Court Invalidates Tax Assessment for 2018-19, Orders Compliance with Faceless Assessment Rules

The Court set aside the assessment order, notice of demand, and penalty proceedings for AY 2018-19 due to violations of "Faceless Assessment" provisions and principles of natural justice. The respondent was directed to conduct the assessment process under Section 144B, ensuring compliance with the prescribed procedure. The petitioner would have the opportunity to respond to any show cause notice-cum-draft assessment order and avail a personal hearing if income variation was proposed.

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Issues:
Challenge to assessment order and notice of demand for AY 2018-19, Stay on operation of assessment order and penalty proceedings, Void ab initio assessment order, Failure to comply with "Faceless Assessment" provisions, Interpretation and effect of Section 143(3D), Violation of Section 144B of the Act, Violation of principles of natural justice.

Analysis:
The petitioner challenged the assessment order and notice of demand for AY 2018-19, seeking a stay on their operation and penalty proceedings. The petitioner argued that the Assessment Order under Section 143(3) of the Income Tax Act was void ab initio due to the cessation of Sections 143(3A) and 143(3B) from April 1, 2021, as per Section 143(3D) of the Act. Additionally, the petitioner contended that the Assessment Order was illegal for not complying with the mandatory provision of "Faceless Assessment" under Section 144B(1)(xvi) by not serving a Notice and draft assessment order. The respondent claimed that prior notice or service of draft assessment order was unnecessary as all documents were on record.

The Court analyzed Section 143(3D) and held that after April 1, 2021, assessment orders had to be passed in accordance with Section 144B of the Act alone. Referring to a previous judgment, the Court reiterated that assessment orders under Sections 143(3A) and 143(3B) could not be passed after March 31, 2021, as per Section 143(3D). The Court agreed that there was a failure to comply with the obligations of Section 144B(1)(xvi) regarding the non-service of prior notice and draft assessment order, violating the principles of natural justice.

Consequently, the Court set aside the impugned assessment order, notice of demand, and notice for penalty proceedings. The respondent was permitted to proceed with the assessment process under Section 144B, ensuring compliance with the prescribed procedure. The petitioner would have the opportunity to respond to any show cause notice-cum-draft assessment order and avail a personal hearing if income variation was proposed. The Court disposed of the writ petition accordingly, directing the order to be uploaded on the website and forwarded to the counsel via email.

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