2022 (1) TMI 658 - HC - Income Tax

Court remands assessment order, emphasizes right to personal hearing under Faceless Assessment Scheme.

Bharat Aluminium Company Ltd. Versus Union Of India & Ors.

The court set aside the final assessment order and notice, remanding the matter back to the Assessing Officer. The officer was directed to issue a Show ... Violation of the scheme of faceless assessment u/s 144B - requirement of giving an assessee a reasonable opportunity of personal hearing - HELD THAT:- A quasi judicial body must normally grant a personal hearing as no assessee or litigant should get a feeling that he never got an opportunity or was deprived of an opportunity to clarify the doubts of the assessing officer/decision maker. After all confidence and faith of the public in the justness of the decision making process which has serious civil consequences is very important and that too in an authority/forum that is the first point of contact between the assessee and the Income Tax Department. The identity of the assessing officer can be hidden/protected while granting personal hearing by either creating a blank screen or by decreasing the pixel/density/resolution. Consequently, this Court is of the view that the word “may” in Section 144B(viii) should be read as “must” or “shall” and requirement of giving an assessee a reasonable opportunity of personal hearing is mandatory The argument of the respondent/Revenue that personal hearing would be allowed only in such cases which involve disputed questions of fact is untenable as cases involving issues of law would also require a personal hearing. This Court is of the view that the classification made by the respondents/Revenue by way of the Circular dated 23rd November, 2020 is not legally sustainable as the classification between fact and law is not founded on intelligible differentia and the said differentia has no rational relation to the object sought to be achieved by Section 144B of the Act. Also, if the argument of the respondent/Revenue is accepted, then this Court while hearing an appeal under Section 260A (which only involves a substantial question of law) would not be obliged in law to grant a personal hearing to the counsel for the Revenue. This Court is of the opinion that an assessee has a vested right to personal hearing and the same has to be given, if an assessee asks for it. The right to personal hearing cannot depend upon the facts of each case. Impugned final assessment order and impugned notice issued by respondent No.3 to the petitioner are set aside and the matter is remanded back to the Assessing Officer who shall issue a Show Cause Notice and a draft assessment order and thereafter pass a reasoned order in accordance with law. Issues Involved:1. Arbitrary passing of the final assessment order.2. Violation of principles of natural justice.3. Non-compliance with the Faceless Assessment Scheme.4. Denial of personal hearing.Detailed Analysis:Arbitrary Passing of the Final Assessment Order:The petitioner challenged the final assessment order dated 27th November 2021 under Section 143(3) of the Income Tax Act, 1961, and the notice under Section 156 for Assessment Year 2018-19. The petitioner argued that the orders were passed arbitrarily, without following the principles of natural justice, and in violation of the Faceless Assessment Scheme under Section 144B of the Act. Despite a ‘Nil’ or ‘Null’ variation proposed in the show cause notice, additions were made to the assessed income in the draft and final assessment orders.Violation of Principles of Natural Justice:The petitioner contended that the respondent made additions to the assessed income based on the false premise that the petitioner had not furnished relevant details in response to the statutory notice. The petitioner claimed that they were unable to upload the file due to technical glitches on the respondent’s portal but had still filed a reply via email within the due date. The petitioner also pointed out that the respondent issued a draft assessment order proposing variations without issuing a Show Cause Notice, which is a mandatory requirement under Section 144B(1)(xvi).Non-Compliance with the Faceless Assessment Scheme:The petitioner emphasized that the respondent failed to issue a Show Cause Notice for the proposed variations and did not consider the petitioner’s timely reply to the notice issued under Section 142(1). The petitioner cited multiple cases where the court held that the issuance of a Show Cause Notice mentioning the proposed additions is mandatory, and any assessment order passed without such notice is invalid.Denial of Personal Hearing:The petitioner argued that they were not granted an opportunity for a personal hearing despite a specific request under Section 144B(7). The petitioner cited cases where the court held that the Department must accord a personal hearing if requested, as failure to do so violates the principles of natural justice and the mandatory procedure prescribed in the Faceless Assessment Scheme.The respondents argued that denial of personal hearing falls under 'insufficiency of opportunity' and that personal hearing in assessment proceedings is an added opportunity. They contended that granting personal hearing in a routine manner would defeat the purpose of the Faceless Assessment Scheme. They pointed out that the Standard Operating Procedure (SOP) for personal hearing through video conference under the Faceless Assessment Scheme allows personal hearing at the discretion of the Chief Commissioner or Director General.Court’s Reasoning:The court found it incomprehensible that despite a ‘Nil’ or ‘Null’ variation proposed in the show cause notice, the final assessment order and notice demanded Rs. 1,69,77,44,240/-. The court noted that no Show Cause Notice was served for the variations made, and the draft assessment order was issued without considering the petitioner’s timely reply.The court held that the Faceless Assessment Scheme does not mean no personal hearing and that granting personal hearing would not frustrate the concept or defeat the purpose of the scheme. The court emphasized that principles of natural justice are embedded in Section 144B(1) and that personal hearing is mandatory if requested by the assessee. The court cited several cases to support the view that where an action entails civil consequences, observance of natural justice is warranted unless specifically excluded by law.The court interpreted the use of the word “may” in Section 144B(7)(viii) as “must” or “shall,” making the requirement of giving an assessee a reasonable opportunity for personal hearing mandatory. The court declared that the classification made by the respondents in the SOP for personal hearing is not legally sustainable and that an assessee has a vested right to personal hearing if requested.Conclusion:The court set aside the impugned final assessment order and notice dated 27th November 2021 and remanded the matter back to the Assessing Officer. The officer is directed to issue a Show Cause Notice and a draft assessment order and then pass a reasoned order in accordance with the law. The writ petition and pending application were disposed of with these directions.