added opportunity in addition to the written replies submitted by assessee.
• Section 144B of the Act, made effective from 01.04.2021, had brought about a new era of faceless assessment where Assessing Officers cannot be identified during the assessment proceedings. 
• The grant of personal hearing in routine and mechanical manner or stereotyped manner would not only frustrate the entire concept of Faceless Assessment Scheme but would also defeat the very purpose for which this Scheme was brought about by the Legislature.
•  The Legislature, in its own wisdom, had provided for a mechanism for grant of personal hearing in deserving cases falling in the category of Section 144B of the Act itself.
• As no standards, procedures and process in terms of sub-clause (h) of Section 144B(7)(xii) read with Section 144B(7)(viii) of the Act had been framed, it was incumbent upon Revenue to accord personal hearing to the petitioner.
•  The personal hearing is discretionary. 
• Under faceless assessment under Section 144B of the Act, the assessee does not have a vested right to personal hearing and the same could be granted depending upon the individual facts of each case and fulfilling of the conditions laid down in Standard Operating Procedure, dated 23.11.2020.

The High Court heard the submissions of both the parties.  The High Court astonished as how despite ‘Nil’ or ‘Null’ variation proposed in the show cause notice, additions had been made to the assessed income in the draft Assessment Order and the final Assessment Order.   The original show cause notice assessed a total loss of ₹ 1,76,94,91,428/-, whereas the impugned final assessment order and notice makes a demand of ₹ 1,69,77,44,240/- as if the petitioner made a super profit.  The High Court further observed that no Show Cause Notice, as mandatorily required by Section 144B (1)(xvi) of the Act, had been served upon the petitioner with respect to the variations made.  No opportunity of personal hearing was given despite a specific request made by the petitioner.  The High Court is of the opinion that a faceless assessment scheme does not mean no personal hearing.   Granting of personal hearing would neither frustrate the concept nor defeat the very purpose of Faceless Assessment Scheme.

The High Court is of the view that where exercise of a power results in civil consequences to citizens, unless the statute specifically rules out the application of natural justice, the rules of natural justice would apply, including the right to personal hearing. The denial of such opportunity is not in consonance with the scheme of the Rule of Law governing our society.

The High Court is of the view that the use of the expression ‘may’ in Section 144B (7)(viii) is not decisive. It is settled law that having regard to the context, the expression ‘may’ used in a statute has varying significance. In some contexts, it is purely permissive, whereas in others, it may make it obligatory upon the person invested with the power to exercise it. The word ‘may’ is capable of meaning ‘must’ or ‘shall’ in the light of the context.  

The identity of the assessing officer can be hidden/protected while granting personal hearing by either creating a blank screen or by decreasing the pixel/density/resolution.

The High Court is of further view that the classification made by the respondents/Revenue by way of the Circular dated 23.11.2020 is not legally sustainable as the classification between fact and law is not founded on intelligible differentia and the said differentia has no rational relation to the object sought to be achieved by Section 144B of the Act.  The High Court pointed out that if the argument of the respondent/Revenue is accepted, then this Court while hearing an appeal under Section 260A (which only involves a substantial question of law) would not be obliged in law to grant a personal hearing to the counsel for the Revenue.

The High Court held that an assessee has a vested right to personal hearing and the same has to be given, if an assessee asks for it. The right to personal hearing cannot depend upon the facts of each case.   The High Court set aside the final assessment order and impugned notice issued by the Respondent No. 3.  The High Court remanded the matter back to the Assessing Officer with directions to issue a Show Cause Notice and a draft assessment order and thereafter pass a reasoned order in accordance with law.

Conclusion

From the above said discussions with reference to decided case laws it is very clear that personal hearing is the vested right of the assessee in faceless assessment scheme.  Despite the submissions made in the reply filed to the Authority on the show cause notice the assessee can put forth his case effectively before the Authority only when the person hearing opportunity is given to him.