VALIDITY OF ASSESSENT PASSED UNDER SECTION 144B OF THE INCOME TAX ACT, 1961

[Mr. M. GOVINDARAJAN]

Faceless assessment

Section 144B in the Income Tax Act, 1961 has been introduced in the Income Tax Act by National e-Assessment Scheme. The ambitious scheme launched in August 2020 seeks to bring the much-needed reform revolution to the income tax procedure that encumbered tax filing for the common man, fostered corruption, and aided tax evasion.

The procedure involved in faceless assignment is as below-

• Assignment of case;
• Intimation to the assessee about assignment;
• Service of notice to the assessee;
• Request for information, further document etc.
• Conducting inquiry/verification;
• Failure to comply;
• Opportunity to show cause;
• Assessment order;
• Penalty proceedings;
• Transfer of electronic records;
• Special provisions;
• Faceless assessment jurisdiction;
• Centre and units;
• Transfer of cases.

The assessment unit prepares a draft order after considering all relevant material, including the response from the assessee and any review report.  In case of an eligible assessee where there is a proposal to make any variation prejudicial to the interest of the assessee, the National Faceless Assessment Centre serves the draft order on the assessee.  . The assessee may file acceptance of the variations proposed in the draft order or file objections, if any, to such variations.

The National Faceless Assessment Centre conveys to the assessment unit to pass the final assessment order in accordance with the draft order. The assessment unit then passes the final assessment order and initiates penalty proceedings if necessary.  The National Faceless Assessment Centre serves a copy of the final assessment order and notice for initiating penalty proceedings, if any, on the assessee, along with the demand notice specifying the sum payable or refund due.

Reasonable opportunity

Section 144B reiterates that reasonable opportunity is to be given in the faceless scheme of assessment.  The section provides that two personal hearings are to be given to comply with the principles of Natural Justice. 

In M/S. GEMINI FILM CIRCUIT, REP. BY ITS PARTNER, MRS. A. SAISIVA JOTHI. VERSUS THE ADDITIONAL/JOINT/DEPUTY/ASSISTANT COMMISSIONER OF INCOME TAX/INCOME TAX OFFICER, DELHI. - 2023 (10) TMI 1040 - MADRAS HIGH COURT, the petitioner was issued a show cause notice 11.09.2021 calling upon the petitioner to file reply to the said show cause notice within 16.09.2021.  The petitioner did not file any reply to the said show cause notice.  Therefore the Assessing Officer the respondent/Assessing Officer confirmed the proposals contained in the show cause notice.  Against this order the petitioner filed this writ petition before High Court.

The petitioner submitted the following before the High Court-

• The petitioner even failed to file reply that by itself would not deprive the petitioner's right of being afforded with opportunity of personal hearing. 
• Therefore the impugned order of assessment is in total violation of principles of natural justice, and without conforming to the procedure contemplated under Section 144 B of the Income Tax Act.

The Department submitted the following before the High Court-

• With a bona fide intention to provide fair opportunity to the petitioner, the show cause notice was issued calling forth the petitioner's reply/objections, however, since the petitioner failed to avail the said opportunity, by not filing the reply, the respondent, having left with no other option, proceeded to confirm the proposals contained in the show cause notice and passed the assessment order and the same is sustainable in law.
• The petitioner failed to utilize the opportunity afforded to them by not filing reply to the show cause notice, the petitioner cannot make a plea before this Court that no opportunity was afforded to them.
• The petitioner may file appeal before the Appellate Authority.  Without availing the alternative remedy the petitioner filed the present writ petition.

Therefore, the Revenue prayed for dismissal of the Writ Petition. However, as regards the contention of the petitioner that they have not provided opportunity of personal hearing, the respondent has no say.

The High Court heard the submissions of both the parties.  The High Court observed that the Revenue issued show cause notice to the petitioner through online portal on 11.09.2021 which was a Saturday.  The petitioner was directed to give his reply on or before 16.09.2021. Only 5 days were given to the assessee to file the reply.  The Court was of the view that 5 days time is not enough for a party to give reply to the show cause notice.  The petitioner contended that there was no mention in the show cause notice about personal hearing.  The provisions of Section 144 B of the Income Tax Act clearly states that no directions, which are prejudicial to the assessee shall be issued before an opportunity is given to the assessee to be heard.  The High Court found that there was no mention with regard to provision of personal hearing. 

The High Court accepted the contentions of the petitioner that the petitioner even failed to file reply, which by itself would not deprive the petitioner's right of being afforded with opportunity of personal hearing.  The High Court analyzed the provisions of Section 144B of the Act.  The provisions of Section 144 B of the Income Tax Act clearly states that no directions, which are prejudicial to the assessee shall be issued before an opportunity is given to the assessee to be heard.   The High Court observed that in the show cause notice, dated 11.09.2021, admittedly, there is no whisper with regard to provision of personal hearing to the petitioner.   The real intention of Section 144 B, etc of the Income Tax Act is to provide an opportunity of being heard to the assessee before passing any orders, which are prejudicial to their rights/ interests.  The law has been enacted to safeguard the interest of the assessee, but, it is very unpleasant to see that in umpteen number of Writ Petitions, the assessment orders were assailed on the very ground of violation of principles of natural justice.   It is to provide fair opportunity of hearing to the assessee to put forth their defence, the same should be extended to the assessee in a real nature.  The opportunity of giving hearing is to provide fair opportunity of hearing to the assessee to put forth their defence, the same should be extended to the assessee in a real nature.  The High Court pointed out that under the guise of providing opportunity, the assessee should not be called for to file reply within a short span of time.  If this practice is adopted then the objects will not be achieved and it would lead to deprive the rights of the assessees.

The High Court observed that in the present case only 5 days are given to the petitioner out of which 2 days are holidays.  The left time is only 3 days which is not the required time to give reply to the notice. The petitioner should have been provided at least 21 days initially for filing their reply, unless and until, sufficient time is granted to the petitioner, they will not be in position to file their effective reply.  The High Court held that the writ petition filed by the petitioner is admissible since the Appellate Authority is not conferred with such power to remand the matter before the Assessing Officer. even under the Faceless Scheme of the Income Tax Act, the petitioner is entitled to have two occasions of the matter to be adjudicated by two Authorities and thereby, to avail two well considered opinion, in the present case, due to the failure on the part of the respondent/Assessing Officer to provide real opportunity, which the Act intends to provide, the petitioner had been deprived of their rights of defending themselves before the Assessing Authority.

The Appellate Authority will have the power of the Assessing Officer to make assessment by providing opportunity of personal hearing, the order to be passed by the Appellate Authority cannot be equated with the order that would be passed by the Assessing Officer, who would pass orders after considering the elaborate evidence, which are available before him. That apart, the assessee is also loosing one well considered opinion of the Assessing Officer, which the assessee is entitled to legally under the provisions of law.

The High Court held that  the Assessing Officer, while issuing show cause notice shall provide sufficient time for the assessees to file their reply/objection, minimum of 21 days, unless and otherwise any specific time limit is fixed under the provisions of the Act; thereafter.  The assessee  shall be afforded an opportunity of personal hearing; in case, if the assessee is in need of any documents, which forms the basis for issuance of show cause notice, the same shall also be furnished to the assessee, as the case may be, wherever, it is required; and after conducting a full-fledged enquiry, shall conclude the assessment proceedings, in which, the Assessing Officer has to deal with the queries/points, (which the assessee would raise/putforth in the form of reply/objections) in detail along with reasons for rejection of the reply, if any and thereafter, shall pass final assessment order in accordance with law.

It is bounden duty of the Assessing Officer to pass a detailed order, providing reasons for rejection of the contention of the assessee. If any cryptic order is passed without touching upon the queries/contentions of the assessee, ultimately, it would be fatal to the assessee and also cause huge revenue loss to the revenue. Therefore, the orders to be passed by the Assessing Officer should always be a speaking order, safeguarding both the interest of the assessee and the Revenue.  The High Court allowed the petitioner.  The High Court remanded the matter to the Assessing Officer for fresh consideration of the case after giving a reasonable opportunity to the petitioner.