Faceless Assessment Order Quashed for Violating Natural Justice Under Section 144B, Assessment to Restart Properly

The HC quashed the faceless assessment order issued under section 144B and the related demand notice due to non-compliance with statutory requirements, specifically the non-service of the draft assessment order and show cause notice to the assessee. The court held that prior opportunities and notices under other sections did not excuse this procedural lapse, which violated principles of natural justice. The revenue was directed to restart the assessment process in accordance with section 144B, ensuring proper issuance of the draft assessment order and an opportunity for the assessee to respond. The decision favored the assessee.

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Issues Involved:
1. Validity of the assessment order under Section 143(3) read with Section 144B of the Income Tax Act.
2. Compliance with the principles of natural justice.
3. Requirement of issuing a Draft Assessment Order and show cause notice.
4. Availability and adequacy of alternative remedies.
5. Jurisdiction and procedural compliance under Section 144B of the Income Tax Act.

Detailed Analysis:

1. Validity of the Assessment Order:
The petitioner challenged the assessment order dated 20.04.2021 under Section 143(3) read with Section 144B of the Income Tax Act, arguing that it was issued without following the mandatory procedural requirements, making the order illegal and deserving of quashment.

2. Compliance with Principles of Natural Justice:
The petitioner argued that the assessment order was passed without issuing a show cause notice or a Draft Assessment Order, which violated the principles of natural justice. The respondent contended that sufficient opportunities were provided to the petitioner to furnish information and documents. However, the Court noted that the absence of a Draft Assessment Order and show cause notice constituted a clear violation of the principles of natural justice.

3. Requirement of Issuing a Draft Assessment Order and Show Cause Notice:
Section 144B mandates that before finalizing an assessment order, a Draft Assessment Order must be issued to the assessee, providing an opportunity to respond to any proposed variations. The Court emphasized that this procedural requirement is statutory and non-compliance renders the assessment order non-est (invalid). The Court found that the Draft Assessment Order was not served on the petitioner, as required by law, and this omission was not mitigated by previous opportunities to furnish information.

4. Availability and Adequacy of Alternative Remedies:
The respondent argued that the petitioner had the alternative remedy of filing an appeal under Sections 253 and 246 of the Act. However, the Court held that the availability of an alternative remedy does not bar the exercise of jurisdiction under Article 226 of the Constitution, especially in cases of violation of natural justice or statutory provisions. The Court cited precedents, including the Supreme Court's decisions in Whirlpool Corporation vs. Registrar of Trade Marks and Radha Krishan Industries vs. State of Himachal Pradesh, to support this view.

5. Jurisdiction and Procedural Compliance under Section 144B:
The Court examined the procedural framework under Section 144B, which requires faceless assessment and mandates specific steps, including the issuance of a Draft Assessment Order and show cause notice. The Court found that these procedural safeguards were not followed in the present case. The Court also referred to similar judgments from the Orissa High Court and the Delhi High Court, which set aside assessment orders for non-compliance with Section 144B.

Conclusion:
The Court quashed the impugned assessment order dated 20.04.2021 and the consequent demand notice, directing the respondent to proceed with the assessment process afresh under Section 144B, ensuring compliance with all procedural requirements, including issuing a Draft Assessment Order and providing an opportunity for the petitioner to respond. The petition was allowed, emphasizing the importance of adhering to statutory procedures and principles of natural justice in faceless assessment regimes.

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