High Court Quashes Reassessment Order Passed Without Granting Video-Conference Hearing

The assessee had filed the return of income for the relevant assessment year. Based on information received from search proceedings under Section 132 in the cases of third parties, it was revealed that certain entities were engaged in providing accommodation entries like unsecured loans, share premium, and bogus gains. The information picked up on the Insight Portal was that the assessee was one of the beneficiaries who had made accommodation entries to the tune of Rs. 90,19,964/-. Thereafter, a notice under Section 148A(b) was issued, and approval under Section 151 was sought. Next, an order under Section 148A(d) was made, and notice under Section 148 was issued. During reassessment, notices under Section 142(1) were issued requiring further information. The assessee had furnished detailed replies and especially sought a personal hearing through video conferencing under Section 144B(7). But the assessment order was issued under Section 147, read with Section 144B, without providing such a hearing.

It was contended on behalf of the assessee that the proceedings were contrary to the principles of natural justice since the statutory right to a video-conference hearing was denied. It was submitted that the Assessing Officer failed to follow the procedure laid down under the faceless assessment framework and ignored the binding precedent in Gandhi Realties Pvt. Ltd. v. ACIT, wherein the Court had held that the granting of a hearing through video conferencing is mandatory. The departmental representative did not dispute that no such hearing was granted. The controversy, therefore, centred on whether the denial of personal hearing invalidated the reassessment order issued under Section 147 read with Section 144B.

Issue Raised: Whether reassessment proceedings under Sections 147 and 144B are valid when the assessee’s request for a personal hearing through video conferencing under Section 144B(7) was not granted.

HC’s Ruling: The Court observed that under Section 144B(7)(vii)(2), whenever a variation is proposed in the draft assessment order, the assessee is entitled to request a personal hearing and such request must be granted. Reliving the decision in Panchmahal Steel Limited v. Additional/Joint/Deputy/Assistant Commissioner of Income Tax/Income Tax Officer, the Bench held that refusal of the same amounts to against statutory procedure and natural justice. The Court reiterated that the doctrine of Audi Alteram Partem is a compulsory protection, and that all assessee is entitled to the statutory right of fair hearing in faceless proceedings.
As it was not disputed that no video conferencing hearing had been provided, the Court held that both the notice dated 29.07.2022 issued under Section 148 and the consequential assessment order dated 19.05.2023 under Section 147 read with Section 144B for Assessment Year 2017-18 were unsustainable in law. Both were thus quashed and set aside. The issue was remitted to the Faceless Assessment Authority to adopt the procedure as stipulated in the SOP dated 03.08.2022, grant an opportunity of hearing to the assessee via video conferencing, and pass a new order according to law. The Rule was made absolute without any order as to costs.

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