Court invalidates assessment order for AY 2018-2019, emphasizes natural justice principles.

The Court set aside the assessment order for AY 2018-2019 under the Income Tax Act 1961, emphasizing the violation of natural justice principles due to the lack of opportunity for the assessee to respond to variations in taxable income. The Court also invalidated notices issued under Sections 156 and 270A, stressing the need for procedural compliance and granting personal hearings. The judgment underscored the significance of procedural fairness and adherence to statutory requirements in assessment proceedings.

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Issues:
1. Legality of assessment order under Income Tax Act 1961 for AY 2018-2019.
2. Compliance with procedural requirements under the E-assessment Scheme, 2019.
3. Violation of principles of natural justice in assessment proceedings.
4. Validity of notices issued under Section 156 and 270A of the Act.

Analysis:

Issue 1: Legality of assessment order under Income Tax Act 1961 for AY 2018-2019
The petitioner challenged the assessment order dated 15.04.2021 under Section 143(3) read with Section 144B of the Income Tax Act 1961 for AY 2018-2019. The petitioner contended that the variation in taxable income was made without issuing a show cause notice-cum-draft assessment order, as required by the legislative/statutory scheme. The Court noted that the variation prejudicial to the assessee was made without granting an opportunity to respond, leading to the assessment being set aside.

Issue 2: Compliance with procedural requirements under the E-assessment Scheme, 2019
The assessment was conducted under the E-assessment Scheme, 2019, renamed as the Faceless Assessment Scheme, 2019, and amended by the Faceless Assessment (1st Amendment) Scheme, 2021. The Court highlighted the provisions of Section 143(3D) inserted by the Taxation and Other Laws Act, 2020, which exempted certain assessments from the E-assessment Scheme. It emphasized the requirement for the revenue to follow the principles of natural justice when proposing variations in taxable income.

Issue 3: Violation of principles of natural justice in assessment proceedings
The Court referenced the provisions of the E-assessment Scheme, 2019, and CBDT instructions requiring the revenue to grant the assessee an opportunity to respond in case of proposed variations in taxable income. It noted that the variation made in the taxable income of the assessee without issuing a show cause notice deprived the assessee of the opportunity to respond, thus violating the principles of natural justice.

Issue 4: Validity of notices issued under Section 156 and 270A of the Act
The Court set aside the impugned assessment order and the consequential notices issued under Section 156 and 270A of the Act dated 15.04.2021. It granted liberty to the revenue to take further steps in accordance with the law. The petitioner's request for a personal hearing was acknowledged, emphasizing the importance of adhering to procedural requirements and ensuring the grant of personal hearings as provided by the statute.

In conclusion, the judgment highlighted the importance of procedural fairness, adherence to statutory requirements, and the principles of natural justice in assessment proceedings under the Income Tax Act 1961.

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