High Court Sets Aside Impugned Assessment Order Due to Violation of Faceless Assessment Scheme

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Case Name:

SAMS Facilities Management Private Limited vs. National Faceless Assessment Centre & Anr.(High Court of Delhi)

W.P.(C) 5185/2021& CM APPL. 15916/2021

Date: 13th August 2021

Key Takeaways:

1. The impugned assessment order dated 21st April 2021 was set aside by the High Court.

2. The matter was remanded back to the Assessing Officer for the issuance of a show cause notice and draft assessment order, followed by a reasoned order in accordance with the law.

3. The Court held that the provisions of Section 144B (of Income Tax Act, 1961) would apply to assessment proceedings related to years prior to 2021, provided they were pending disposal on 1st April 2021.

4. Violation of principles of natural justice and the mandatory procedure prescribed under the Faceless Assessment Scheme led to the setting aside of the assessment order.

A judgment from the High Court of Delhi at New Delhi, with the case number W.P.(C) 5185/2021& CM APPL. 15916/2021. The case involves SAMS Facilities Management Private Limited as the petitioner and the National Faceless Assessment Centre & Anr. as the respondents. The judgment was delivered on 13th August 2021 by Hon’ble Mr. Justice Manmohan and Hon’ble Mr. Justice Navin Chawla.

The petitioner challenged the impugned assessment order dated 21st April 2021, which was passed by Respondent No. 1 under Section 143(3) (of Income Tax Act, 1961) read with 144B of the Income-tax Act, 1961. The petitioner claimed that the assessment order was passed without adherence to the statutory provisions contained in clauses (xiv) to (xvi) of Section 144B(1) (of Income Tax Act, 1961), and 144B (9) of the Act. The petitioner argued that the assessment order was passed without issuing a draft assessment order and without the issuance of a show cause notice, thus violating the provisions of the Act and being non est in law.

On the other hand, the respondents argued that Section 144B (of Income Tax Act, 1961) does not apply as the assessment year in issue is 2018-2019. However, the petitioner relied on a circular issued by the CBDT dated 31st March, 2021, to establish that the provisions of Section 144B (of Income Tax Act, 1961) would apply to even those proceedings pending on 1st April 2021.

After hearing the arguments from both parties, the Court held that in view of the Circular dated 31st March, 2021 issued by CBDT, Section 144B (of Income Tax Act, 1961) would apply to even those assessment proceedings which related to assessment years prior to 2021, provided they were pending disposal on 1st April, 2021.

The Court also noted 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. Since in the present case, no prior show cause notice as well as draft assessment order had been issued, there was a violation of principles of natural justice as well as the mandatory procedure prescribed under the “Faceless Assessment Scheme.”

As a result, the impugned assessment order dated 21st April 2021 was set aside, and the matter was remanded back to the Assessing Officer, who was directed to issue a show cause notice and draft assessment order and thereafter pass a reasoned order in accordance with the law.

The judgment was signed by MANMOHAN, J and NAVIN CHAWLA, J on August 13, 2021.

FAQ:

Q1: What was the outcome of the judgment?

A1: The High Court set aside the impugned assessment order and remanded the matter back to the Assessing Officer for further proceedings in accordance with the law.

Q2: What were the grounds for setting aside the assessment order?

A2: The assessment order was set aside due to violations of the statutory provisions contained in the Faceless Assessment Scheme, including the failure to issue a show cause notice and draft assessment order.

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

2. Present writ petition has been filed challenging the impugned assessment order dated 21st April 2021 passed by Respondent No. 1 under Section 143(3) (of Income Tax Act, 1961) read with 144B of the Income-tax Act, 1961 (for short ‘the Act’).

3. Mr. Manuj Sabharwal, learned counsel for the Petitioner states that the impugned assessment order dated 21st April 2021 has been passed, without adherence to the statutory provisions contained in clauses (xiv) to (xvi) of Section 144B(1) (of Income Tax Act, 1961), and 144B (9) of the Act.

4. It is the petitioner’s claim that the impugned assessment order was passed without issuing a draft assessment order and the variation made in the declared income was carried out without issuance of a show cause notice. Thus the contention is that the impugned assessment order had been passed in violation of the aforesaid provisions of the Act and is non est in law.

5. Per contra, Mr. Ruchir Bhatia, learned counsel for the respondents submits that Section 144B (of Income Tax Act, 1961) does not apply as the assessment year

in issue is 2018-2019.

6. In rejoinder, learned counsel for the petitioner relies on the circular

issued by the CBDT dated 31st March, 2021, which is appended at pages 103-107 of the paper book to establish that the provisions of Section 144B (of Income Tax Act, 1961) would apply to even those proceedings, which were pending, on 1st April 2021 and hence would be applicable to the Petitioner’s assessment

as well.

7. Having heard learned counsel for the parties, this Court is of the opinion that in view of the Circular dated 31st March, 2021 issued by CBDT,

Section 144B (of Income Tax Act, 1961) would apply to even those assessment proceedings

which related to assessment years prior to 2021 provided they were pending

disposal on 1st April, 2021.

8. This Court is also 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 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.”

9. Since in the present case no prior show cause notice as well as draft assessment order had been issued, there is a violation of principles of natural justice as well as mandatory procedure prescribed under the

“Faceless Assessment Scheme”.

10. Keeping in view the aforesaid, the impugned assessment order dated

21st April 2021 is set aside and the matter is remanded back to the Assessing Officer, who shall issue a show cause notice and draft assessment order and thereafter pass a reasoned order in accordance with law. With the aforesaid direction, the present writ petition along with pending application stands disposed of.

11. 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 13, 2021