2022 (2) TMI 1410 - HC - Income Tax

Faceless assessment penalty order set aside under Section 271(1)(c) as personal hearing request wasn't considered

The Madras HC set aside a faceless assessment penalty order under Section 271(1)(c) of the IT Act because the assessee's request for personal hearing was ... Validity of faceless assessment u/s 144B - Penalty u/s 271(1)(c) - writ petitioner/assessee's request for personal hearing has not been decided - as argued personal hearing is not a matter of right but it is the discretion of the Chief Commissioner or the Director General in charge of the Regional Faceless Penalty Centre - HELD THAT:- The simple point now is writ petitioner's request for personal hearing will be considered in accordance with the said scheme ORDER:- (a)The impugned order order made by the first respondent is set aside solely on the ground that a decision regarding the writ petitioner/assessee's request for personal hearing has not been decided one way or the other in accordance with the said scheme; b) though obvious, it is made clear that this Court has not expressed any view or opinion on the merits of the matter and all questions are left open; c) the first respondent shall now proceed from the stage of objections dated 30.06.2021, decide on the request for personal hearing and complete the penalty proceedings inter alia under Section 271(1)(c) of IT Act and pass orders afresh as expeditiously as the business of the first respondent would permit and in any event within 12 weeks from today i.e., on or before 28.04.2022; d) The two queries raised in paragraph 9 of the proceedings dated 31.01.2022 are left open and decision regarding the personal hearing will be taken in accordance with standards, procedures and processes if any. Issues Involved:1. Validity of the impugned order under Section 271(1)(c) of the Income Tax Act, 1961.2. Compliance with the Faceless Penalty Scheme 2021.3. Right to personal hearing in faceless penalty proceedings.Issue-wise Detailed Analysis:1. Validity of the impugned order under Section 271(1)(c) of the Income Tax Act, 1961:The petitioner challenged the order dated 17.01.2022, issued under Section 271(1)(c) of the Income Tax Act, 1961, which imposed a penalty for the assessment year 2016-17. The impugned order was based on an assessment order dated 22.06.2021, which was preceded by the Dispute Resolution Panel (DRP) route and was part of the Computer Assisted Selection for Scrutiny (CASS). The assessment order addressed three main issues: Transfer Pricing (TP), Railway Siding Expenditure (capital vs. revenue expenditure), and Dividend exemption under Section 14-A of the IT Act. The DRP ruled in favor of the assessee on TP, but additions were made under Section 14-A r/w Rule 8D of the Income Tax Rules, 1962. The assessment order also indicated the initiation of penalty proceedings for 'inaccurate particulars of income.' Subsequently, a show cause notice (SCN) was issued under Section 274 r/w 271(1)(c), to which the petitioner responded, denying the allegation of inaccurate particulars and requesting a personal hearing.2. Compliance with the Faceless Penalty Scheme 2021:The petitioner argued that the impugned order violated the principles of natural justice as it did not address the request for a personal hearing. The Faceless Penalty Scheme 2021, effective from 01.04.2020, under Section 274(2A) of the IT Act, aims to eliminate the interface between the income tax authority and the assessee, optimize resource utilization, and introduce dynamic jurisdiction. The Scheme outlines procedures for penalty imposition, including the issuance of show cause notices, responses, and the potential for personal hearings. Paragraphs 5, 11(3), and 12(ix) of the Scheme are particularly relevant, indicating that while personal hearings can be requested, their approval is at the discretion of the Chief Commissioner or Director General in charge of the Regional Faceless Penalty Centre.3. Right to personal hearing in faceless penalty proceedings:The court noted that the Scheme allows for personal hearings but does not make them mandatory in every case. The decision to grant a personal hearing lies with the Chief Commissioner or Director General, who must follow standards, procedures, and processes laid down by the Central Board of Direct Taxes (CBDT). The court sought clarity on whether such standards had been established for the National Faceless Penalty Centre. The Revenue Counsel requested time to confirm this and to ascertain if similar procedures for faceless assessments under Section 144B had been implemented.Final Order:The court set aside the impugned order dated 17.01.2022 solely on the ground that the request for a personal hearing was not addressed. The court clarified that it did not express any opinion on the merits of the case and left all questions open. The first respondent was directed to reconsider the request for a personal hearing and complete the penalty proceedings afresh within 12 weeks, by 28.04.2022. The issues raised in paragraph 9 of the proceedings dated 31.01.2022 were left open, and the decision on the personal hearing was to be made in accordance with any established standards, procedures, and processes.The writ petition and the accompanying miscellaneous petition were disposed of accordingly, with no order as to costs.