Bombay High Court Warns Assessing Officers Of Costs If Orders Are Passed Without Hearing Assessees

Issue

Writ Petition filed before the Bombay High Court under Article 226 of the Constitution of India by challenging the assessment order dated 26/4/2021 passed under Section 143(3) read with 144B of the Income Tax Act, 1961 along with notice of demand under Section 156 of the Act also dated 26/4/2021 on the ground of breach of principles of natural justice. 

Facts  

• Petitioner is a company incorporated under the Companies Act, 2013 which is engaged in the business of manufacturing tobacco products and real estate. 
• Petitioner had filed its return of income for the Assessment Year 2018-2019 under Section 139 of the Income Tax Act declaring total losses of Rs.40,65,00,408/-. Income Tax Authority on 22/9/2019 issued a notice under Section 143(2) of the Income Tax Act to Petitioner initiating scrutiny assessment for Assessment Year 2018-2019. 
• On 7/10/2020, Petitioner filed reply to the notice by giving computation of income, tax audit report and financial for Assessment Year 2018-2019.  
• There, National faceless assessment Centre informed Petitioner that Faceless Assessment Scheme, 2019, shall apply to the pending assessment proceedings. 
• On 23/12/2020, National Faceless Assessment Centre issued a notice under Section 142(2) of the Income Tax Act requesting Petitioner to submit various details. Later, on 7/1/2021, Petitioner filed a partial reply giving details of other allowable deductions, disallowance under Section 40(a) (ia) of the Income Tax Act. 
• On 26/4/2021, National Faceless Centre issued impugned order making an addition of Rs.120.94 crore in the total income of Petitioner and also issued Notice of Demand in Form No.156 raising demand of Rs.8,14,31,550/-. Petitioner has therefore challenged assessment order dated 26/4/2021 and Notice of Demand dated 26/4/2021 by way of the present petition. 

Findings  

This Court is of the view that when any variation is proposed in the draft assessment order which is prejudicial to the interest of the assessee, the National Faceless Assessment Center has to issue a show-cause notice to the assessee in the form of a draft assessment order to provide an opportunity of hearing to the assessee to submit his explanation in respect of prejudicial variation proposed. The intention behind the service of such notice is to give an idea to the assessee about the nature of prejudicial variation, which he is required to meet during the hearing before the National Faceless Assessment Center. 

The object of the Faceless Assessment Scheme is to impart ‘greater efficiency, transparency and accountability’. It is also for ‘improvement in quality of assessment’. Thus, these provisions’ beneficial purpose and importance are for the efficacious implementation of the Faceless Assessment Scheme, unerringly leading to the conclusion that the procedure prescribed under Section 144B is intended to be mandatory and neglect of any procedural safeguard would render the assessment non-est. 

Judgement  

Bombay HC held that the order dated 26/04/2021 passed under Section 143(3) read with Section 144 of the Income Tax Act, 1961 and notice of demand dated 26/04/2021 under Section 156 of the said Act are quashed and set aside. Also, the matter is discharged to National Faceless Centre to complete assessment proceedings, by following procedure as contemplated by Section 144B of Act. The entire exercise shall be completed within 8 weeks from date this order is passed. 

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