2023 (1) TMI 43 - HC - Income Tax

Scheme of Faceless Assessment as provided u/s 144B - Deduction u/s 80P - violation of principles of natural justice - HELD THAT - Section 144B of the Act, 1961 provides detailed procedure for Faceless Assessment introduced by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 with effect from 1st April, 2021. Section 144B(1) starts with a non-obstante clause i.e. notwithstanding anything to the contrary contained in any other provisions of this Act, the assessment under sub-section (3) of section 143 or under section 144, in the cases referred to in sub-section (2), shall be made in a faceless manner as per the procedure prescribed therein. The above-referred clause of section 144B(1) and 144B(7) deals with the procedure to be adopted by the National Faceless Assessment Centre on receipt of draft order from the assessment unit who has prepared the draft after providing opportunity to the assessee by serving a notice upon him to show cause as to why the assessment should not be completed as per such draft or final draft or revised draft assessment order. Therefore, such personal hearing in era of Faceless assessment is to be provided through video conferencing. It is not in dispute that in facts of the case no draft assessment along with show cause notice as required u/s 144B(1) and section 144B(7) is given to the petitioner so as to enable the petitioner to give explanation for proposed addition during the hearing before the National Faceless Assessment Centre. Section 144B(1)(xii) provides that on receipt of show cause notice, assessee may furnish his response to the National Faceless Assessment Centre and as per clause (xiv), Assessment unit shall make a revised draft assessment order after considering the response of the assessee and send it to the National Faceless Assessment Centre. As per the provisions of section 144B(7) in case of variation prejudicial to the assessee as proposed in the draft assessment order, the assessee is entitled to request for personal hearing and upon such request, the personal hearing may be provided by the authority, if the case of the assessee is covered by circumstances provided therein in exercise of powers under sub-clause (h) of clause (xii) of section 144B(7). It can be safely be said that the impugned order was passed by the respondent in violation of principles of natural justice without affording an opportunity of personal hearing by not following the prescribed procedure laid down as per the provisions of section 144B of the Act, 1961 for Faceless assessment. This petition succeeds and is accordingly allowed. The impugned order of assessment dated 18.08.2021 passed by the respondent as well as notice dated 26.08.2021 under section 270A of the Income Tax Act,1961 are hereby quashed and set aside.

Summary

Issues Involved:
1. Violation of principles of natural justice.
2. Non-compliance with the procedure for Faceless Assessment under Section 144B of the Income Tax Act, 1961.
3. Opportunity of personal hearing through video conference.

Detailed Analysis:

1. Violation of Principles of Natural Justice:
The petitioner, a cooperative credit society, claimed that the impugned assessment order dated 18.08.2021 was passed without providing an opportunity for a personal hearing, thus violating the principles of natural justice. The petitioner had requested a personal hearing through video conference multiple times, but the respondent failed to facilitate this. Consequently, the petitioner was not given a fair chance to present their case, leading to the issuance of a show cause notice under section 270A of the Income Tax Act to initiate penalty proceedings.

2. Non-compliance with the Procedure for Faceless Assessment under Section 144B of the Income Tax Act, 1961:
The petitioner argued that the respondent did not follow the mandatory provisions of Section 144B of the Income Tax Act, 1961, which outlines the procedure for Faceless Assessment. Specifically, the respondent failed to provide a draft assessment order along with a show cause notice, as required by clauses (xiv), (xvi), and (xxii) of sub-section (1) of Section 144B. This non-compliance deprived the petitioner of the opportunity to respond to the proposed additions, violating the statutory procedure.

3. Opportunity of Personal Hearing through Video Conference:
The petitioner emphasized that under Section 144B(7)(vii), (viii), and (ix), an opportunity for a personal hearing through video conference must be provided if requested. Despite multiple requests and communications from the petitioner, the respondent did not facilitate the video conference, thereby breaching the procedural requirements. This failure was highlighted as a significant procedural lapse, affecting the fairness of the assessment process.

Court's Findings:
The court examined the relevant provisions of Section 144B and concluded that the respondent did not adhere to the prescribed procedure for Faceless Assessment. The court noted that no draft assessment order or show cause notice was provided to the petitioner, which is a clear violation of Section 144B(1) and Section 144B(7). The court emphasized that personal hearings in the era of Faceless Assessment should be conducted through video conferencing, as mandated by the law.

Judgment:
The court allowed the petition, quashing and setting aside the impugned assessment order dated 18.08.2021 and the notice dated 26.08.2021 under section 270A of the Income Tax Act, 1961. The court directed the respondent to proceed with the assessment under Section 144B, ensuring that a show cause notice-cum-draft assessment order is issued to provide an opportunity for a hearing to the petitioner. This process should be completed within twelve weeks from the receipt of the court's order. The court clarified that it did not examine the merits of the case and focused solely on procedural compliance.

Conclusion:
The court's decision underscores the importance of adhering to statutory procedures and ensuring that principles of natural justice are upheld in Faceless Assessments. The judgment mandates that taxpayers must be given a fair opportunity to present their case, including personal hearings through video conferencing, as per the provisions of Section 144B of the Income Tax Act, 1961.