High Court overturns tax assessment of Rs. 735.16 crores for 2018-2019 due to lack of fair hearing

The Orissa High Court set aside the assessment order by NFAC for AY 2018-2019, amounting to Rs. 735.16 crores, due to a violation of natural justice principles as no hearing opportunity was provided. The court noted disproportionately high assessment figures compared to previous years, indicating prejudice to the assessee. The Department was directed to issue a fresh assessment order after granting a personal hearing to the petitioner and ensuring fairness in the assessment process, emphasizing the importance of procedural fairness and reasonable assessment figures.

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Issues: Violation of principles of natural justice in assessment order by NFAC, Disproportionately high assessment figures for AY 2018-2019

Violation of Principles of Natural Justice:
The High Court addressed the challenge in the writ petition against the assessment order passed by the National Faceless Assessment Centre (NFAC) under the Income Tax Act, raising a demand of Rs. 735.16 crores for the Assessment Year (AY) 2018-2019. The petitioner contended that the order violated the principles of natural justice as no opportunity of hearing was provided, contrary to the mandatory requirement under Section 143 (3) read with Section 144 B of the IT Act. The petitioner cited two judgments of the Delhi High Court where similar assessment orders by NFAC were set aside due to the absence of a show cause notice-cum-draft assessment order issued to the assessee before the final assessment order was passed. The Department argued that the requirement of preparing a draft assessment order would only arise if any variation prejudicial to the assessee was proposed.

Disproportionately High Assessment Figures for AY 2018-2019:
The petitioner presented a comparison of returned income and demand from previous assessment years, highlighting a significant increase in the assessed income and demand for AY 2018-2019. The assessed income for AY 2016-17 and AY 2017-18 was considerably lower compared to the assessed income and demand for AY 2018-2019, which showed a substantial increase. The court noted that the figures for AY 2018-2019 were disproportionately high and prejudicial to the interests of the assessee, triggering the requirement of Section 144-B (1) (xvi) of the IT Act for preparing a draft assessment order. Consequently, the court set aside the impugned assessment order and directed the Department to pass a fresh assessment order for the AY in question after providing the petitioner with a personal hearing and ensuring cooperation in the assessment proceedings.

This detailed analysis of the judgment by the Orissa High Court underlines the importance of adhering to principles of natural justice in assessment proceedings and ensuring that assessment figures are reasonable and not disproportionately high, thereby safeguarding the interests of the assessee.

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