Final assessment order validity due to denial of personal hearing under natural justice principles; order quashed and consequential notices invalidated.

Denial of a personal hearing in draft assessment proceedings breached the principles of natural justice under the IT Act, rendering the final assessment order without jurisdiction and non est; consequence - the impugned assessment is quashed. Because the demand notice and penalty notices arose from that void assessment, those consequential notices cannot survive legal scrutiny and are invalid; consequence - related demand and penalty actions set aside. The court rejected respondent submissions about alternative appellate remedies and mere one day delay, emphasizing that foundational illegality cannot be cured by subsequent appeals and allowed the writ petition.

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1. ISSUES PRESENTED and CONSIDERED

The core legal question considered by the Court was whether the final assessment order dated 9 September 2022 was rendered a nullity due to non-compliance with the principles of natural justice, specifically the failure to grant a personal hearing as required under Section 144B of the Income Tax Act, 1961 (IT Act). Consequently, the Court also considered whether the subsequent demand notice and penalty proceedings based on this assessment order were legally valid.

2. ISSUE-WISE DETAILED ANALYSIS

Relevant Legal Framework and Precedents:

The legal framework primarily involved Sections 143(3) and 144B of the IT Act. Section 143(3) mandates that an assessment order should be made after hearing the evidence the assessee may produce. Section 144B, introduced to facilitate faceless assessment, requires adherence to principles of natural justice, including the opportunity for a personal hearing through video conferencing. The Court also referenced the principles of natural justice ingrained in Article 14 of the Constitution of India, which mandates audi alteram partem (the right to be heard).

Court's Interpretation and Reasoning:

The Court interpreted Section 144B as mandating a personal hearing if requested by the assessee. The Court emphasized that the statutory provisions are clear in requiring adherence to the principles of natural justice. The Court noted that the faceless assessment scheme aims to increase transparency and accountability, not to bypass fundamental rights.

Key Evidence and Findings:

The petitioner was issued a show cause notice-cum-draft assessment order on 18 August 2022, which allowed for a response by 26 August 2022, including a request for a personal hearing. The petitioner submitted a request for a personal hearing on 27 August 2022. However, the final assessment order was passed on 9 September 2022 without granting this hearing.

Application of Law to Facts:

The Court found that the respondents failed to comply with the statutory mandate under Section 144B by not granting a personal hearing despite the petitioner's request. This failure constituted a breach of natural justice principles, rendering the assessment order and subsequent notices legally unsustainable.

Treatment of Competing Arguments:

The respondents argued that the petitioner failed to comply with the timeline for requesting a hearing, which justified proceeding without it. The Court rejected this argument, stating that a one-day delay should not override the statutory right to a hearing. The Court emphasized that justice should not be sacrificed for technicalities.

Conclusions:

The Court concluded that the impugned assessment order was passed in violation of statutory provisions and principles of natural justice. Consequently, the demand notice and penalty proceedings based on this order were also invalid.

3. SIGNIFICANT HOLDINGS

The Court held that the assessment order dated 9 September 2022 was a nullity due to non-compliance with Section 144B of the IT Act, which requires a personal hearing upon request. The Court reiterated that the principles of natural justice are integral to the statutory framework and cannot be bypassed.

Preserve Verbatim Quotes of Crucial Legal Reasoning:

"It is well settled that an order passed in breach of the principles of natural justice would be required to be held to be vitiated, non-est and a nullity."

Core Principles Established:

The Court established that compliance with the principles of natural justice, specifically the right to a personal hearing, is mandatory under Section 144B of the IT Act. Any assessment order passed without adhering to these principles is without jurisdiction and void.

Final Determinations on Each Issue:

The Court quashed the impugned assessment order, demand notice, and penalty proceedings, declaring them null and void due to the violation of statutory provisions and principles of natural justice. The Court made the rule absolute in terms of the petitioner's prayers, with no order as to costs.

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