2025 (5) TMI 1669 - HC - Income Tax

Validity of assessment order passed in violation of the principles of natural justice - HELD THAT - Respondent Assessment Unit was annoyed by the directions issued by this Court and therefore have tried to justify for refuting the claim of cross examination by the petitioner relying upon the decisions as quoted in the assessment order. We are therefore of the opinion that only on this ground alone of not complying the directions issued by this Court assessment order is required to be quashed and set aside without further going into the merits of the matter considering the request made by learned Senior Standing Counsel Mr. Varun Patel to remand the matter to the respondent to comply with the directions issued by this Court in 2024 (6) TMI 471 - GUJARAT HIGH COURT 8. Therefore without going further into the merits of the case the petition is disposed of. The impugned order dated 26.8.2024 (Annexure A) is hereby quashed and set aside.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter are:

• Whether the impugned assessment order dated 26.8.2024 passed by the respondent Assessment Unit complies with the principles of natural justice, particularly regarding the opportunity of cross-examination of parties whose replies were considered for making additions under Section 68 of the Income Tax Act.
• Whether the directions issued by the Court in the earlier order dated 6.5.2024, which mandated remand of the matter for de novo consideration with the provision of opportunity for cross-examination and supply of relied-upon documents, were followed by the respondent Assessment Unit.
• The extent and applicability of the right to cross-examination in faceless assessment proceedings under Section 144B of the Income Tax Act.
• Whether the assessment order passed without compliance with the Court's directions is liable to be quashed and set aside.
• Whether the petitioner is entitled to have the reassessment conducted by a different Assessing Officer.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Compliance with Principles of Natural Justice and Opportunity of Cross-Examination

Relevant Legal Framework and Precedents: The faceless assessment scheme under Section 144B of the Income Tax Act mandates adherence to procedural fairness. The Court referred to precedents such as Dineshkumar Chhaganbhai Nandani, Darshan Enterprise, and Prakashchandra Chhotalal Shah, where similar issues regarding denial of opportunity of cross-examination in faceless assessments were considered. The Court emphasized that the Assessing Officer must provide all relied-upon documents, including replies received under Section 133(6) summons, and grant opportunity for cross-examination if requested.

Court's Interpretation and Reasoning: The Court found a "clear variance between the show cause notice in form of a draft assessment order and the impugned assessment order," which violated the scheme of faceless assessment. It was noted that the Assessing Officer failed to supply copies of replies received and did not provide the petitioner an opportunity to cross-examine parties whose statements formed the basis of additions under Section 68.

Key Evidence and Findings: The petitioner's challenge to the initial assessment order dated 20.3.2024 was allowed by the Court on 6.5.2024, with directions for de novo assessment after compliance with natural justice. However, the subsequent assessment order dated 26.8.2024 was passed without adhering to these directions.

Application of Law to Facts: The Court held that the failure to provide the petitioner with an opportunity of cross-examination as mandated by the earlier order amounted to violation of principles of natural justice. The faceless assessment procedure does not dispense with the requirement of fair hearing and procedural safeguards.

Treatment of Competing Arguments: The respondent Assessment Unit contended that the right to cross-examination is not absolute and cited several judicial rulings to refute the petitioner's claim. These included:

• The right of cross-examination depends on the statute and facts (State of J&K vs. Bakshi Gulam Mohammad).
• No provision for cross-examination of persons whose statements were recorded during survey (36(Raj.) decision).
• Assessing Officer may gather information in any manner and use it as "material" distinct from "evidence" (CIT v. Metal Products of India).

The Court observed that the respondent's reliance on these rulings was an attempt to justify non-compliance with the Court's directions and was indicative of an adverse attitude towards the judicial mandate.

Conclusions: The Court concluded that the assessment order dated 26.8.2024 was passed in utter disregard of the directions issued and without providing the petitioner the opportunity of cross-examination. This non-compliance alone warranted quashing and setting aside the assessment order.

Issue 2: Adherence to Court's Directions and Remand for De Novo Consideration

Relevant Legal Framework: Under Article 227 of the Constitution of India, the High Court has supervisory jurisdiction over subordinate courts and tribunals, including the power to quash orders passed in violation of natural justice or statutory provisions.

Court's Interpretation and Reasoning: The Court reiterated its earlier directions dated 6.5.2024, which required the Assessing Officer to provide all relevant documents, allow cross-examination, and pass a fresh assessment order within 12 weeks. The subsequent order failed to comply with these directions.

Key Evidence and Findings: The respondent's assessment order dated 26.8.2024 was passed without providing the petitioner the opportunity of cross-examination or furnishing copies of relied-upon documents, contrary to the Court's mandate.

Application of Law to Facts: The Court held that the non-compliance with its directions was a serious procedural lapse, justifying interference under Article 227. It emphasized the need for the respondent to comply "scrupulously and in letter and spirit" with the earlier order.

Treatment of Competing Arguments: The respondent sought remand to comply with the directions, which the Court accepted but stressed strict adherence within the stipulated timeframe.

Conclusions: The Court quashed and set aside the impugned order dated 26.8.2024 and remanded the matter for de novo assessment in accordance with its earlier directions, warning of contempt proceedings in case of non-compliance.

Issue 3: Entitlement to Assessment by a Different Assessing Officer

Relevant Legal Framework: While the petitioner prayed for a direction that the reassessment be conducted by a different Assessing Officer, the Court did not expressly decide on this relief.

Court's Interpretation and Reasoning: The Court's order focused primarily on procedural compliance and natural justice. The request for a different Assessing Officer was noted but not specifically addressed or granted.

Conclusions: The Court's silence on this issue implies that the primary concern was procedural fairness rather than change of personnel.

3. SIGNIFICANT HOLDINGS

The Court held:

"There is a clear variance between the show cause notice in form of a draft assessment order and the impugned assessment order passed by the Assessing Officer contrary to the scheme of the faceless assessment under Section 144B of the Act."

"The Assessing Officer did not supply copy of reply received pertaining to the pursuant to the notice issued under Section 133 (6) of the Act. After issuance of the show cause notice in the form of draft assessment order, no any opportunity of cross-examination of the parties whose reply is considered to make addition under Section 68 of the Act was granted to the petitioner."

"Considering the facts of the case, we are left with no other option but to quash and set aside the impugned assessment order and remit the entire matter to the Assessing Officer for de novo consideration and to pass a fresh assessment order after providing all the relied upon documents ... and after giving an opportunity of hearing to the petitioner, fresh de novo assessment order may be passed in accordance with law."

"The impugned order dated 26.8.2024 is hereby quashed and set aside. The matter is remanded to the respondent Assessing Officer to comply with the directions issued by this Court ... scrupulously and in letter and spirit within a period of 12 weeks from the date of receipt of the copy of this order failing which this Court will be constrained to initiate the appropriate proceedings under the provisions of Contempt of Courts Act 1971."

Core principles established include:

• The faceless assessment procedure under Section 144B does not obviate the requirement of natural justice, including the right to be heard and opportunity for cross-examination when relied-upon statements form the basis of additions.
• Non-compliance with judicial directions mandating procedural fairness is a ground for quashing the assessment order.
• The Assessing Officer must provide copies of all relied-upon documents, including replies to summons under Section 133(6), and allow cross-examination if requested.
• The supervisory jurisdiction of the High Court under Article 227 includes ensuring adherence to procedural safeguards in tax assessments.

Final determinations:

• The impugned assessment order dated 26.8.2024 was quashed and set aside for failure to comply with principles of natural justice and Court's directions.
• The matter was remanded for de novo assessment, with strict directions to comply with procedural requirements within 12 weeks.
• Failure to comply would invite contempt proceedings.