Faceless assessment order quashed for violating natural justice under Section 144B without draft assessment or show cause notice

Gujarat HC quashed a faceless assessment order passed under Section 144B for violating principles of natural justice. The court held that no draft assessment or show cause notice was provided to the petitioner as required under Section 144B(1) and 144B(7), denying opportunity for explanation or personal hearing through video conferencing. The assessment order under Section 147 read with Section 144B and demand notice under Section 156 were set aside for non-compliance with prescribed procedural requirements.

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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 2017-2018.

Analysis:
1. The petitioner, an LLP, challenged the assessment order dated 22.02.2022 passed by the respondent under Section 147 read with Section 144B of the Income Tax Act, 1961 for the Assessment Year 2017-2018. The petitioner contended that the assessment order was passed in violation of the principles of natural justice as no opportunity of personal hearing was provided before finalizing the assessment.

2. The petitioner argued that the respondent made an addition under section 69 of the Act for alleged unexplained investment, which was actually recorded in the books of accounts. This, according to the petitioner, indicated a lack of proper application of mind by the respondent in making the addition.

3. The petitioner further contended that the impugned order violated mandatory provisions of clauses (xiv), (xvi), and (xxii) of sub-section (1) of section 144B of the Act, 1961. The petitioner highlighted that the Faceless Assessment scheme under section 144B required providing a draft assessment order to the assessee for proposed additions to enable a fair opportunity of hearing.

4. The respondent opposed the petition, stating that after examining the explanations of the petitioner, the assessment order was validly passed, and no interference was necessary. However, the Court observed that the impugned order was passed without following the prescribed procedure of providing an opportunity of personal hearing as mandated by section 144B of the Act, 1961 for Faceless assessment.

5. The Court referred to the detailed procedure outlined in section 144B of the Act, 1961 for Faceless Assessment introduced in 2020. It noted that the procedure required providing an opportunity for personal hearing through video conferencing in cases where variations were proposed in the draft assessment order.

6. Ultimately, the Court held that the impugned order was passed in violation of principles of natural justice by not affording the petitioner an opportunity of personal hearing as required by section 144B of the Act, 1961. The Court allowed the petition, quashed the assessment order, and directed the respondent to proceed with assessment under section 144B after issuing a show cause notice-cum-draft assessment order to provide the petitioner with a fair opportunity of hearing.

7. The Court clarified that it did not delve into the merits of the case but focused on the procedural irregularities in the assessment process. The respondent was given 12 weeks to complete the reassessment process in compliance with the provisions of section 144B of the Act, 1961.

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