2021 (11) TMI 882 - HC - Income Tax

Validity of National Faceless Assessment - as argued draft Assessment Order was not served on the Petitioner - HELD THAT - In the fact situation of the present case, it appears that a notice u/s 142(1) of said Act along with questionnaire was issued on 23/12/2020 and 26/03/2021. The draft Assessment Order was prepared based on information furnished by the assessee to the said notices. It was sent to the Risk Management Unit, which accommodated it to the Review Unit. The Review Unit concurred with the draft Assessment Order and submitted its report on 25/04/2021. The impugned Assessment Order was passed on 26/04/2021, and demand notice u/s 156 was also issued on 26/04/2021. From the Affidavit-in-Reply filed by the Respondents, it is not in dispute that the draft Assessment Order was not served on the Petitioner. It is also not in dispute that the variation proposed in the draft Assessment Order is prejudicial to the assessee's interest. It is, therefore, clear that Respondent No.1 has not issued a show-cause notice to the assessee in the form of a draft Assessment Order and made an addition of ₹ 120,94 Crore and second demand of ₹ 8.14 Crore. As per the case of Multiplier Brand Solutions Pvt. Ltd. 2021 (11) TMI 822 - BOMBAY HIGH COURT are of the view that the impugned order of assessment and consequent notice of demand cannot be sustained. Assessment Order passed under Section 143(3) read with Section 144 and notice of demand under Section 156 of the said Act are quashed and set aside.The matter is remanded to Respondent No.1 to complete assessment proceedings, by following procedure as contemplated by Section 144B.

Summary

Issues Involved:
1. Breach of principles of natural justice.
2. Non-compliance with the procedure under Section 144B of the Income Tax Act, 1961.
3. Validity of the assessment order and demand notice.

Issue-Wise Detailed Analysis:

1. Breach of Principles of Natural Justice:
The petitioner argued that the assessment order dated 26/4/2021 and the notice of demand under Section 156 of the Income Tax Act, 1961, were issued without adhering to the principles of natural justice. Specifically, the petitioner contended that they were not provided with a draft assessment order or an opportunity for a personal hearing before the final assessment was made.

2. Non-Compliance with the Procedure under Section 144B of the Income Tax Act, 1961:
Section 144B(1) mandates a faceless assessment procedure, which includes issuing a draft assessment order and providing the assessee with an opportunity to respond to any variations prejudicial to their interest. The court emphasized that the use of the term "shall" in Section 144B(1) indicates a mandatory requirement. The National Faceless Assessment Center must issue a show-cause notice if any variation prejudicial to the assessee is proposed, allowing the assessee to respond and request a personal hearing if necessary. The court noted that the failure to issue a draft assessment order and show-cause notice constituted a breach of the mandatory procedure, rendering the assessment non-est under Section 144B(9).

3. Validity of the Assessment Order and Demand Notice:
The court found that the draft assessment order was not served on the petitioner, and no show-cause notice was issued, despite the proposed variation being prejudicial to the assessee's interest. This non-compliance invalidated the assessment order and the consequent demand notice. The court referenced its earlier judgment in Multiplier Brand Solutions Pvt. Ltd. Vs. Additional / Joint / Deputy / Assistant Commissioner of Income Tax Officer & Ors., which held that non-compliance with Section 144B renders the assessment order non-est.

Judgment:
The court quashed and set aside the assessment order dated 26/4/2021 and the notice of demand under Section 156 of the Income Tax Act, 1961. The matter was remanded to the respondent to complete the assessment proceedings following the procedure outlined in Section 144B, with the entire exercise to be completed within eight weeks from the date of the order. Rule was made absolute in the above terms.