Court sets aside assessment order, directs compliance with Faceless Assessment procedures under Income Tax Act.

The court allowed the petition, setting aside the assessment order and penalty notice, directing compliance with Faceless Assessment procedures under Section 144B of the Income Tax Act, 1961. The respondent was instructed to issue a show cause notice-cum-draft assessment order, providing the petitioner with a personal hearing opportunity through video conference within twelve weeks. The court emphasized procedural adherence over the case's merits, emphasizing the significance of upholding natural justice principles in tax assessments.

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Issues Involved:
1. Violation of principles of natural justice.
2. Non-compliance with the procedure for Faceless Assessment under Section 144B of the Income Tax Act, 1961.
3. Opportunity of personal hearing through video conference.

Detailed Analysis:

1. Violation of Principles of Natural Justice:
The petitioner, a cooperative credit society, claimed that the impugned assessment order dated 18.08.2021 was passed without providing an opportunity for a personal hearing, thus violating the principles of natural justice. The petitioner had requested a personal hearing through video conference multiple times, but the respondent failed to facilitate this. Consequently, the petitioner was not given a fair chance to present their case, leading to the issuance of a show cause notice under section 270A of the Income Tax Act to initiate penalty proceedings.

2. Non-compliance with the Procedure for Faceless Assessment under Section 144B of the Income Tax Act, 1961:
The petitioner argued that the respondent did not follow the mandatory provisions of Section 144B of the Income Tax Act, 1961, which outlines the procedure for Faceless Assessment. Specifically, the respondent failed to provide a draft assessment order along with a show cause notice, as required by clauses (xiv), (xvi), and (xxii) of sub-section (1) of Section 144B. This non-compliance deprived the petitioner of the opportunity to respond to the proposed additions, violating the statutory procedure.

3. Opportunity of Personal Hearing through Video Conference:
The petitioner emphasized that under Section 144B(7)(vii), (viii), and (ix), an opportunity for a personal hearing through video conference must be provided if requested. Despite multiple requests and communications from the petitioner, the respondent did not facilitate the video conference, thereby breaching the procedural requirements. This failure was highlighted as a significant procedural lapse, affecting the fairness of the assessment process.

Court's Findings:
The court examined the relevant provisions of Section 144B and concluded that the respondent did not adhere to the prescribed procedure for Faceless Assessment. The court noted that no draft assessment order or show cause notice was provided to the petitioner, which is a clear violation of Section 144B(1) and Section 144B(7). The court emphasized that personal hearings in the era of Faceless Assessment should be conducted through video conferencing, as mandated by the law.

Judgment:
The court allowed the petition, quashing and setting aside the impugned assessment order dated 18.08.2021 and the notice dated 26.08.2021 under section 270A of the Income Tax Act, 1961. The court directed the respondent to proceed with the assessment under Section 144B, ensuring that a show cause notice-cum-draft assessment order is issued to provide an opportunity for a hearing to the petitioner. This process should be completed within twelve weeks from the receipt of the court's order. The court clarified that it did not examine the merits of the case and focused solely on procedural compliance.

Conclusion:
The court's decision underscores the importance of adhering to statutory procedures and ensuring that principles of natural justice are upheld in Faceless Assessments. The judgment mandates that taxpayers must be given a fair opportunity to present their case, including personal hearings through video conferencing, as per the provisions of Section 144B of the Income Tax Act, 1961.

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