High Court Sets Aside Assessment Order for Violation of Natural Justice

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Case Name:

Javin Construction Private Limited Vs. National Faceless Assessment Centre & Ors. (High Court of Delhi)

W.P.(C) 7896/2021 & CM APPL. 24553-54/2021

Date: 6th August 2021

Key Takeaways:

1. Violation of principles of natural justice and mandatory procedure under the “Faceless Assessment Scheme” led to the setting aside of the assessment order, notice of demand, and show cause notice for imposition of penalty.

2. The court emphasized the importance of issuing a prior show-cause notice and draft assessment order before issuing the final assessment order, as mandated under Section 144B(1)(xvi)(b) (of Income Tax Act, 1961).

3. The judgment highlights the significance of following prescribed procedures and principles of natural justice in assessment proceedings under the Income Tax Act, 1961.

A judgment from the High Court of Delhi at New Delhi, dated 06.08.2021, regarding a writ petition (W.P.(C) 7896/2021) filed by Javin Construction Private Limited against the National Faceless Assessment Centre & Ors. The judgment was delivered by HON’BLE MR. JUSTICE MANMOHAN and HON’BLE MR. JUSTICE NAVIN CHAWLA.

The petitioner challenged the impugned assessment order, notice of demand, show cause notice for imposition of penalty under Section 274 (of Income Tax Act, 1961) read with Section 271AAC(1) (of Income Tax Act, 1961), and penalty under Section 274 (of Income Tax Act, 1961) read with Section 270A (of Income Tax Act, 1961) [the Act] dated 22nd April 2021. The petitioner argued that the assessment order was passed without issuing a show-cause notice and draft assessment order, which is mandated under Section 144B(1)(xvi)(b) (of Income Tax Act, 1961). The petitioner contended that the respondent’s action violated the principles of natural justice and the provisions of Section 144B (of Income Tax Act, 1961).

The court issued a notice to the respondents, and the Advocate appearing on behalf of Ms. Vibhooti Malhotra accepted the notice for the respondents. The respondents requested an adjournment, which was declined by the court. The court also stated that the respondent is given liberty to seek variation/modification of the order if facts have been suppressed from the court or misstated in the petition.

The court observed 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 the final assessment order. The court also referred to relevant portions of Section 144B(1)(xvi)(b) (of Income Tax Act, 1961) as well as Section 144B(9) (of Income Tax Act, 1961).

Since no prior show-cause notice as well as draft assessment order had been issued in the present case, the court concluded that there was a violation of principles of natural justice as well as the mandatory procedure prescribed under the “Faceless Assessment Scheme.” Consequently, the court set aside the impugned assessment order, notice of demand, show cause notice for imposition of penalty, and remanded the matter back to the Assessing Officer, with directions to issue a draft assessment order and thereafter pass a reasoned order in accordance with the law.

Finally, the court disposed of the present writ petition along with pending applications and directed that the order be uploaded on the website forthwith and a copy of the order be forwarded to the learned counsel through e-mail.

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

FAQ:

Q1: What was the petition challenging?

A1: The petition challenged the impugned assessment order, notice of demand, show cause notice for imposition of penalty under the Income Tax Act, 1961.

Q2: What led to the setting aside of the assessment order?

A2: The assessment order was set aside due to the violation of principles of natural justice and the mandatory procedure prescribed under the “Faceless Assessment Scheme.”

Q3: What is the significance of this judgment?

A3: The judgment emphasizes the importance of following prescribed procedures and principles of natural justice in assessment proceedings under the Income Tax Act, 1961.

The petition has been heard by way of video conferencing.

1. Present writ petition has been filed challenging the impugned

assessment order, notice of demand, show cause notice for imposition

of penalty under Section 274 (of Income Tax Act, 1961) read with Section 271AAC(1) (of Income Tax Act, 1961) and

penalty under Section 274 (of Income Tax Act, 1961) read with Section 270A (of Income Tax Act, 1961) [the Act] dated 22nd April 2021.

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 which is mandated under Section

144B(1)(xvi)(b) of the Act. He states that the Respondent’s action is

violative of the principles of natural justice and the provisions of the

Section 144B (of Income Tax Act, 1961).

3. Issue Notice. Mr.Udit Sharma, Advocate appearing on behalf of

Ms.Vibhooti Malhotra accepts notice for the respondents. He prays for

an adjournment on the ground that Ms.Vibhooti Malhotra, Senior

Standing Counsel, who is to appear in this case, is in some personal

difficulty. However, since this Court has disposed of number of

matters on the same issue, the request for adjournment is declined.

However, the respondent is given liberty to seek

variation/modification of the order in the event facts have been

suppressed from this Court or misstated in the petition.

5. 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 the final assessment order. The

relevant portions of Section 144B(1)(xvi)(b) (of Income Tax Act, 1961) as well as Section

144B(9) of the Act 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 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.”

6. Since in the present case no prior show cause notice as well as

draft assessment order have been issued, there is a violation of

principles of natural justice as well as mandatory procedure prescribed

under “Faceless Assessment Scheme”.

7. Keeping in view the aforesaid, the impugned assessment order,

notice of demand, show cause notice for imposition of penalty under

Section 274 (of Income Tax Act, 1961) read with Section 271AAC(1) (of Income Tax Act, 1961) and penalty under Section

274 read with Section 270A (of Income Tax Act, 1961), dated 22nd April 2021, 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 applications 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 6, 2021