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

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Case Name:

Globe Capital Foundation vs. National E-Assessment Centre (High Court of Delhi)

W.P.(C) 5298/2021 & CM No.16306/2021

Date: 30th July 2021

Key Takeaways:

1. The assessment order dated 17th April 2021, passed under Section 143(3) (of Income Tax Act, 1961) read with Section 144B (of Income Tax Act, 1961), was set aside by the High Court.

2. The petitioner’s argument of not being issued a show-cause notice and draft assessment order was upheld by the court.

3. The court referred to Section 144B(7) (of Income Tax Act, 1961) and Section 144B(9) (of Income Tax Act, 1961), which mandatorily provide for the issuance of a prior show-cause notice and draft assessment order before issuing the final assessment order.

4. The matter was remanded to the Assessing Officer, with directions to issue a draft assessment order and pass a reasoned order in accordance with the law.

The High Court of Delhi at New Delhi, with the case number W.P.(C) 5298/2021 & CM No.16306/2021. The case involves Globe Capital Foundation as the petitioner and the National E-Assessment Centre as the respondent. The judgment was delivered on 30th July 2021 by Hon’ble Mr. Justice Manmohan and Hon’ble Mr. Justice Navin Chawla.

The petitioner challenged the impugned assessment order dated 17th April 2021, passed under Section 143(3) (of Income Tax Act, 1961) read with Section 144B (of Income Tax Act, 1961) for Assessment Year 2018-19, and all consequent proceedings thereto. The petitioner argued that the impugned order was illegal, bad in law, and in violation of principles of natural justice, as they were not issued a show-cause notice and draft assessment order.

The court noted that the respondent had been granted six weeks to file a counter affidavit but had not done so. The court also observed that Section 144B(7) (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 referred to the relevant portions of Section 144B(7) (of Income Tax Act, 1961) and Section 144B(9) (of Income Tax Act, 1961) in its judgment.

Based on the above, the court set aside the impugned assessment order dated 17th April 2021 and remanded the matter to the Assessing Officer, directing them to issue a draft assessment order and thereafter pass a reasoned order in accordance with the law. The court disposed of the present writ petition along with pending applications with this direction.

The judgment was signed by both Hon’ble Mr. Justice Manmohan and Hon’ble Mr. Justice Navin Chawla on July 30, 2021.

FAQ:

Q1: What was the petitioner’s argument?

A1: The petitioner argued that the impugned assessment order was illegal, bad in law, and in violation of principles of natural justice, as they were not issued a show-cause notice and draft assessment order.

Q2: What action did the High Court take?

A2: The High Court set aside the assessment order and remanded the matter to the Assessing Officer, directing them to issue a draft assessment order and thereafter pass a reasoned order in accordance with the law.

1. The hearing has been conducted through video conferencing.

2. Present writ petition has been filed challenging the impugned assessment order dated 17th April 2021 passed under Section 143(3) (of Income Tax Act, 1961) read with Section 144B (of Income Tax Act, 1961) [the Act] in the case of the Petitioner for Assessment Year [AY] 2018-19 and all consequent proceedings thereto.

3. Learned counsel for the Petitioner states that the impugned order passed by the Respondent is illegal, bad in law and in violation of principles of natural justice. He emphasises that in the present case, the Petitioner was not issued a show-cause notice and draft assessment order.

4. Today also, learned counsel for the respondent prays for an adjournment to obtain instructions. Though, on 13th May, 2021, the learned counsel for the respondent had been granted six weeks to file a counter affidavit, yet no response has been filed. Consequently, the request forn adjournment is declined.

5. This Court is of the view that Section 144B(7) (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 portion of Section 144B(7) (of Income Tax Act, 1961)

and Section 144B(9) (of Income Tax Act, 1961) are reproduced herein 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 (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.”

6. 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 the mandatory procedure prescribed in “Faceless

Assessment Scheme” and stipulated in Section 144B (of Income Tax Act, 1961).

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

17th April, 2021 is set aside and the matter is remanded 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

JULY 30, 2021