2025 (3) TMI 304 - HC - Income Tax

Faceless assessment under Section 144B quashed for violating natural justice without proper show cause notice

Saurabh Rohitbhai Modi HUF Versus Addl/Joint/Dy. /ACIT/ITO NATIONAL Faceless Assessment Centre Or His Successor & Anr.

Gujarat HC quashed faceless assessment order under Section 144B for violating natural justice principles. The court held that absence of show cause notice ... Procedure of faceless assessment u/s 144B - absence of show cause notice - HELD THAT:- The entire faceless assessment scheme provides for an opportunity to be given to the assessee whenever there is a proposed variation from the earlier determination of assessment prejudicial to the interest of the assessee. Therefore, the absence of such a show cause notice would clearly be a violation of the principles of natural justice, rendering the Assessment Order passed as void. In the present case, the perusal of the e-proceeding sheet clearly indicates that, after having issued notice u/s 148, the Respondent issued only two notices; one u/s 143(2) dated 21.05.2021 and another issued on 15.02.2022 u/s 142(1), which simply called for the details, and as such, the same were pre-assessment notices as envisaged in clause (vi) of Section 144B(1). The entire procedure subsequent to obtaining further information, documents or evidence has not been gone through in case of the Petitioner, and straightaway, the impugned assessment has been finalized. Thus, there has been a blatant violation of the mandatory procedure prescribed under the Faceless Assessment Scheme as stipulated u/s.144B of the Act as held in case of Akashganga Infraventures Indi Ltd. Vs. National Faceless Assessment Centre [2021 (8) TMI 1343 - DELHI HIGH COURT] Thus, the present petition succeeds and is accordingly allowed. The matter is remanded back to the AO by quashing and setting aside the impugned assessment order as well as demand notice u/s 156 of the Act, as well as the notice for penalty u/s 271(1)(C) read with Section 274. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered in this judgment revolve around the procedural compliance with the Faceless Assessment Scheme under Section 144B of the Income Tax Act, 1961, particularly regarding the issuance of a draft assessment order and the opportunity for the assessee to respond to variations proposed in the assessment. The issues include:Whether the failure to issue a draft assessment order and provide an opportunity to the petitioner to respond constitutes a violation of the principles of natural justice.Whether the impugned assessment order and notices issued without following the prescribed procedure under Section 144B are valid.Whether the writ jurisdiction under Article 226 of the Constitution of India can be invoked in light of the alleged procedural violations, despite the availability of an alternative remedy.ISSUE-WISE DETAILED ANALYSIS1. Compliance with Section 144B of the Income Tax ActLegal Framework and Precedents: Section 144B mandates the issuance of a draft assessment order and an opportunity for the assessee to respond to any variations prejudicial to their interest. The Faceless Assessment Scheme aims to ensure transparency and fairness in tax assessments.Court's Interpretation and Reasoning: The Court emphasized the mandatory nature of Section 144B, highlighting that any deviation from its prescribed procedure, such as failing to issue a draft assessment order, constitutes a violation of natural justice principles.Key Evidence and Findings: The Respondent issued only pre-assessment notices under Sections 143(2) and 142(1) but did not follow through with the required draft assessment order or provide an opportunity for the petitioner to respond to proposed variations.Application of Law to Facts: The Court found that the Respondent's actions violated the statutory procedure under Section 144B, rendering the assessment order void.Treatment of Competing Arguments: The Respondent argued that the assessment was legal and within jurisdiction, but the Court rejected this, focusing on the procedural lapses and the principles of natural justice.Conclusions: The Court concluded that the failure to comply with Section 144B's procedural requirements invalidated the assessment order and related notices.2. Invocation of Writ Jurisdiction under Article 226Legal Framework and Precedents: The Court considered whether the procedural violations justified invoking writ jurisdiction despite the availability of an alternative remedy through appeal.Court's Interpretation and Reasoning: Citing precedents, the Court held that violations of natural justice and statutory procedures fall within exceptions allowing the invocation of writ jurisdiction.Key Evidence and Findings: The Court noted that the procedural lapses in the assessment process justified the use of writ jurisdiction to address the grievances.Application of Law to Facts: Given the procedural violations, the Court deemed it appropriate to exercise its discretionary powers under Article 226.Treatment of Competing Arguments: The Respondent's argument for pursuing alternative remedies was dismissed, as the Court prioritized addressing the procedural violations.Conclusions: The Court allowed the writ petition, emphasizing the need to uphold procedural fairness and natural justice.SIGNIFICANT HOLDINGSPreserve Verbatim Quotes of Crucial Legal Reasoning: 'The entire faceless assessment scheme provides for an opportunity to be given to the assessee whenever there is a proposed variation... Therefore, the absence of such a show cause notice would clearly be a violation of the principles of natural justice.'Core Principles Established: The judgment reinforces the principle that procedural compliance with statutory requirements is essential to uphold natural justice in faceless assessments.Final Determinations on Each Issue: The Court quashed the impugned assessment order and related notices, directing the Assessing Officer to issue a fresh show cause notice and draft assessment order, allowing the petitioner an opportunity for a hearing as per Section 144B.The judgment underscores the importance of adhering to statutory procedures in tax assessments to ensure fairness and transparency, reinforcing the role of courts in safeguarding procedural justice through writ jurisdiction when necessary.