Denial of Personal Hearing Deemed Unjust: Assessments Quashed, New Hearing Ordered

The court found that the denial of a personal hearing to the petitioner violated principles of natural justice. The assessment order and consequential tax demands were quashed and set aside. The matter was remanded to the Assessing Officer for a new assessment with a personal hearing granted to the petitioner via video conferencing. The court emphasized the importance of transparency and accountability in the faceless assessment regime.

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Issues Involved:

1. Challenge to the assessment order under Section 143(3) of the Income Tax Act, 1961.
2. Alleged violation of principles of natural justice due to denial of personal hearing.
3. Examination of the statutory mechanism and guidelines for personal hearing under the Faceless Assessment Scheme.

Detailed Analysis:

1. Challenge to the Assessment Order:

The petitioner challenged the assessment order dated 21.04.2021, which assessed their income at Rs. 107,42,69,470/- for the Assessment Year 2018-2019. The petitioner contended that the assessment was arbitrary, illegal, and contrary to law, asserting that the additions made were actually advances contingent upon a final decision by the Delhi High Court.

2. Alleged Violation of Principles of Natural Justice:

The petitioner argued that the assessment order violated the principles of natural justice because their request for a personal hearing was denied without cogent reasons. Despite requesting a personal hearing on 07.04.2021, the petitioner was not afforded this opportunity, which they claimed led to irreparable loss and hardship.

3. Examination of Statutory Mechanism and Guidelines:

The respondent contended that the petitioner had an alternative remedy available through an appeal to the CIT (Appeal) and the Appellate Tribunal. They argued that the petitioner did not follow the proper guidelines for requesting a personal hearing via video conferencing, as stipulated by the National Faceless Assessment Centre (NFAC).

Court's Findings:

A. Violation of Principles of Natural Justice:

The court emphasized that the principles of natural justice were integral to the assessment process under Section 144B of the Income Tax Act. The court noted that the petitioner had requested a personal hearing within a reasonable time after receiving the draft assessment order. The court found that the denial of this request, especially given the substantial addition proposed, constituted a violation of natural justice.

B. Statutory Mechanism and Guidelines:

The court examined the guidelines and procedures under the Faceless Assessment Scheme. It found that the petitioner’s request for a personal hearing was made in accordance with the scheme's provisions. The court highlighted that the guidelines for personal hearing through video conferencing, issued by the NFAC, were not adequately communicated to the petitioner, and there was no evidence that a hyperlink for requesting a personal hearing was available on the e-filing portal at the relevant time.

C. Precedents and Legal Principles:

The court referred to decisions from the Delhi High Court and the Bombay High Court, which underscored the importance of granting a personal hearing when requested by the assessee, especially in cases involving substantial variations in assessed income. The court agreed with these precedents, emphasizing that the faceless assessment regime was designed to ensure transparency and accountability, and denying a personal hearing undermined these objectives.

Conclusion:

The court concluded that the denial of a personal hearing to the petitioner resulted in a violation of the principles of natural justice. Consequently, the impugned assessment order and the consequential demand of taxes and penalties were quashed and set aside. The matter was remanded back to the Assessing Officer, who was directed to grant a personal hearing to the petitioner via video conferencing and then pass a reasoned order in accordance with the law.

Final Order:

The petition was allowed, and the assessment order dated 21.04.2021 was quashed. The Assessing Officer was directed to provide a personal hearing to the petitioner and pass a new assessment order following the principles of natural justice.

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