Court Invalidates Assessment Order for Non-Compliance with Tax Act, Orders Faceless Procedure

The Court found the assessment order dated 07.04.2021 invalid due to non-compliance with Section 144B of the Income Tax Act and violation of natural justice principles. The Court quashed the assessment order and consequential demand notice, directing the Assessing Officer to follow the faceless assessment procedure under Section 144B, including issuing a draft assessment order and show cause notice. The petition was allowed, and the matter was remitted for proper compliance with procedural requirements.

---

---

Issues Involved:
1. Non-compliance with provisions of Section 144B of the Income Tax Act.
2. Violation of principles of natural justice.
3. Validity of the assessment order dated 07.04.2021 and consequential demand notice.

Detailed Analysis:

1. Non-compliance with Provisions of Section 144B of the Income Tax Act:
The writ applicant, a Cooperative Society, challenged the assessment order dated 07.04.2021 on the grounds of non-compliance with Section 144B of the Income Tax Act. The Court emphasized that Section 144B mandates a faceless assessment procedure, including the issuance of a draft assessment order and a show cause notice before finalizing any prejudicial variation. The Court noted that the Assessing Officer failed to issue a show cause notice and draft assessment order, which is a mandatory requirement under Section 144B(xiv), Section 144B(xvi)(b), and Section 144B(xxii). The non-compliance with these provisions renders the assessment order invalid.

2. Violation of Principles of Natural Justice:
The writ applicant argued that the assessment order was passed without providing an opportunity to respond to the proposed disallowance of deductions under Section 80P(2)(a)(i). The Court agreed, stating that the failure to issue a show cause notice and draft assessment order violated the principles of natural justice. The Court highlighted that the principles of natural justice are embedded in Section 144B, which aims to ensure transparency, efficiency, and accountability in the assessment process. The absence of an opportunity to respond to the proposed variations prejudiced the writ applicant, making the assessment order nonest.

3. Validity of the Assessment Order Dated 07.04.2021 and Consequential Demand Notice:
The Court examined whether the assessment order dated 07.04.2021 and the consequential demand notice were valid and sustainable in law. The Court found that the assessment order contained variations from the return filed by the writ applicant, specifically regarding the disallowance of deductions under Section 80P(2)(a)(i). However, since the mandatory procedure under Section 144B was not followed, the assessment order was deemed invalid. The Court cited the case of Gandhi Reality (India) (P.) Ltd. Vs. Assistant, which held that a breach of mandatory statutory provisions is fatal to the assessment order. Consequently, the Court quashed the assessment order and the consequential demand notice.

Conclusion:
The Court concluded that the assessment order dated 07.04.2021 was invalid and nonest due to non-compliance with Section 144B of the Income Tax Act and the violation of principles of natural justice. The Court quashed the assessment order and the consequential demand notice and remitted the matter to the Assessing Officer. The Assessing Officer was directed to issue a draft assessment order along with a show cause notice in accordance with the provisions of Section 144B, thereby ensuring compliance with the mandatory procedural requirements. The petition was allowed and disposed of accordingly.

---