2023 (1) TMI 94 - HC - Income Tax

Assessment u/s 144B - National Faceless Assessment - procedure to be adopted by the National Faceless Assessment Centre on receipt of draft order from the assessment unit - no draft assessment along with show cause notice as required under section 144B(1) and section 144B(7) is given to the petitioner - 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 subsection (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. In facts of the case no draft assessment along with show cause notice as required under section 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) of the Act 1961. 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 passed by the respondent under Section 143(3) read with section 144B of the Act dated 23.09.2021 and demand notice under section 156 of the Act are quashed and set aside. The respondent/Revenue will be at liberty to proceed with assessment under the provisions of section 144B of the Act 1961 as permissible under the law after issuance of show cause notice-cum-draft assessment order so as to provide an opportunity of hearing to the petitioner. The petitioner shall be given an opportunity of hearing as per the provisions of section 144B of the Act 1961. Such exercise shall be completed within 12 weeks from the date of receipt of copy of this order.

Summary

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

Detailed Analysis:

1. Violation of principles of natural justice:
The petitioner argued that the assessment order dated 23.09.2021 was passed without providing an opportunity of hearing, constituting a breach of principles of natural justice. The petitioner contended that despite submitting all required details, the Assessing Officer made significant additions based on new material without affording the petitioner a chance to respond. This omission was claimed to be in direct violation of the statutory provisions under Section 144B of the Income Tax Act, 1961, which mandates an opportunity of being heard if variations prejudicial to the assessee's interest are proposed.

2. Non-compliance with the procedure under Section 144B of the Income Tax Act, 1961:
The petitioner highlighted several procedural lapses under Section 144B, such as:
- The failure to provide a final draft assessment order for the opportunity of being heard.
- The issuance of notices under Section 133(6) and subsequent inquiries without informing the petitioner.
- The significant difference between the draft assessment order and the final assessment order, with the latter being based on new inquiries not disclosed to the petitioner.

The respondent countered that sufficient opportunities were provided, starting from the notice under Section 143(2) and subsequent notices under Section 142(1). They argued that the petitioner's replies were considered, and the final assessment was consistent with previous assessments. They also asserted that the petitioner had an alternative remedy under Section 246A of the Act.

3. Opportunity of personal hearing:
The court examined the provisions of Section 144B, emphasizing the necessity of a faceless assessment procedure, which includes the right to a personal hearing via video conferencing if requested by the assessee. The court noted that the petitioner was not given a draft assessment order along with a show cause notice, thereby denying the petitioner the chance to explain the proposed additions. This procedural lapse was deemed a violation of the principles of natural justice and the statutory requirements under Section 144B.

Judgment:
The court concluded that the assessment order was passed in violation of the principles of natural justice and the prescribed procedure under Section 144B. Consequently, the impugned assessment order dated 23.09.2021 and the demand notice under Section 156 were quashed and set aside. The respondent was granted liberty to proceed with the assessment afresh, adhering to the provisions of Section 144B, including issuing a show cause notice-cum-draft assessment order to provide the petitioner an opportunity of hearing. This exercise was directed to be completed within 12 weeks from the receipt of the court's order. The court clarified that it had not examined the merits of the case.