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2022 (6) TMI 846 - HC - Income TaxValidity of Faceless Assessment u/s 144B - Violation of the principles of natural justice - according to the petitioner, the order of assessment has been issued without serving the show-cause notice and the draft assessment order, as contemplated under section 144B(1)(xvi)(b) - HELD THAT - The provisions of section 144B, as mentioned earlier, requires the draft assessment order and the show-cause notice to be furnished to the assessee, eliciting his explanation. The impugned order of assessment has varied the alleged return filed by the petitioner. Since the mandate of the statue has been clearly infringed upon the assessment order falls foul of the principles of natural justice and hence is liable to be set aside. The decisions of the Delhi High Court in DJ Surfactants 2021 (6) TMI 1109 - DELHI HIGH COURT and that in RMSI Private Limited 2021 (7) TMI 745 - DELHI HIGH COURT in this context are relevant. Accordingly, Ext.P11 order of assessment is set aside. Consequently, Ext.P14 penalty order shall also stand set aside. Having regard to the circumstances of the case, the competent among the respondents shall serve the draft assessment order along with a show-cause notice to the petitioner, as expeditiously as possible, in a time bound manner and complete the proceedings in accordance with law, without further delay.
Issues: Alleged violation of principles of natural justice in assessment order and penalty notice under Income Tax Act, 1961.
The judgment by the Kerala High Court pertains to a writ petition challenging an assessment order issued under section 143(3) of the Income Tax Act, 1961, along with a consequential penalty notice. The primary contention raised in the petition is the alleged violation of the principles of natural justice, specifically the failure to serve the show-cause notice and the draft assessment order as required under section 144B(1)(xvi)(b) of the Act. The court highlighted the introduction of the e-Assessment Scheme, later renamed as the 'Faceless Assessment Scheme,' through a notification in 2019, which was subsequently incorporated into the statute as section 144B with effect from 01.04.2021. Under this scheme, a draft assessment order is prepared by considering the relevant material on record, either accepting the income as per the assessee's return or making variations to it. If a variation prejudicial to the assessee is proposed, a show-cause notice must be served, ensuring adherence to principles of natural justice. The petitioner argued that the assessment order issued by the respondents deviated from the requirements of section 144B, as the variation to the income return was made without issuing the draft assessment order or the show-cause notice. The court examined the documents submitted by the petitioner, which indicated that the assessing officer had varied the return filed by the petitioner, leading to a demand for income tax. This variation was made without following the necessary procedure of serving the draft assessment order and show-cause notice, as mandated by law. Citing the provisions of section 144B and the principles of natural justice, the court held that the assessment order in question failed to comply with the statutory requirements, thereby infringing upon the principles of natural justice. The court referred to relevant judgments from the Delhi High Court in similar contexts to support its decision. Consequently, the assessment order was set aside, leading to the automatic setting aside of the penalty order as well. In conclusion, the court directed the competent authority to serve the draft assessment order and show-cause notice to the petitioner promptly, ensuring the completion of proceedings in accordance with the law and without further delay. The writ petition was allowed in favor of the petitioner based on the above analysis.
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