Faceless assessment order quashed for violating natural justice principles under Section 144B after inadequate hearing opportunity

Gujarat HC held that faceless assessment order violated principles of natural justice under Section 144B. Assessment authority issued show-cause notice on 18th September 2021 requiring response by 21st September 2021. Despite assessee's adjournment request on 18th September, authority passed assessment order on 21st September without considering the request or providing adequate hearing opportunity. Court found mandatory provisions under Section 144B(1)(xii) and (xiv) were not followed, which require consideration of assessee's response before finalizing assessment. Assessment order was quashed and assessee's appeal allowed due to procedural violations.

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Issues:
Challenge to Assessment Order under Section 147 read with Section 144B of the Income Tax Act, 1961 for Assessment Year 2013-14 on grounds of violation of principles of natural justice.

Analysis:
1. The petitioner challenged the Assessment Order dated 21st September, 2021, alleging it was passed in violation of principles of natural justice. The petitioner, a company, filed its return for the Assessment Year 2013-14 on 28th September, 2013, declaring total income of Rs.2,72,98,894. The Assessing Officer re-opened the assessment under Section 148 of the Act and issued various notices under different sections, culminating in the impugned Assessment Order.

2. The petitioner contended that they were not given sufficient time to respond to the show-cause notice proposing a significant addition to their income. Despite requesting an adjournment on 18th September, 2021, the Assessment Order was passed on 21st September, 2021. The petitioner argued that the Assessing Officer failed to consider their earlier submission and did not provide a proper opportunity for a hearing as required under the Faceless Assessment Scheme.

3. The respondent, on the other hand, claimed that no adjournment request was made by the petitioner, as per the case noting history and e-proceedings. They argued that the assessment order was based on the petitioner's submissions during the assessment proceedings and no interference was warranted.

4. The Court noted that the petitioner did request an adjournment on 18th September, 2021, seeking time until 5th October, 2021, to gather necessary material. The Assessment Order, however, was passed on 21st September, 2021, without considering this adjournment request, leading to a clear violation of natural justice principles.

5. Section 144B of the Act mandates providing an opportunity for a personal hearing and responding to a show-cause notice in Faceless Assessments. The Court found that the Assessing Officer did not adhere to these provisions, specifically failing to grant a hearing or consider the adjournment request, resulting in a breach of natural justice.

6. Relying on precedents from the Bombay High Court and the same Court, the petitioner's arguments were upheld. The Court allowed the petition, quashed the Assessment Order dated 21st September, 2021, and directed the Assessing Officer to proceed with the assessment under Section 144B, ensuring a proper opportunity for a hearing within 12 weeks.

7. The Court clarified that the decision was based on the breach of natural justice and did not delve into the merits of the case. The petition was allowed, and no costs were imposed.

8. The judgment serves as a reminder of the importance of following due process and principles of natural justice in assessments, especially under the Faceless Assessment Scheme, to ensure fairness and transparency in tax proceedings.

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