2024 (11) TMI 1269 - HC - Income Tax

Validity of Faceless assessment order in violation of the principles of natural justice and in a manner contrary to the provisions of the Income Tax Act - petitioner was not issued a show cause notice-cum-draft assessment order, as per requirement of the provisions of Section 144B as retrospectively brought into effect from 01 April 2021 by the Finance Act, 2022 - HELD THAT - The principles of natural justice are statutorily recognized in the provisions of Section 144B of the IT Act. Any non-adherence to the mandatory requirement of the statutory provisions and such principles as recognized by it, would render the assessment order patently illegal. The action of the respondents which is contrary to the mandate of the statutory provisions or in breach of the principles of natural justice would be rendered illegal and invalid. It needs no elaboration that when an order under a statute is to be passed which would entail civil consequences, causing a prejudice to the person, against whom it is being passed, such order would be required to be passed in strict adherence to the principles of natural justice i.e. after issuance of a show cause notice and an opportunity of a hearing being granted. It is well settled that an order passed in breach of the principles of natural justice would be required to be held to be vitiated, non-est and a nullity. In the present case, the impugned assessment order is passed without issuance of a show cause notice and an opportunity of a hearing being granted to the petitioner. As noted above, Section 144B inheres the application of the principles of natural justice. For such reasons, the impugned order would be manifestly illegal and a nullity in the eyes of law. This is a fit case, wherein the impugned order would deserve to be quashed and set aside, so that further appropriate procedure as recognized by law under the relevant provisions of the IT Act can now be followed and an appropriate assessment order in accordance with law passed. Petition allowed.

Summary

Issues Involved:

1. Violation of principles of natural justice.
2. Non-compliance with Section 144B of the Income Tax Act, 1961.
3. Legality of the assessment order and demand notice.

Issue-wise Detailed Analysis:

1. Violation of Principles of Natural Justice:

The petitioner challenged the assessment order on the grounds of violation of principles of natural justice, arguing that the assessment was conducted without issuing a show cause notice-cum-draft assessment order. The petitioner contended that the absence of such a notice deprived them of the opportunity to respond to any adverse findings, which is a fundamental requirement under the principles of natural justice. The court observed that the principles of natural justice are statutorily recognized in Section 144B of the IT Act, and any non-adherence to these principles renders the order patently illegal. The court emphasized that an order passed without granting an opportunity of hearing is vitiated, non-est, and a nullity.

2. Non-compliance with Section 144B of the Income Tax Act, 1961:

The petitioner argued that the assessment order was passed contrary to the provisions of Section 144B, specifically clauses (xiv), (xix), (xx), and (xxii) of sub-section (1). These provisions mandate the issuance of a show cause notice when any variation prejudicial to the assessee's interest is proposed. The court noted that the statutory procedure under Section 144B was not followed, as no show cause notice-cum-draft assessment order was issued. The court highlighted that compliance with these provisions is mandatory, and failure to do so constitutes an incurable defect in the assessment order.

3. Legality of the Assessment Order and Demand Notice:

The petitioner sought to quash the assessment order and the consequential demand notice, arguing that they were without jurisdiction, illegal, and arbitrary. The court agreed with the petitioner, noting that the assessment order was contrary to the statutory mandate and principles of natural justice. The court referenced the Supreme Court's decision in Tin Box Co. v. Commissioner of Income-tax, which underscored the necessity of setting aside an assessment order when proper opportunity of hearing was not provided. Consequently, the court held that the assessment order and demand notice were illegal and required to be quashed.

Conclusion:

The court allowed the petition, quashing the impugned assessment order and the consequential demand notice. It directed the respondent to follow the due procedure by issuing a show cause notice-cum-draft assessment order and completing the assessment process within three months. The court emphasized the need for adherence to the statutory provisions and principles of natural justice in the assessment process.