Faceless income tax assessment without show cause notice breaches natural justice, order quashed and remitted for fresh compliant assessment.

Faceless assessment orders issued without a statutory show cause notice and opportunity of hearing violate the principles of natural justice as embodied in Section 144B of the Income Tax Act; non adherence to that mandatory procedure renders the assessment patently illegal. The court reasoned that statutory recognition of natural justice requires issuance of a show cause cum draft assessment and an opportunity to be heard before any civilly prejudicial tax order is passed, and an order made in breach is vitiated and a nullity. The impugned assessment was quashed and set aside, with direction to follow the statutory procedure and pass a fresh assessment in accordance with law.

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Issues Involved:

1. Violation of principles of natural justice.
2. Non-compliance with Section 144B of the Income Tax Act, 1961.
3. Legality of the assessment order and demand notice.

Issue-wise Detailed Analysis:

1. Violation of Principles of Natural Justice:

The petitioner challenged the assessment order on the grounds of violation of principles of natural justice, arguing that the assessment was conducted without issuing a show cause notice-cum-draft assessment order. The petitioner contended that the absence of such a notice deprived them of the opportunity to respond to any adverse findings, which is a fundamental requirement under the principles of natural justice. The court observed that the principles of natural justice are statutorily recognized in Section 144B of the IT Act, and any non-adherence to these principles renders the order patently illegal. The court emphasized that an order passed without granting an opportunity of hearing is vitiated, non-est, and a nullity.

2. Non-compliance with Section 144B of the Income Tax Act, 1961:

The petitioner argued that the assessment order was passed contrary to the provisions of Section 144B, specifically clauses (xiv), (xix), (xx), and (xxii) of sub-section (1). These provisions mandate the issuance of a show cause notice when any variation prejudicial to the assessee's interest is proposed. The court noted that the statutory procedure under Section 144B was not followed, as no show cause notice-cum-draft assessment order was issued. The court highlighted that compliance with these provisions is mandatory, and failure to do so constitutes an incurable defect in the assessment order.

3. Legality of the Assessment Order and Demand Notice:

The petitioner sought to quash the assessment order and the consequential demand notice, arguing that they were without jurisdiction, illegal, and arbitrary. The court agreed with the petitioner, noting that the assessment order was contrary to the statutory mandate and principles of natural justice. The court referenced the Supreme Court's decision in Tin Box Co. v. Commissioner of Income-tax, which underscored the necessity of setting aside an assessment order when proper opportunity of hearing was not provided. Consequently, the court held that the assessment order and demand notice were illegal and required to be quashed.

Conclusion:

The court allowed the petition, quashing the impugned assessment order and the consequential demand notice. It directed the respondent to follow the due procedure by issuing a show cause notice-cum-draft assessment order and completing the assessment process within three months. The court emphasized the need for adherence to the statutory provisions and principles of natural justice in the assessment process.

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