2021 (9) TMI 1230 - HC - Income Tax

Faceless assessment - denial of natural justice - Penalty u/s 274 read with Section 271AAC(1) imposed - impugned assessment order passed is jurisdictionally flawed and bad in law since it is violative of the mandatory and binding natural justice requirements stipulated - whether no mandatory valid show cause notice as well as draft assessment order had been issued to the Petitioner before drawing an adverse inference against the Petitioner and creating a tax demand? - HELD THAT - 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 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 - 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 and notice of demand and the impugned show cause notice for imposition of penalty under Section 274 read with Section 271AAC(1) are set aside and the matter is remanded back to the Assessing Officer, who shall issue a show cause notice and draft assessment order and thereafter pass a reasoned order in accordance with law.

Summary

Issues:
Challenge to assessment order, show cause notices, and penalty imposition for AY 2018-2019.

Analysis:
The petitioner challenged the assessment order, notice of demand, and show cause notices dated April and August 2021, seeking penalty imposition under Sections 274 and 271AAC(1) of the Income Tax Act, 1961 for AY 2018-2019. The petitioner argued that the assessment order was jurisdictionally flawed and violated natural justice requirements under the faceless assessment scheme and CBDT instructions. The petitioner emphasized the lack of a valid show cause notice and draft assessment order before creating a substantial tax demand. Reference was made to CBDT instruction no. 20/2015, emphasizing the fair opportunity for the assessee to explain their position before adverse inferences are drawn.

The respondent contended that principles of natural justice were met as the petitioner received adequate notice and responded with a detailed reply. Referring to a Supreme Court judgment, the respondent argued that the effect on punishment due to non-furnishing of reports should be relative to the punishment awarded, and not all cases warrant reinstatement with back-wages.

The court noted that Section 144B(1)(xvi)(b) of the Act mandates issuance of a show cause notice and draft assessment order before the final assessment order. Highlighting the importance of following the prescribed procedure, the court held that failure to issue prior notices constituted a violation of the law. The court emphasized that assessments under Section 144B must strictly adhere to the prescribed procedure, citing established legal principles that tasks must be performed as prescribed by law. Even if principles of natural justice were followed, statutory mandates must be complied with.

Consequently, the court set aside the impugned assessment order, notice of demand, and show cause notices, remanding the matter back to the Assessing Officer. The Assessing Officer was directed to issue a show cause notice and draft assessment order before passing a reasoned order in accordance with the law. The writ petition and pending applications were disposed of with these directions, and the order was to be uploaded on the website and forwarded to the counsel via email.