Tax Assessment Order Quashed for Violating Natural Justice; New Process Ordered with Personal Hearing in 12 Weeks.

The HC quashed the assessment order dated 23.09.2021 and the demand notice under Section 156 due to violations of natural justice principles and non-compliance with Section 144B of the Income Tax Act, 1961. The respondent must reinitiate the assessment process, including issuing a show cause notice-cum-draft assessment order, within 12 weeks, ensuring the petitioner is afforded an opportunity for a personal hearing. The court did not assess the merits of the case.

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

Detailed Analysis:

1. Violation of principles of natural justice:
The petitioner argued that the assessment order dated 23.09.2021 was passed without providing an opportunity of hearing, constituting a breach of principles of natural justice. The petitioner contended that despite submitting all required details, the Assessing Officer made significant additions based on new material without affording the petitioner a chance to respond. This omission was claimed to be in direct violation of the statutory provisions under Section 144B of the Income Tax Act, 1961, which mandates an opportunity of being heard if variations prejudicial to the assessee's interest are proposed.

2. Non-compliance with the procedure under Section 144B of the Income Tax Act, 1961:
The petitioner highlighted several procedural lapses under Section 144B, such as:
- The failure to provide a final draft assessment order for the opportunity of being heard.
- The issuance of notices under Section 133(6) and subsequent inquiries without informing the petitioner.
- The significant difference between the draft assessment order and the final assessment order, with the latter being based on new inquiries not disclosed to the petitioner.

The respondent countered that sufficient opportunities were provided, starting from the notice under Section 143(2) and subsequent notices under Section 142(1). They argued that the petitioner's replies were considered, and the final assessment was consistent with previous assessments. They also asserted that the petitioner had an alternative remedy under Section 246A of the Act.

3. Opportunity of personal hearing:
The court examined the provisions of Section 144B, emphasizing the necessity of a faceless assessment procedure, which includes the right to a personal hearing via video conferencing if requested by the assessee. The court noted that the petitioner was not given a draft assessment order along with a show cause notice, thereby denying the petitioner the chance to explain the proposed additions. This procedural lapse was deemed a violation of the principles of natural justice and the statutory requirements under Section 144B.

Judgment:
The court concluded that the assessment order was passed in violation of the principles of natural justice and the prescribed procedure under Section 144B. Consequently, the impugned assessment order dated 23.09.2021 and the demand notice under Section 156 were quashed and set aside. The respondent was granted liberty to proceed with the assessment afresh, adhering to the provisions of Section 144B, including issuing a show cause notice-cum-draft assessment order to provide the petitioner an opportunity of hearing. This exercise was directed to be completed within 12 weeks from the receipt of the court's order. The court clarified that it had not examined the merits of the case.

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