High Court sets aside assessment order for procedural violations under Income Tax Act, stresses procedural fairness

The High Court set aside the impugned assessment order due to violations of natural justice and the Faceless Assessment procedure under the Income Tax Act. The Court allowed the petition, remanding the matter back to the Assessing Officer for compliance with prescribed procedures within 12 weeks. The decision highlighted the importance of procedural fairness and adherence to statutory requirements in such assessments, without delving into the merits of the case.

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Issues:
Challenging assessment order under Income Tax Act - Violation of natural justice, Faceless Assessment procedure, Draft assessment order not served, Demand notice issued, Alternative remedy available, Jurisdiction under Article 226.

Analysis:
1. Violation of Natural Justice:
- The petitioner challenged the assessment order dated 26th September, 2021, under Section 147 read with Section 144B of the Income Tax Act, 1961, on the grounds of gross violation of principles of natural justice. The petitioner contended that the draft assessment order was not served, and no opportunity for personal hearing was provided, leading to a demand of Rs.3,69,42,160.
- The respondent Assessing Officer passed the assessment order without issuing the draft assessment order, as required under Section 144B of the Act. The petitioner had requested adjournment and submitted detailed replies, but these were allegedly overlooked.

2. Faceless Assessment Procedure:
- The Court analyzed whether the respondent authorities followed the due procedure of law as envisaged under Section 144B(1)(xvi) read with Section 144B(7)(vii) and (xii) of the Act while passing the impugned assessment order. The Faceless Assessment Scheme under Section 144B mandates adherence to the principles of natural justice and the prescribed procedure.
- The Court noted that the draft assessment order was not forwarded to the petitioner along with the show-cause notice, as required by Section 144B(1)(xvi)(b) of the Act. Any order passed in violation of the statutory procedure under Section 144B renders the order vulnerable due to the breach of natural justice.

3. Alternative Remedy and Jurisdiction under Article 226:
- The respondent raised objections regarding the maintainability of the petition, citing the availability of an alternative remedy through appeals before the Commissioner of Income Tax and the Income Tax Appellate Tribunal under the Faceless Appeal Scheme-2020. However, the Court held that as the impugned order violated principles of natural justice and the Faceless Assessment procedure, it could be challenged under Article 226 of the Constitution of India.
- Citing the decision in Whirlpool Corporation Vs. Registrar of Trade Marks, Mumbai & Others, the Court allowed the petition, remanding the matter back to the Assessing Officer for compliance with the prescribed procedures under Section 144B of the Act.

4. Judicial Precedents and Conclusion:
- The Court referenced previous judgments, such as Atulbhai Kantilal Mehta and Agrawal JMC Joint Venture cases, along with decisions from Bombay High Court and Delhi High Court, which upheld the importance of adherence to the Faceless Assessment procedure and principles of natural justice.
- The petition succeeded, and the impugned assessment order was set aside, with instructions for the Assessing Officer to follow the prescribed procedures within 12 weeks. The Court clarified that the decision was based on procedural grounds and did not delve into the merits of the case.

The High Court's judgment in this case focused on upholding the procedural fairness and adherence to the Faceless Assessment Scheme under the Income Tax Act, emphasizing the significance of principles of natural justice in such proceedings.

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