Section 144B(1) provides that the assessment under section 143(3) or under section 144, shall be made in a faceless manner as per the procedure prescribed in section 144B. Provisions of section 144B override other provisions of the Income Tax Act.
Section 144B(1) lays down detailed procedure for making the assessment. Many issues relating to principles of natural justice are arising out of assessment procedure prescribed in section 144B and its implementation. Some of these issues are discussed in this write-up.
Section 144B(1)(xiv) provides for passing the draft assessment order and sending a copy of same to National Faceless Assessment Centre (“NFAC”). Section 144B(1)(xvi) provides that in case variations are prejudicial to interest of assessee, the NFAC may provide an opportunity to the assessee to submit her response. As per section 144B(1)(xxiv), assessment unit should consider the response filed by the assessee.
As per section 144B(7)(vii), the assessee can make request for personal hearing if the variations proposed in the draft assessment order are prejudicial to her interest. Such hearing needs to be conducted through video conferencing post approval of CCIT of DGIT, in charge of Regional Faceless Assessment Centre.
Following issues relating to principles of natural justice have come before Courts in relation to assessment procedure prescribed in section 144B:
- Final Assessment order passed without considering the request for adjournment by the assessee.
- Final Assessment order passed before lapse of time limit given in the Show Cause Notice to file the response.
- Final Assessment order passed without passing draft assessment order.
- Final Assessment order passed without giving opportunity of personal hearing.
In most of the cases, the High Courts, on writ file by Assessee have set aside the final assessment order and directed NFAC to conduct fresh proceedings. These decisions are discussed below:
Assessment Order passed without considering Assessee’s request for adjournment
Magick Woods Exports Private Limited v Additional/ Joint/ Deputy/ Assistant Commissioner of Income Tax/ Income Tax Officer, National E-Assessment Centre, Delhi WP No.10693/2021 (Madras High Court) – The AO issued show cause notice dated 10.03.2021. The assessee sought adjournment, which was not rejected by the AO. The order was passed without giving an opportunity to the assessee. The High Court set aside the impugned order and directed the assessee to comply with the show cause notice within a period of 3 weeks.
KBB Nuts (P.) Ltd. v. National Faceless Assessment Centre Delhi [2021] 127 taxmann.com 194 (Delhi) – A show-cause notice, along with the draft assessment order dated 19.04.2021, was served on the Assessee asking to file its response by 23:59 hours on 21.04.2021. The Assessee submitted that the said show cause notice was received by it via e-mail on 20.04.2021 at 03:06 hours. Since the time for compliance was short, the Assessee filed an application via the e-portal, seeking a day’s adjournment, i.e., till 22.04.2021. The Assessee also submitted that since it had not received a response qua the request for adjournment, the objections to the aforementioned show-cause notice were filed on 22.04.2021 at 15.22 hours. However, the AO passed the impugned assessment order on 22.04.2021. The Delhi HC set aside the Order and directed AO grant fresh opportunity.
Blue Square Infrastructure LLP v National Faceless Assessment Centre, Delhi WP (C) 5418/2021 – The Assessee submitted that the show cause notice-cum-draft assessment order dated 20.04.2021, required the petitioner to file its response by 23:59 hours on 23.04.2021. The Assessee requested for adjournment since the city was under lockdown on account of the pandemic, on 23.04.2021 at about 12:59 hours, via the designated e-portal. The AO passed the Order before the time given in the Notice. The HC held that the Department could have given a little leeway for filing the response/objections, in view of the short time gap between the date when the show cause notice-cum-draft assessment order was served on the petitioner [i.e., 20.04.2021], and the deadline provided therein to file the response/objections i.e., 23.04.2021. The HC set aside the assessment order.
Sudhir Desh Ahuja v. NFAC [2021] 128 taxmann.com 297 (Delhi) – The assessee requested for adjournment on the ground that his son and wife having been admitted to hospital and it is difficult to collate necessary information. The AO failed to deal with request of assessee, for according an adjournment in matter. Therefore, impugned assessment order passed by revenue as well as notices for initiating penalty proceedings were set aside.
Lamba Techno Flooring Solutions (P.) Ltd v. NFAC [2021] 131 taxmann.com 172 (Delhi HC) – The HC set aside the order where time frame provided to assessee to respond to show cause notice-cum-draft assessment order was far too short and having regard to fact that pandemic was raging in city at that juncture.
Same view was taken in the following case:
- One Mobikwik Systems Pvt Ltd v DCIT WP 6168/2021 (Delhi HC)
- Sudev Industries Ltd. v. NFAC [2021] 131 taxmann.com 74 (Delhi HC)
Final Assessment Order passed before lapse of time given in Notice
Antony Alphonse Kevin Alphonse v ITO National E-Assessment Centre, Delhi WP No.8379/2021 (Madras High Court) –Notice dated 04.03.2021 was issued asking the assessee to reply by 15.03.2021 by 23.59 hours. However, the assessment order was passed on 15.03.2021. The High Court held that since the impugned order has been passed before the time prescribed for filing the reply, it is evident that the impugned order has been passed with pre-set mind. The High Court quashed the order and remitted the matter back to the AO.
Ekambaram Sukumaran v ITO National E-Assessment Centre, Delhi WP No.10433/2021 (Madras High Court) – the HC set aside the impugned assessment order as the same was passed before expiry of time granted for reply to the notice. The HC directed to file the response within 2 weeks from the date of order and directed the AO to complete the assessment de novo within a period of 6 weeks from the date of the order.
Renew Power Pvt Ltd v National e-Assessment Centre, Delhi WP (C) 5235/2021 – The AO passed the assessment order before completion of time given in show cause Notice. The HC set aside the Order as the same was passed much before the time to file the response elapsed.
With respect to the argument of the Revenue that an alternate statutory remedy is available to the petitioner, the HC held that alternate remedy is simply a self-imposed limitation which does not prevent a Court from entertaining a writ petition in a fit case.
The HC also rejected the contention of the Revenue that several opportunities were given to the petitioner, before issuance of the show cause notice-cum-draft assessment order and therefore there was no violation of principles of natural justice. In this context, the HC held as follows:
The reason is this: once the respondent/revenue issued a show cause notice-cum-draft once the respondent/revenue issued a show cause notice-cum-draft assessment, as required in law, which proposed a variation in the petitioner’s declared income, it was obliged to give an opportunity to the petitioner to file its objections. With the issuance of the show cause notice-cum-draft assessment order, the respondent/revenue firmed up its position as to how it wishes to move further in the matter. Notices issued prior to this stage are inquisitorial in nature. These are issued to ferret information and make inquiries with the object to, inter alia, ensure that there is no understatement of income or a claim of excessive loss, or a case involving under payment of tax; but once a show cause notice-cum-draft assessment order is issued, the noticee‟s statutory right to file a reply and to seek a personal hearing kicks in, which cannot be curtailed.
Final Assessment Order passed without passing draft assessment order
YCD Industries v National Faceless Assessment Centre, Delhi WP (C) 5552/2021 – The Assessee submitted that no show cause notice-cum-draft assessment order was served on the petitioner, before the passing of the impugned assessment order dated 20.04.2021. The HC observed that the statute [i.e., Section 144B(1)(xiv), (xv), (xvi)(b) and (xxii)] provides for issuance of a show cause notice-cum-draft assessment order, and an opportunity to the petitioner/assessee to respond to the same where income of the assessee is varied by the respondent/revenue. Admittedly, the petitioner’s income was varied to its prejudice in the instant case. The HC held that the Revenue, could not have side-stepped such safeguards put in place by the legislature. The Assessee Order was quashed.
Final Assessment Order passed without giving opportunity of personal hearing
Ritnand Balved Education Foundation v NFAC W.P.(C) 5537/2021, TS-426-HC-2021(Del) – The Assessee contended that the revenue was obliged to grant a personal hearing to the petitioner, if a request was made in that behalf. The Assessee submitted that in this case a specific request was made by the petitioner and therefore assessment order passed without granting opportunity of hearing is bad in law. The HC observed that since the statute itself makes the provision for grant of personal hearing, the revenue cannot veer away from the same. The HC set aside the order and directed the Revenue to grant personal hearing. Same view is taken in Satia Industries Limited v NFAC TS-423-HC-2021-(DEL).
Cases where Interim Stay is granted by High Court
DJ SURFACTANTS V National E-Assessment Centre, Income Tax Department, NEW DELHI & ORS W.P.(C) 4814/2021 (Delhi High Court) – The show cause Notice was issued on 01.03.2021 asking to file response by 08.03.2021. The Assessee sought adjournment. Given that there was no response, the Assessee filed reply on 12.03.2021 and sought personal hearing. The AO passed the Order on 13.3.2021 without considering the submissions and granting personal hearing. The Delhi High Court stayed the Order.
BL GUPTA Construction Private Limited V National E-Assessment Centre & ORS in W.P.(C) 5060/2021 (Delhi High Court) – The HC stayed the impugned order wherein the assessment order was passed before the expiry of the time granted via SCN.
Manickan Ravichandran v Additional/ Joint/ Deputy/ Assistant Commissioner of Income Tax/ Income Tax Officer, National E-Assessment Centre, Delhi WP(C) No.9350/2021(P) (Kerala High Court) – The Assessee sought time to reply to show cause Notice. The AO passed the order. The High Court held that Order prima facie suffers from the perversity as well as non-compliance with the principles of natural justice. The HC stayed impunged assessment order and the demand until final disposal of the Writ Petition.
Other cases where interim stay is granted for violation of principles of natural justice:
- Shelf Drilling Offshore Services India Private Limited WP No.10949 of 2021 (Bombay HC).
- Raul Antony Rodrigues WP No.1217 of 2021 (Bombay HC) – assessment order passed before expiry of period given in show cause notice.
- Praful Shah WP No.11143 of 2021 (Bombay HC).
- Sam Exports WP No.11053 of 2021 (Bombay HC)
- Pirmal Enterprises Ltd WP No.11040 of 2021 (Bombay HC) – Draft assessment order under section 144C passed even before compliance of notice under section 144B and without giving an opportunity of personal hearing.
- Trendsutra Client Services Pvt Ltd WP No.10833 of 2021 (Bombay HC) – Final Assessment Order was stayed as the same was passed without passing the draft assessment order.
- Signet Realties WP No.1204 of 2021 (Bombay HC)
- SAS Finivest LLP WP (C) 5087/2021 (Delhi HC) – Order stayed as same was passed without issuing show cause Notice.
- K L Trading Corporation WP (C) 4774/2021 (Delhi HC)– Order stayed as same was passed without issuing show cause Notice.
- M/S Fortius Infradevelopers LLP v ACIT WP 8863/2021 (Kar HC) – Notice was issued asking compliance by 19.04.2021. The assessee on 19.04.2021 sought ten days time to furnish explanation. The same was rejected and an order was passed on 22.04.2021. The HC stayed the Order for 4 weeks.
- Innoviti Payment Solutions Pvt Ltd WP 8968/2021 (Kar HC) –The HC stayed the assessment Order, demand Notice and Penalty Notice for 4 weeks.
- Parag Kishorechand Shah WP No.11052 of 2021 (Bombay HC).
- Globe Capital Foundation WP (C) 5298/2021 (Delhi HC)
- Axis Wind Farms (Anantpur) Pvt Ltd WP No. 11812 of 2021 – Order stayed as no personal hearing given.
- Raja Builders WP No. 11224 of 2021.