2025 (11) TMI 1777 - HC - Income Tax

Assessment under Section 143(3) r/w 144B quashed for non-faceless procedure despite rejected natural justice plea

Optival Health Solutions Private Limited, Raja Pushpa Properties Private Limited, Dhanlaxmi Iron Industries Private Limited and K. Yadagiri Versus Assessment Unit and 2 Others, Union Of India, Assistant Commissioner of Income Tax National E-Assessment Delhi, The Assessment Unit Income Tax Department National Faceless Assessment Delhi, Ministry of Finance National Faceless Assessment Center, Deputy Commissioner of Income Tax Hyderabad.

HC held that the assessee's plea of violation of natural justice in the assessment under Section 143(3) r/w 144B was untenable, noting repeated show-cause ... Validity of order passed u/s 143(3) r/w Section 144B - as alleged assessment order has been passed without following the principles of natural justice inasmuch as the Department has not granted a fair and reasonable opportunity to defend their case and also in producing relevant records before the authorities before passing the assessment order - HELD THAT:- Upon perusal of the responses submitted by the petitioner, certain facts which are apparently evident is that the petitioner has not been able to produce complete details including PAN, address of the parties, etc. in spite of repeat notices being issued by the Department and based upon which necessary verification could had been conducted. Further, the petitioner also was not able to explain credit worthiness of the advances so made particularly in respect of an amount. Admission on the part of the petitioner himself of having received repeated show-cause notices by the Department from time to time, goes to establish that the contention of the petitioner being denied fair opportunity of defence would not be sustainable as the Department in fact had given ample opportunity to the petitioner to appear and defend its case by leading cogent and substantial materials to substantiate the contents of the show-cause notice. Thus, this Bench is of the firm view that the contention of the petitioner of the impugned assessment order being in violation of the principles of natural justice is not sustainable and the same stands decided in favour of the Revenue and against the petitioner. Assessment proceedings by FAO v/a JAO - violation of the provisions of Section 144B -The provisions of the Income Tax Act stood amended w.e.f. 01.04.2021 by virtue of the Finance Act, 2021. With the insertion of Section 144B, all the assessments, reassessments and recomputations which are proposed to be carried out under Section 144(3) has to be done in a faceless manner. The issue of faceless assessment becoming mandatory for proceedings drawn after 01.04.2021 already stands adjudicated upon in a series of litigations in the case of Kankanala Ravindra Reddy and Others [2023 (9) TMI 951 - TELANGANA HIGH COURT] In the instant case also, the Department has not been able to show one good reason as to why the amended provisions as per the Finance Act, 2021 insofar the proceedings to be initiated in a faceless manner could not be done. In the counter also the Department has been silent so far as the faceless assessment part is concerned. The judgment in the case of Kankanala Ravindra Reddy and Others (supra) also squarely applies to the facts of this case and the impugned assessment order deserves to be and is accordingly set aside / quashed. The second ground thus stands decided in favour of the assessee and against the Revenue. The impugned order therefore is not sustainable and the same deserves to be and accordingly set aside / quashed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the impugned assessment orders were vitiated for violation of principles of natural justice on account of alleged denial of fair and reasonable opportunity to the assessees. 1.2 Whether assessment orders passed after 01.04.2021 by the Jurisdictional Assessing Officer, instead of under the mandatory faceless assessment procedure prescribed by Section 144B of the Income Tax Act, 1961 (as amended by the Finance Act, 2021), are valid and sustainable in law. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Alleged violation of principles of natural justice Legal framework (as discussed) 2.1 The Court examined this issue on the touchstone of the general principles of natural justice, namely, requirement of fair and reasonable opportunity to respond to notices and to place material before the assessing authority. Interpretation and reasoning 2.2 In the principal writ petition relating to assessment year 2020-21, the Court noted that: (i) the return was selected for scrutiny; (ii) notice under Section 143(2) was issued; (iii) detailed notice under Section 142(1) was issued on 21.02.2022; (iv) the assessee filed a detailed reply on 15.03.2022 with annexures; (v) a further notice under Section 142(1) was issued on 22.08.2022 calling for additional details including PAN, addresses, contact details and confirmations; (vi) the assessee filed multiple responses on 10.09.2022, 14.09.2022, 15.09.2022; and (vii) a show cause notice dated 20.09.2022 was issued, replied to on 23.09.2022 before passing of the assessment order on 29.09.2022. 2.3 On perusal of the responses, the Court found that despite repeated notices, the assessee had not furnished complete particulars (including PAN and addresses of all relevant parties) and failed to satisfactorily explain the creditworthiness of the advances, particularly in relation to the amount of Rs. 134,11,84,938/-. This factual position undermined the plea that opportunity was denied. 2.4 The Court treated the assessee's own admission of receipt of repeated notices/show cause notices as conclusive of the fact that opportunities were in fact granted. It held that where multiple statutory notices are served and replies are filed, the mere grievance that the assessment was completed within a short span after the last show cause notice cannot, by itself, establish denial of natural justice. 2.5 In the connected writ petitions, the Court again noted that the affidavits of the assessees themselves admitted receipt of the notices issued 'time and again', and that they had consulted their auditors and consultants upon such receipt. The assessment orders themselves reflected the sequence of notices and opportunities in tabular form. The Court therefore treated the factual matrix as materially similar to the principal writ petition. Conclusions 2.6 The Court held that: (a) The Department had provided 'ample opportunity' to the assessees to present their case and to furnish supporting material. (b) The contention that the impugned assessment orders were passed in violation of principles of natural justice was 'not sustainable'. (c) This issue was decided in favour of the Revenue and against the assessees in all the writ petitions. Issue 2: Validity of assessment orders passed by Jurisdictional Assessing Officer instead of under faceless regime mandated by Section 144B Legal framework (as discussed) 2.7 The Court recorded that by virtue of the Finance Act, 2021, with effect from 01.04.2021, Section 144B was inserted, mandating that all assessments, reassessments and recomputations proposed to be carried out under Section 143(3) must be undertaken in a 'faceless manner'. 2.8 The Court relied upon and extracted at length a prior Division Bench judgment in a batch of writ petitions (lead case referred to as involving reassessment notices post Finance Act, 2021), wherein it was held that: (a) After introduction of the faceless schemes and substituted provisions by the Finance Act, 2021, proceedings (including reassessment) must conform to the amended regime. (b) The Supreme Court, while dealing with reassessment notices (in the context of the decision referred to as 'Ashish Agarwal'), had clearly directed that the Revenue must proceed further only under the substituted provisions introduced by the Finance Act, 2021. (c) It is a settled principle that where a statute prescribes that something must be done in a particular manner, it must be done in that manner and in no other; if not so done, it has 'no existence in the eye of law'. (d) Non-compliance with the mandatory substituted procedure under the Finance Act, 2021 renders such proceedings and resultant orders illegal and liable to be quashed, and all consequential orders fall with them. 2.9 The Court quoted and applied the principle laid down by the Supreme Court that there can be 'no estoppel against law' and that statutory procedure must be strictly followed, referring to multiple decisions to emphasise that an act done contrary to a mandatory procedure prescribed by law is a nullity. Interpretation and reasoning 2.10 The Court found as a matter of fact that in the present batch of writ petitions: (a) The impugned assessment orders related to proceedings after 01.04.2021; and (b) The assessment orders had been passed by the Jurisdictional Assessing Officer and not under the faceless assessment procedure envisaged by Section 144B. 2.11 The Court specifically recorded that the Department had not offered 'one good reason' explaining why the amended provisions under the Finance Act, 2021, requiring faceless assessment, were not followed. The counter-affidavit was silent on the aspect of faceless assessment. 2.12 Applying the earlier Division Bench decision on reassessment proceedings to the present regular assessments, the Court held that once the law post 01.04.2021 mandates that assessments be conducted in a faceless manner, any assessment carried out by the jurisdictional officer in the traditional (non-faceless) mode is in direct contravention of the statute and is therefore untenable. 2.13 The Court reasoned that where initiation and conduct of assessment proceedings themselves are procedurally contrary to the mandatory statutory scheme, the resultant orders are vitiated ab initio and cannot be sustained, and all consequential orders must also fall. Conclusions 2.14 The Court concluded that: (a) The assessments for the relevant assessment years, initiated and completed after 01.04.2021 by the Jurisdictional Assessing Officer instead of under the faceless regime prescribed by Section 144B, were in clear violation of the amended statutory provisions. (b) The ratio of the earlier Division Bench judgment (holding that post-01.04.2021 proceedings must mandatorily follow the substituted, faceless procedure under the Finance Act, 2021) applied squarely to the facts of these cases. (c) The impugned assessment orders in all four writ petitions were 'not sustainable' in law and deserved to be, and were accordingly, set aside/quashed. (d) All consequential orders passed pursuant to the impugned assessments were also set aside/quashed on the principle that when the initiation and conduct of proceedings are procedurally wrong, subsequent orders automatically stand nullified. (e) In each writ petition, this issue was decided in favour of the assessee and against the Revenue, resulting in allowing of all four writ petitions, with no order as to costs.