Assessment order set aside for violating mandatory Section 144B procedure requiring show cause notice and draft order

Delhi HC set aside assessment order passed under Section 143(3) read with 143(3A) and 143(3B) for violating mandatory procedure under Section 144B(1)(xvi)(b). The court held that faceless assessment requires prior show cause notice and draft assessment order before final order. Since neither was issued, statutory mandate was breached. Court emphasized that when power is given to do something in a certain way, it must be done exactly that way or not at all, regardless of natural justice compliance. Disputed demand under Section 156 was also set aside.

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Issues:
Challenge to assessment order under Income Tax Act, 1961 for lack of natural justice requirements in faceless assessment scheme.

Analysis:
The petition challenges the Assessment Order dated 03rd April 2021 under Section 143(3) read with Section 143(3A) and 143(3B) of the Income Tax Act, 1961, along with the disputed demand raised under Section 156 of the Act. The petitioner argues that the assessment order is jurisdictionally flawed and violates natural justice requirements in the faceless assessment scheme and relevant CBDT instructions. The petitioner emphasizes the absence of a valid show cause notice and draft assessment order before creating a tax demand of Rs. 92,14,550.

The respondent contends that principles of natural justice were adhered to, as the petitioner received adequate notice for the tax demand and responded with a detailed reply. The respondent relies on the Constitution Bench judgment of the Supreme Court to support their argument regarding the effect of non-furnishing of reports in disciplinary cases on the punishment awarded.

The Court notes that Section 144B(1)(xvi)(b) of the Act mandates the issuance of a prior show cause notice and draft assessment order before the final assessment order. As no such notices were issued in the present case, the Court finds a violation of the prescribed procedure. The Court emphasizes the importance of following statutory procedures when conducting assessments, citing established legal principles.

Consequently, the Court sets aside the impugned assessment order and the disputed demand, remanding the matter back to the Assessing Officer for compliance with the statutory procedure. The Court directs the Assessing Officer to issue a show cause notice and draft assessment order before passing a reasoned order in accordance with the law. The writ petition is disposed of with these directions, and the order is to be uploaded on the website and forwarded to the counsel via email.

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