Faceless assessment personal hearing rights breach statutory natural justice and vitiate the assessment order

In faceless assessment proceedings, a requested personal hearing under Section 144B is a substantive procedural safeguard where proposed variation is made and the assessee seeks oral submissions. Denial of that hearing, despite a specific request and participation in the show-cause process, breaches the statutory hearing requirement and the principles of natural justice. The Delhi HC noted that the assessment scheme requires standards and procedures to support such safeguards, and the assessment order was therefore vitiated. The consequential demand notice and penalty initiation notices were set aside.

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Issues: Whether the assessment order under the faceless assessment regime was vitiated for breach of natural justice on account of denial of personal hearing despite a specific request made by the assessee under Section 144B of the Income-tax Act, 1961.

Analysis: The assessee had received a draft assessment proposal proposing an addition to income and had responded to the show-cause notice as well as subsequent queries. A specific request for personal hearing was made. Under Section 144B(7)(vii), where variation is proposed and an opportunity to show cause is given, the assessee or authorised representative may request a personal hearing to make oral submissions. The statutory scheme, read with the requirement that standards, procedures and processes be framed under Section 144B(7)(xii)(h), makes the personal-hearing facility a substantive procedural safeguard in appropriate cases. Since the assessment order was passed without granting the requested personal hearing, the procedural requirement was not complied with.

Conclusion: The assessment order and the consequential demand and penalty initiation notices were set aside for breach of the statutory hearing requirement and the principles of natural justice.

Ratio Decidendi: In faceless assessment proceedings, where the statute permits a personal hearing on request in a case involving proposed variation, denial of that hearing vitiates the assessment order.

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