2025 (7) TMI 190 - HC - Income Tax

Procedure of service of notice under the Faceless Assessment provisions u/s 144B - Centralized Communication to Improve compliance of notice u/s 142(1) - Standard Operating Procedure (SOP) - HELD THAT - On bare perusal of the SOP it can be interpreted that if the assessee is not responsive to any notice u/s 142(1) of the Act then the department is mandatorily required to send physical letter at the latest address known through speed-post. This procedure is apparently not followed by the respondent authorities. The only defence raised is that in the earlier round the petitioner had responded to such notice only after remand order by this Court the petitioner was non-responsive and therefore there was no need for any further physical communication - Unfortunately we are unable to accept such contention raised by Mr. Sanghani. The SOP specifies a mandatory requirement to send physical communication at the latest known address if the assessee is not responsive to the notice u/s 142(1). The stage at which this happens is insignificant. Once authorities have failed to follow the mandatory requirement of SOP the impugned order dated 11.10.2022 would not stand at all. Resultantly the impugned order is hereby quashed and set-aside and the matter is remanded back to the Faceless Assessment Authority to comply with the SOP as envisaged by SOP dated 3.8.2022 and pass a fresh order.

Summary

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

1. Whether the impugned assessment order dated 11.10.2022 passed by the Faceless Assessing Officer under Section 143(3) read with Section 144B of the Income Tax Act, 1961, is valid in light of the alleged violation of the principles of natural justice, specifically regarding the opportunity of hearing and proper service of notices.

2. Whether the procedure prescribed under the Standard Operating Procedure (SOP) dated 3.8.2022, issued by the Central Board of Direct Taxes for faceless assessments, particularly the mandatory requirement to send physical communication by speed post when the assessee is non-responsive to notices under Section 142(1), was followed by the revenue authorities.

3. Whether the service of notices and draft assessment order on an email ID belonging to the petitioner's son, with whom the petitioner has no contact, satisfies the requirements of proper notice and opportunity under the Act and the SOP.

4. Whether the failure to provide physical intimation or any communication on the petitioner's mobile number linked to her PAN and Aadhaar constitutes a breach of natural justice and renders the impugned order liable to be quashed.

Issue-wise Detailed Analysis

Issue 1: Validity of the Impugned Assessment Order in Light of Natural Justice

The legal framework governing assessment proceedings under the Income Tax Act includes the requirement of providing an opportunity of hearing to the assessee before passing any assessment order, as mandated by principles of natural justice. The petitioner challenged the impugned order on the ground that no opportunity of hearing was provided before the draft assessment order and demand notice were issued.

The Court noted that in the earlier round of proceedings, the petitioner had successfully challenged a similar assessment order on the ground of violation of natural justice, resulting in quashing of the order dated 20.9.2021 and a direction for fresh adjudication with an opportunity of hearing. However, in the present case, the petitioner was not informed about the subsequent order dated 11.10.2022 until much later, indicating a procedural lapse.

The Court emphasized that the faceless assessment scheme does not dispense with the fundamental requirement of providing a fair opportunity of hearing. The absence of any physical intimation or direct communication to the petitioner undermined the fairness of the proceedings.

Issue 2: Compliance with Standard Operating Procedure (SOP) for Faceless Assessments

The SOP dated 3.8.2022 issued by the Ministry of Finance prescribes detailed procedures to be followed during faceless assessment proceedings under Section 144B of the Act. Clause G.3 specifically mandates that when an assessee is non-responsive to notices under Section 142(1), the authorities must send a physical letter by speed post to the latest known address and an SMS to the latest available mobile number of the assessee.

The Court examined the procedure followed by the revenue authorities and found that the impugned order was communicated solely through email to an address belonging to the petitioner's son, with whom the petitioner had no contact. There was no physical communication sent to the petitioner's latest known address nor any SMS sent to her registered mobile number.

The Court rejected the respondent's contention that since the petitioner had responded to earlier notices in the previous round of proceedings, there was no obligation to send physical communication after remand. The Court held that the SOP's mandatory requirements apply irrespective of the stage of proceedings once the assessee is non-responsive. The failure to send physical communication as mandated was a clear violation of the SOP and thus of the procedural safeguards intended to ensure fairness.

Issue 3: Validity of Service of Notices on Email ID of Petitioner's Son

The petitioner contended that service of notices and draft assessment order on the email ID '[email protected]', which belongs to her son residing abroad, was improper. She asserted that she had no cordial relationship with her son and was not in contact with him, and therefore did not receive any communication related to the assessment proceedings.

The respondents argued that the petitioner had previously responded to notices sent to that email ID and that the petitioner's claim of estrangement was an afterthought. However, the Court noted that irrespective of the petitioner's prior responses, the reliance on an email ID belonging to a third party, especially when the petitioner was not in contact with that person, cannot be deemed proper service.

The Court underscored the importance of direct communication to the assessee or at least to the latest known address or contact details linked to the PAN and Aadhaar, which was not done in this case.

Issue 4: Failure to Provide Physical Intimation or Communication on Registered Mobile Number

The petitioner submitted that no messages or notices were sent to her mobile number, which is duly linked with her Aadhaar and PAN. The SOP mandates sending SMS alerts to the assessee's latest available mobile number in case of non-responsiveness.

The Court found that the revenue authorities failed to comply with this mandatory requirement. The absence of any SMS or physical communication deprived the petitioner of knowledge of the assessment proceedings and thus violated the principles of natural justice.

Conclusions on Issues

The Court concluded that the impugned assessment order dated 11.10.2022 was passed in violation of the mandatory procedural safeguards prescribed under the SOP and the principles of natural justice. The failure to send physical communication by speed post and SMS to the petitioner, coupled with service of notices only on an email ID belonging to a third party with whom the petitioner had no contact, rendered the impugned order invalid.

The Court held that the SOP's mandatory provisions are not mere procedural formalities but essential safeguards to ensure fairness and proper opportunity to the assessee in faceless assessment proceedings.

Significant Holdings

The Court held verbatim:

"The SOP specifies a mandatory requirement to send physical communication at the latest known address if the assessee is not responsive to the notice under Section 142(1) of the Act. The stage at which this happens is insignificant. Once authorities have failed to follow the mandatory requirement of SOP, the impugned order dated 11.10.2022 would not stand at all."

Core principles established include:

• The principles of natural justice, including the right to a fair opportunity of hearing, remain inviolable even in faceless assessment proceedings.
• The Standard Operating Procedure issued for faceless assessments is binding on the revenue authorities, and non-compliance with its mandatory provisions vitiates the assessment order.
• Service of notices and communications must be made directly to the assessee through reliable and known channels such as the latest known physical address and mobile number linked to PAN and Aadhaar, and cannot be validly effected through third-party email IDs without the assessee's knowledge or consent.

Accordingly, the Court quashed and set aside the impugned order dated 11.10.2022 and remanded the matter to the Faceless Assessment Authority to comply strictly with the SOP and pass a fresh assessment order after affording the petitioner due opportunity of hearing and proper service of notices.