Delhi High Court Sets Aside Assessment Order for Violation of Mandatory Procedure

Get the full picture - access the original judgement of the court order here

Case Name:

Floral Realcon Pvt. Ltd. vs. National Faceless Assessment Centre (High Court of Delhi)

W.P.(C) 9027/2021 & CM APPL. 28086/2021

Date: 9th September 2021

Key Takeaways:

1. Violation of mandatory procedures in income tax assessment can lead to the setting aside of assessment orders, notices of demand, and penalties.

2. The principles of natural justice and procedural requirements stipulated in the Income Tax Act, 1961, must be adhered to during assessment proceedings.

3. The Court may remand the matter back to the Assessing Officer for proper compliance with the procedural requirements if a violation is found.

The High Court of Delhi at New Delhi, dated 09.09.2021, regarding a writ petition (W.P.(C) 9027/2021 & CM APPL. 28086/2021) filed by Floral Realcon Pvt. Ltd. against the National Faceless Assessment Centre. The judgment was delivered by HON’BLE MR. JUSTICE MANMOHAN and HON’BLE MR. JUSTICE NAVIN CHAWLA.

The petitioner challenged the Impugned Assessment Order under Section 143(3) (of Income Tax Act, 1961) read with section 144B (of Income Tax Act, 1961) and the notice of demand issued under Section 156 (of Income Tax Act, 1961), both dated 23rd April 2021, and the notice for penalty dated 11th June 2021 issued under Section 270A (of Income Tax Act, 1961) for the Assessment Year 2018-19.

The petitioner’s counsel argued that the impugned assessment order was passed without issuing a show cause notice and draft assessment order as mandated under Section 144B(1)(xvi)(b) (of Income Tax Act, 1961), which is violative of the principles of natural justice and the provisions contained in clauses (xiv) to (xvi) of Section 144B(1) (of Income Tax Act, 1961) and Section 144B(9) (of Income Tax Act, 1961).

On the other hand, the respondent’s counsel stated that the show cause notice and draft assessment order were uploaded by the Assessing Officer, but admitted that proof of service of the said documents upon the petitioner is not available with the Assessing Officer.

The Court held that Section 144B(1)(xvi)(b) (of Income Tax Act, 1961) mandatorily provides for the issuance of a prior show cause notice and draft assessment order before issuing a final assessment order. Since the petitioner’s claim that no show cause notice and draft assessment order had been issued was not proven false, the Court found a violation of the mandatory procedure stipulated in Section 144B (of Income Tax Act, 1961).

As a result, the Court set aside the impugned assessment order, notice of demand dated 23rd April 2021, and notice of penalty under Section 270A (of Income Tax Act, 1961), dated 11th June 2021, and remanded the matter back to the Assessing Officer. The Assessing Officer was directed to issue another copy of the draft assessment order and a show cause notice under Section 144B(xvi) (of Income Tax Act, 1961) within two working days. The petitioner was given seven working days to file its response, and the Assessing Officer was instructed to pass a reasoned order in accordance with the law.

The Court also mentioned that under Section 153(6)(i) (of Income Tax Act, 1961), the Assessing Officer has a one-year limitation from that day to pass the Assessment Order. The writ petition, along with pending applications, was disposed of, and the order was to be uploaded on the website forthwith, with a copy forwarded to the learned counsel through e-mail.

This judgment highlights the importance of following the mandatory procedures stipulated in the Income Tax Act, 1961, and the principles of natural justice in assessment proceedings.

FAQ:

Q1: What was the petitioner’s claim in the case?

A1: The petitioner claimed that the assessment order was passed without issuing a show cause notice and draft assessment order as mandated by the Income Tax Act, 1961.

Q2: What was the Court’s decision regarding the petitioner’s claim?

A2: The Court found that the petitioner’s claim was not proven false, indicating a violation of the mandatory procedure stipulated in the Act.

Q3: What action did the Court take as a result of the violation?

A3: The Court set aside the assessment order, notice of demand, and notice of penalty, and remanded the matter back to the Assessing Officer for proper compliance with the procedural requirements.

The petition has been heard by way of video conferencing.

1. Present writ petition has been filed challenging the Impugned Assessment Order under Section 143(3) (of Income Tax Act, 1961) read with section 144B (of Income Tax Act, 1961) and also the impugned notice of demand issued under Section 156 (of Income Tax Act, 1961) [the Act], both dated 23rd April 2021 and notice for penalty dated 11th June 2021 issued under Section 270A (of Income Tax Act, 1961) issued by the Respondent in the Petitioner’s case for the Assessment Year 2018-19.

2. Learned counsel for the Petitioner states that the impugned assessment order has been passed without issuing a show cause notice and draft assessment order mandated under Section 144B(1)(xvi)(b) (of Income Tax Act, 1961). He submits that the Respondent’s action is violative of the principles of natural justice and the provisions contained in clauses (xiv) to (xvi) of Section 144B(1) (of Income Tax Act, 1961) and Section 144B(9) (of Income Tax Act, 1961).

3. Per contra, Mr. Zoheb Hossain, learned counsel for the respondent states that the show cause notice and draft assessment order were uploaded by the Assessing Officer. He, however, candidly admits that proof of service of the said documents upon the petitioner is not available with the Assessing Officer.

4. This Court is of the view that Section 144B(1)(xvi)(b) (of Income Tax Act, 1961) mandatorily provides for issuance of a prior show cause notice and draft assessment order before issuing a final assessment order. The relevant portions of Section 144B(1)(xvi)(b) (of Income Tax Act, 1961) as well as Section 144B(9) (of Income Tax Act, 1961) are reproduced here in below:-

“144B. Faceless assessment –

(xvi) the National Faceless Assessment Centre shall examine the draft assessment order in accordance with the risk management strategy specified by the Board, including by way of an automated examination tool, whereupon it may decide to–

(b) provide an opportunity to the assessee, in case any variation prejudicial to the interest of assessee is proposed, by serving a notice calling upon him to show cause as to why the proposed variation should not be made; or

(9) Notwithstanding anything contained in any other provision of this Act, assessment made under sub-section (3) of section 143 (of Income Tax Act, 1961) or under section 144 (of Income Tax Act, 1961) in the cases referred to in sub_section (2) [other than the cases transferred under sub-section (8)], on or after the 1st day of April, 2021, shall be non est if such assessment is not made in accordance with the procedure laid down under this section.”

5. Since in the present case the averment that no show cause notice as well as draft assessment order has been issued, has not been shown to be false, there is violation of mandatory procedure stipulated in Section 144B (of Income Tax Act, 1961).

6. Keeping in view the aforesaid, the impugned assessment order, notice of demand dated 23rd April 2021 and notice of penalty under Section 270A (of Income Tax Act, 1961), dated 11th June 2021, are set aside and the matter is remanded back to the Assessing Officer, who shall issue another copy of the draft assessment order and a show cause notice under Section 144B(xvi) (of Income Tax Act, 1961) within two working days. Thereafter, the petitioner shall file its response within seven working days and the Assessing Officer shall pass a reasoned order in accordance with law. It is pertinent to mention that the learned counsel for the petitioner states that under Section 153(6)(i) (of Income Tax Act, 1961), the Assessing Officer has one year limitation from today to pass the Assessment Order.

Recording the said concession and direction, the present writ petition

along with pending applications stands disposed of.

7. The order be uploaded on the website forthwith. Copy of the order be also forwarded to the learned counsel through e-mail.

MANMOHAN, J

NAVIN CHAWLA, J

SEPTEMBER 9, 2021