Court directs reassessment, grants personal hearing, sets strict timeline for submission of documents

The court set aside the assessment order and directed the Assessing Authority to reconsider the matter. The revenue was instructed to provide the petitioner with one day of personal hearing between 1st and 8th October, with advance notice. The petitioner was required to appear on the fixed date and present any additional documents. The revenue was then to issue a fresh assessment order in compliance with the law and on merits, with no further personal hearing requests permitted. The writ petition was disposed of without costs, and related miscellaneous petitions were closed.

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Issues Involved:
1. Legitimacy of the assessment order under Section 143(3) read with Section 144B of the Income Tax Act, 1961.
2. Validity of invoking Section 68 of the Income Tax Act for adding unsecured loans to the total income.
3. Adherence to principles of natural justice, particularly the right to personal hearing under the Faceless Assessment Scheme.

Issue-wise Detailed Analysis:

1. Legitimacy of the Assessment Order under Section 143(3) read with Section 144B of the Income Tax Act, 1961:
The petitioner, a firm engaged in the business of edible oil trading, filed its return of income for AY 2018-19, declaring a total income of Rs. 16,400. The case was selected for scrutiny under CASS, leading to notices under Sections 143(2) and 142(1) of the Act. The petitioner responded with the required documents. The revenue scrutinized the transactions, particularly the unsecured credits from three entities, and issued further notices under Section 142(1) and Section 133(6) to the lenders. The revenue concluded that the petitioner had a typical balance sheet with high unsecured loans and minimal fixed assets, leading to an addition of Rs. 41,34,69,610 under Section 68 of the Act.

2. Validity of Invoking Section 68 of the Income Tax Act for Adding Unsecured Loans to the Total Income:
The revenue scrutinized the identity, credit-worthiness, and genuineness of the lenders. It was found that one lender, Sri Nagalainga Vilas Oil Mills, had a total income of only Rs. 1,35,580 but claimed to have given an unsecured loan of Rs. 41,34,69,610 to the petitioner. This discrepancy led the revenue to invoke Section 68, proposing the addition of the unsecured loan amount to the petitioner's income. The petitioner objected to this addition, but the revenue, after thorough scrutiny, upheld the addition in the assessment order dated 26.08.2021.

3. Adherence to Principles of Natural Justice, Particularly the Right to Personal Hearing under the Faceless Assessment Scheme:
The petitioner contended that the Faceless Assessment Scheme, introduced recently, did not afford a chance for personal hearing, especially during the COVID-19 pandemic. The petitioner argued that a personal hearing was crucial to explain the genuineness of the transactions with supporting documents. The revenue countered that multiple opportunities were given to the petitioner to submit documents, and the assessment was made after thorough scrutiny. The court acknowledged that personal hearing is part of the principles of natural justice and decided that the petitioner should be given an opportunity for a personal hearing to explain the transactions.

Judgment:
The court set aside the impugned assessment order and remitted the matter back to the respondent Assessing Authority for reconsideration. The revenue was directed to provide one day of personal hearing to the petitioner between 1st and 8th October, with advance notice. The petitioner was instructed to appear on the fixed date and produce any additional documents. The revenue was then to pass a fresh order of assessment in accordance with law and on merits. The court emphasized that no further personal hearing requests would be entertained. The writ petition was disposed of without costs, and connected miscellaneous petitions were closed.

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