Assessment order quashed for procedural violations in faceless assessment under Section 144B including denial of cross-examination rights

Gujarat HC quashed assessment order due to procedural irregularities in faceless assessment under Section 144B. AO issued summons under Section 133(6) but failed to refer them in show cause notice, didn't provide copy of replies received, and denied cross-examination opportunity to petitioner regarding Section 68 addition for unsecured loan. Court found clear variance between draft assessment order and final order, violating faceless assessment scheme. Following precedents in similar cases, HC set aside assessment order and remitted matter to AO for fresh consideration with proper procedural compliance including document supply and cross-examination rights.

---

---

Issues involved:
The judgment involves the quashing of an assessment order u/s 68 of the Income Tax Act, 1961 due to procedural irregularities in the faceless assessment process.

Details of the Judgment:

Issue 1: Assessment Order Quashing
The petitioner sought to quash the assessment order dated 18th March 2024 passed by the respondent under Article 226 of the Constitution of India. The petitioner had filed a return of income for Assessment Year 2022-23, and the respondent Assessing Officer proposed to add the balance of unsecured loan obtained by the petitioner as unexplained cash credit u/s 68 of the Act. The petitioner challenged this addition, citing procedural lapses in the assessment process.

Issue 2: Procedural Irregularities
The petitioner contended that the show cause notice did not reference the summons issued under Section 133 (6) of the Act to parties from whom the unsecured loan was obtained. The Assessing Officer made additions based on parties' replies without providing an opportunity for cross-examination. The petitioner argued that principles of natural justice were violated as no further opportunity was given to address the information gathered post the show cause notice.

Issue 3: Breach of Natural Justice
The petitioner highlighted the Assessing Officer's failure to provide an opportunity for cross-examination of parties whose replies were considered for making additions under Section 68 of the Act. Citing precedents and the scheme of faceless assessment u/s 144B of the Act, the petitioner argued for quashing the assessment order due to a breach of natural justice.

Judgment Summary:
The High Court found a clear variance between the show cause notice and the assessment order, contrary to the faceless assessment scheme u/s 144B of the Act. It noted that the Assessing Officer did not provide an opportunity for cross-examination post the show cause notice. Relying on previous cases, the Court quashed the assessment order and remitted the matter back to the Assessing Officer for a fresh assessment order, emphasizing the need for providing all relied upon documents and an opportunity for cross-examination. The Court directed the fresh assessment to be completed within 12 weeks.

Conclusion:
The petition was disposed of by quashing the assessment order and remitting the matter for a fresh assessment order, ensuring compliance with procedural fairness and principles of natural justice within the specified timeline.

---