2022 (11) TMI 1214 - HC - Income Tax

Assessment u/s 143(3) r.w.s. 144B - violation principles of natural justice as AO failed to issue notice as required to be issued under Section 144B (1)(xii) (b) - whether existence of an alternate remedy under the relevant statute will be a total bar for the exercise of jurisdiction under Article 226 of the Constitution of India? - HELD THAT - This Court has discretion to entertain or not to entertain a writ petition and one of the exceptions to the rule of alternate remedy is in cases where there has been violation of principles of natural justice. See Radha Krishan Industries Vs. State of Himachal Pradesh Ors. 2021 (4) TMI 837 - SUPREME COURT What are the statutory requirements? - The assessment unit shall, after taking into account all the relevant material available on record, has two options, namely, (a) to prepare in writing an income or loss determination proposal, where no variation prejudicial to the assessee is proposed and send a copy of such income or loss determination proposal to the National Faceless Assessment Centre (for short, NFAC ). The second alternative is as mentioned in clause (b) is to issue a show cause notice stating variations prejudicial to the interest of the assessee proposed to be made to the income of the assessee and calling upon him to submit as to why the proposed variation should not be made and serve such show cause notice on the assessee through NFAC. Admittedly, clause (b) of Section 144B (1)(xii) has not been followed in the case on hand. In Sardar Co-op. Credit Society Ltd. Vs. Additional/Joint/Deputy/Assistant Commissioner of Income-tax 2022 (4) TMI 1184 - GUJARAT HIGH COURT it was held that the obligation is on the assessing officer to serve a show cause notice calling upon him to show cause as to why the proposed variation should not be made failing which the assessement would be non-est. Thus in the absence of such a show cause notice, the assessment order has to be held in violation of principles of natural justice and in violation of the statutory provision and therefore, non-est. Consequently, the writ petition is allowed and the assessment order dated 8th September, 2022 is set aside and the matter is remanded to the assessing officer for a fresh decision.

Summary

Issues:
Violation of principles of natural justice in assessment order under Income Tax Act, 1961.

Analysis:

Issue 1: Existence of alternate remedy and jurisdiction under Article 226
The Court deliberated on whether the existence of an alternate remedy under the statute would bar the exercise of jurisdiction under Article 226 of the Constitution. Citing precedents, the Court emphasized that exceptions to the rule of alternate remedy arise in cases of fundamental rights enforcement, natural justice violation, lack of jurisdiction, or legislative challenge. The Court retained discretion to entertain a writ petition, especially in cases of natural justice violation.

Issue 2: Violation of principles of natural justice in assessment process
The assessing officer issued a notice under Section 142(1) of the Income Tax Act, seeking information on agriculture income. The assessee promptly responded with all relevant details. However, subsequent to this, no further notice, opportunity for a personal hearing, or request for additional information was provided to the assessee before the assessment order was passed. The assessment order contained contradictory statements regarding information submission by the assessee, indicating procedural irregularities.

Issue 3: Compliance with statutory requirements for faceless assessment
The Court examined Section 144B of the Income Tax Act concerning faceless assessment. It highlighted the mandatory provisions under Section 144B(1)(xii) for issuing a show cause notice to the assessee in cases of proposed variations prejudicial to their interest. The assessing officer failed to follow this provision, leading to a violation of natural justice and statutory procedure.

Conclusion:
The Court allowed the appeal, set aside the assessment order, and remanded the matter to the assessing officer for a fresh decision. Emphasizing the necessity of issuing a show cause notice under Section 144B(1)(xii)(b), the Court directed the assessing officer to provide the assessee with an opportunity to file objections and documents. The penalty proceedings initiated as a consequence of the assessment order were also set aside, allowing for their resumption in accordance with the law post a fresh assessment. No costs were awarded, and parties were instructed to receive certified copies promptly.

This detailed judgment by the Calcutta High Court underscores the significance of procedural fairness, adherence to statutory requirements, and the Court's discretionary power in addressing violations of natural justice in assessment proceedings under the Income Tax Act, 1961.