2023 (2) TMI 581 - HC - Income Tax

Faceless Assessment Scheme as stipulated in Section 144(B) - no hearing had been given before passing the assessment order - Necessity of issuance of prior show cause notice-cum-draft assessment order before issuing the impugned assessment order - HELD THAT - The Delhi High Court in case of Interglobe Enterprises Private Limited vs. National Faceless Assessment Centre Delhi and Another 2021 (7) TMI 1044 - DELHI HIGH COURT it had held that Section 144(B)(7) mandatorily provides for issuance of prior show cause notice-cum-draft assessment order before issuing the impugned assessment order. It also provides for an opportunity of personal hearing if requested by the assessee. In absence of prior show cause notice as well as draft assessment order, no hearing had been given before passing the assessment order. The Court held it to be a blatant violation of principles of natural justice as well as mandatory procedure prescribed in Faceless Assessment Scheme as stipulated in Section 144(B) of the Act. In the instant case, the action of the respondent being in clear breach of requisite necessity of availing an opportunity to the petitioner on serving upon it the show cause noticecum- draft assessment order, the assessment order which has been finalized, deserves interference. Jurisdictional issue raised by respondent on the ground that the PAN of the petitioner is at Churu, Rajasthan - A communication is made by the Income Tax Officer, Ward-1, Churu addressed to the Principle Commissioner of Income Tax, Jaipur-2, Rajasthan for transfer of PAN from ITO, Ward-1, Churu to DCIT, Circle-3(3), Pratyaksha Kar Bhavan, Ambawadi, Ahmedabad, wherein it is stated that request letter has been received from the assessee firm for transfer of its PAN ABFFA6446E from ITO, Ward-1, Churu to DCIT, Circle-3(3), Pratyaksha Kar Bhavan, Ambawadi, Ahmedabad. The officer further has stated that he has no objection to such transfer. The assessee firm was incorporated on 06.07.2016 and as per the record, neither the assessee firm nor any of the partners of the assessee firm has any link with the territorial jurisdiction of Ward-1, Churu. Request was made to pass necessary order under Section 127 of the Act urging for appropriate territorial jurisdiction of the assessee i.e. DCIT, Circle-3(3), Pratyaksha Kar Bhavan, Ambawadi, Ahmedabad. Not only the petitioner is residing in Ahmedabad, but, he continues to do its business and operates from the State of Gujarat. For whatever reasons its PAN ABFFA6446E is with ITO, Ward-1 Churu, he already has made a request in the month of November, 2021 for the transfer with a further request that necessary directions to be issued for long term effect of this. As emphatically urged that there is no way in which the petitioner has contributed to the matter going on before the ITO, Ward-1, Churu. He has no connection with Rajasthan and therefore, he has made an application before the concerned authority. This is not only a unilateral request which has come from the petitioner, but, the Income Tax Officer looking after this aspect has also made a request for such transfer. Undoubtedly, the part of cause of action has arisen in Gujarat. The Supreme Court s decision in case of Rajendran Chingaravelu vs. R.K.Mishra, Additional Commissioner of Income-tax 2009 (11) TMI 341 - SUPREME COURT was considering the maintainability of the petition under Article 226 of the Constitution of India to hold that whether even if a small fraction of cause of action arises within the jurisdiction of the State, the same would accrue within the territory of the State and the State would have a jurisdiction. Even the smallest part of cause of action when arises within the jurisdiction of this Court, it would have a jurisdiction to decide the matter and therefore also, contention raised by the respondent will have no bearing. Petition is accordingly ALLOWED quashing and setting aside the order passed by the respondent under Section 143(3) of the Act assessing total income of the petitioner with all consequential proceedings.

Summary

Issues Involved:
1. Violation of principles of natural justice.
2. Noncompliance with the E-assessment Scheme, 2019.
3. Jurisdictional challenge.

Detailed Analysis:

1. Violation of Principles of Natural Justice:
The petitioner argued that the assessment order dated 06.02.2021 was passed without issuing a show cause notice-cum-draft order, which is a gross violation of the principles of natural justice. The Court noted that the E-assessment Scheme, 2019 mandates the issuance of a draft assessment order to provide the assessee an opportunity to respond before finalizing the assessment. The Court referenced the case of Gandhi Realty (India) (P.) Ltd., which held that the issuance of a show cause notice-cum-draft assessment order is a mandatory requirement. The Court concluded that the absence of this step in the assessment process necessitates interference.

2. Noncompliance with the E-assessment Scheme, 2019:
The petitioner contended that the assessment was completed without following the mandatory procedures outlined in the E-assessment Scheme, 2019. The Court examined the scheme, which requires the National e-Assessment Centre (NeAC) to serve a notice specifying the issues for assessment, obtain further information if needed, and provide an opportunity to the assessee to respond to a draft assessment order. The Court found that the respondent failed to issue a show cause notice-cum-draft assessment order, violating the scheme. The Court cited the Delhi High Court's decision in Interglobe Enterprises Private Limited, which emphasized the mandatory nature of issuing a prior show cause notice-cum-draft assessment order under Section 144(B)(7).

3. Jurisdictional Challenge:
The respondent argued that the Gujarat High Court lacks territorial jurisdiction as the assessee is assessed by the Income Tax Officer, Ward-1, Churu, Rajasthan. The Court noted that the petitioner had already requested the transfer of its PAN from Churu to Ahmedabad, and the Income Tax Officer at Churu had no objection to this transfer. The Court referenced the Supreme Court's decision in Rajendran Chingaravelu, which held that even a small fraction of the cause of action arising within the jurisdiction of a state confers jurisdiction to that state's courts. The Court concluded that part of the cause of action arose in Gujarat, giving it jurisdiction to decide the matter.

Conclusion:
The Court quashed the assessment order dated 06.02.2021 and all consequential proceedings. The respondent was granted liberty to initiate fresh proceedings by issuing a show cause notice-cum-draft assessment order within four weeks, providing the petitioner an opportunity to respond. The petitioner was directed to cooperate with the respondent authority in the fresh assessment process.