High Court of Delhi Sets Aside Assessment Order Due to Violation of Natural Justice

Case Name:

Akashganga Infraventures India Limited vs. National Faceless Assessment Centre, Delhi

Key Takeaways:

1. The assessment order, notice of demand, and notice of penalty dated 19th April 2021 for the Assessment Year 2018-19 were set aside by the High Court of Delhi.

2. The matter was remanded back to the Assessing Officer, who was directed to issue a draft assessment order and thereafter pass a reasoned order in accordance with the law.

3. The violation of principles of natural justice and the mandatory procedure prescribed in the “Faceless Assessment Scheme” led to the setting aside of the impugned assessment order.

The High Court of Delhi at New Delhi, dated 04.08.2021, regarding a case between Akashganga Infraventures India Limited (the Petitioner) and the National Faceless Assessment Centre, Delhi (the Respondent). The case involves a challenge to the Assessment order, notice of demand, and notice of penalty dated 19th April 2021, passed under Section 143(3) read with Section 144B, Section 156, and Section 274 read with Section 271AAC(1) of the Income Tax Act, 1961 for the Assessment Year 2018-19.

The judgment discusses the arguments presented by both the Petitioner and the Respondent. The Petitioner’s counsel argued that there was a breach of principles of natural justice as the Respondent failed to issue the mandatory Show Cause Notice-cum-draft assessment order to the petitioner/assessee prior to passing the impugned assessment order. On the other hand, the counsel for the Respondent-Revenue argued that the final Assessment order was passed without the issuance of a formal Show Cause Notice due to program and systemic glitches, and that the petitioner had been given ample opportunities and time for furnishing the requisite details and making submissions.

The Court, after considering the arguments, found that there was a violation of principles of natural justice as well as the mandatory procedure prescribed in the “Faceless Assessment Scheme” and as stipulated in Section 144B of the Income Tax Act, 1961. The Court set aside the impugned assessment order, notice of demand, and notice of penalty dated 19th April 2021 for the Assessment Year 2018-19 and remanded the matter back to the Assessing Officer, directing them to issue a draft assessment order and thereafter pass a reasoned order in accordance with the law.

The judgment was signed by HON’BLE MR. JUSTICE MANMOHAN and HON’BLE MR. JUSTICE NAVIN CHAWLA on August 4, 2021.

FAQ:

Q1: What was the judgment about?

A1: The judgment was about setting aside an assessment order, notice of demand, and notice of penalty for the Assessment Year 2018-19 due to a violation of principles of natural justice and the mandatory procedure prescribed in the “Faceless Assessment Scheme” under Section 144B of the Income Tax Act, 1961.

Q2: What was the outcome of the judgment?

A2: The High Court of Delhi set aside the assessment order, notice of demand, and notice of penalty dated 19th April 2021 for the Assessment Year 2018-19 and remanded the matter back to the Assessing Officer for further action.

Q3: What were the key reasons for setting aside the assessment order?

A3: The violation of principles of natural justice and the mandatory procedure prescribed in the “Faceless Assessment Scheme” as stipulated in Section 144B of the Income Tax Act, 1961, led to the setting aside of the impugned assessment order.

1. The petition has been heard by way of video conferencing.

2. Present writ petition has been filed challenging the Assessment order, notice of demand and notice of penalty dated 19th April 2021 passed under Section 143(3) read with Section 144B, Section 156 and Section 274 read with Section 271AAC(1) of the Income Tax Act, 1961 [the Act] pertaining to the Assessment Year 2018-19.

3. Learned counsel for the Petitioner states that there has been a breach of principles of natural justice, inasmuch as the respondent/revenue has failed to issue the mandatory Show Cause Notice-cum-draft assessment order to the petitioner/assessee, prior to passing of the impugned assessment order.

4. Per contra, the counsel for the Respondent-Revenue states that the final Assessment order has been passed without issuance of a formal Show Cause Notice due to program and systemic glitches and he points out that the petitioner has been given ample opportunities and time for furnishing the requisite details and making submissions and hence there was no violation of principles of natural justice.

5. This Court is of the view that Section 144B (7) mandatorily provides for issuance of a prior show cause notice and draft assessment order before issuing the final assessment order. The relevant portion of Section 144B (7) and Section 144B (9) are reproduced here in below: -

“144B. Faceless assessment –

(7) For the purposes of faceless assessment—

(vii) in a case where a variation is proposed in the draft assessment order or final draft assessment order or revised draft assessment order, and an opportunity is provided to the assessee by serving a notice calling upon him to show-cause as to why the assessment should not be completed as per the such draft or final draft or revised draft assessment order, the assessee or his authorised representative, as the case may be, may request for personal hearing so as to make his oral submissions or present his case before the income-tax authority in any unit;

(9) Notwithstanding anything contained in any other provision of this Act, assessment made under sub-section (3) of section 143 or under section 144 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.”

6. Since in the present case no prior Show Cause Notice as well as draft assessment order had been issued before passing the impugned assessment order, there is a blatant violation of principles of natural justice as well as mandatory procedure prescribed in “Faceless Assessment Scheme” and as stipulated in Section 144B of the Act.

7. Keeping in view the aforesaid facts, the impugned assessment order, notice of demand and notice of penalty dated 19th April, 2021 for the Assessment Year 2018-19 are set aside and the matter is remanded back to the Assessing Officer, who shall issue a draft assessment order and thereafter pass a reasoned order in accordance with law.

8. With the aforesaid direction, the present writ petition along with pending application stands disposed of.

9. 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

AUGUST 4, 2021