Assessment order and penalty quashed for procedural violations; fresh hearing ordered.

The court quashed the assessment order and penalty notice due to violations of natural justice and improper conduct of the video conference. The respondent was directed to provide a fresh opportunity for a hearing within two weeks through video conference and complete the process within eight weeks. Fixed deposits provided as security by the petitioner were to remain untouched until the reassessment process was finalized.

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Issues Involved:
1. Non-availment of opportunity for personal hearing.
2. Violation of principles of natural justice.
3. Technical glitches in the faceless assessment system.
4. Non-consideration of additional material submitted by the petitioner.
5. Mandatory requirement of personal hearing under Section 144(B)(7) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Non-availment of Opportunity for Personal Hearing:
The petitioner, a public trust, filed a return of income for the assessment year 2018-19, which was selected for scrutiny. Despite multiple requests, the petitioner faced issues in scheduling a personal hearing through video conferencing due to technical errors on the Income Tax Portal. The petitioner was unable to find the necessary hyperlink to activate the video conference and despite several communications, the hearing was not properly conducted. The petitioner contended that the video conference was abruptly terminated, and no further opportunity was provided, leading to the issuance of the assessment order without a proper hearing.

2. Violation of Principles of Natural Justice:
The petitioner argued that the assessment order dated 17.09.2021 was issued without jurisdiction and violated principles of natural justice. The respondent contended that the petitioner had an alternative remedy of appeal and that the principles of natural justice were observed. However, the court noted that the video conference was not properly conducted and the petitioner was not given a fair opportunity to present their case, thus violating principles of natural justice.

3. Technical Glitches in the Faceless Assessment System:
The court acknowledged the technical glitches reported by the petitioner, which included the inability to activate the video conference hyperlink and the abrupt termination of the hearing. The court emphasized that while the faceless assessment system aims to bring transparency and efficiency, it is still in its nascent stage and needs improvements to avoid such issues. The court highlighted the importance of ensuring a robust system that does not jeopardize the assessee's rights.

4. Non-consideration of Additional Material Submitted by the Petitioner:
The petitioner submitted additional documents and evidence in response to the draft assessment order. However, the final assessment order did not reflect any consideration of these materials. The court noted that the opportunity to present additional material after the draft assessment order is crucial and should not be treated as a mere formality. The non-consideration of these materials indicated a lack of proper hearing and assessment.

5. Mandatory Requirement of Personal Hearing under Section 144(B)(7):
The court referred to various judgments, including the High Court of Orissa and the Bombay High Court, which emphasized the mandatory nature of providing a personal hearing under Section 144(B)(7) of the Income Tax Act, 1961. The court held that the requirement for personal hearing is not merely directory but mandatory. The failure to provide a proper hearing in this case rendered the assessment order invalid.

Conclusion:
The court quashed the assessment order dated 17.09.2021 and the penalty notice issued under Sections 274 and 278(A) due to the violation of principles of natural justice and improper conduct of the video conference. The court directed the respondent to provide a fresh opportunity for a hearing through video conference within two weeks and complete the entire process within eight weeks. The court also ensured that the fixed deposits provided as security by the petitioner would not be withdrawn until the completion of the reassessment process.

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