2021 (10) TMI 684 - HC - Income Tax

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 ... Faceless Assessment Scheme - violation of principles of natural justice - personal hearing - remand for reconsideration - addition under Section 68 of the Income Tax ActFaceless Assessment Scheme - violation of principles of natural justice - personal hearing - Whether the assessment framed and completed under the Faceless Assessment Scheme suffers from violation of principles of natural justice for lack of personal hearing. - HELD THAT: - The Court accepted that ordinarily remedy against an assessment order lies before the appellate authorities, but recognised established exceptions enabling writ jurisdiction, one of which is breach of principles of natural justice. Although notices were issued and documents were filed by the assessee and enquiries made to the lenders, the assessee did not request a personal hearing under the Faceless Assessment Scheme. Given the very large addition under consideration, the Court found that the opportunity for a personal hearing is an integral facet of natural justice and, to avoid further delay and a re-run before the appellate authorities, entertained the writ petition on this limited ground. The Court did not adjudicate the merits of the addition under Section 68; instead it set aside the impugned assessment order and remitted the matter to the assessing authority for fresh consideration after granting a one day personal hearing to the assessee within the specified time-frame. The remand directs that after the one day personal hearing the revenue may pass a fresh assessment order on merits in accordance with law, and precludes any further personal hearing requests by the assessee. [Paras 20, 21, 24, 25, 27]Impugned assessment order set aside and matter remitted for reconsideration; respondent to grant one day personal hearing to the assessee between 1st and 8th October, after which the assessing authority may pass a fresh order on merits.Final Conclusion: Writ petition allowed on the limited ground of breach of principles of natural justice for want of a personal hearing; assessment order dated 26.08.2021 set aside and matter remitted for fresh consideration after one day personal hearing as directed; merits of the addition under Section 68 left open for decision by the assessing authority. 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.