Case Note & Summary
The petitioner, Vimal Trading, a partnership firm engaged in trading and investment in the capital market, filed a nil return of income for Assessment Year 2020-2021. The National Faceless Assessment Centre issued notices under Sections 143(2) and 142(1) of the Income Tax Act, 1961, seeking details regarding unsecured loans and transaction verification. The petitioner responded to all notices. On 18 August 2022, a show cause notice-cum-draft assessment order was issued, directing the petitioner to reply by 26 August 2022 and stating that the petitioner was entitled to a personal hearing through video conferencing. The petitioner replied on 26 August 2022 and on 27 August 2022 made an application requesting a personal hearing. However, on 9 September 2022, the respondent passed the final assessment order under Section 143(3) read with Section 144B, making an aggregate addition of Rs. 4,58,74,139/- and issuing a demand notice of Rs. 2,21,98,176/- under Section 156, along with show cause notices for penalty under Sections 270A and 271AA(1). The petitioner challenged these orders before the Bombay High Court under Article 226 of the Constitution. The court examined whether the failure to grant a personal hearing, despite the petitioner's request and the mandatory requirement under Section 144B(6)(viii), rendered the assessment order a nullity. The court noted that Section 144B(6)(viii) uses the word 'shall', making it mandatory for the assessing officer to grant a personal hearing through video conferencing if the assessee requests one. The respondent did not provide any reason for denying the hearing. The court held that the assessment order was passed in violation of principles of natural justice and was without jurisdiction, hence a nullity. Consequently, the demand notice and penalty show cause notices, being consequential to the assessment order, were also quashed. The court allowed the writ petition, setting aside the impugned orders and notices, and directed that the assessment proceedings be conducted afresh in accordance with law, granting the petitioner a reasonable opportunity of hearing.
Headnote
A) Constitutional Law - Principles of Natural Justice - Audi Alteram Partem - Mandatory Personal Hearing - Section 144B(6)(viii) of the Income Tax Act, 1961 - The court held that the faceless assessment scheme under Section 144B mandates grant of personal hearing through video conferencing if requested by the assessee, and failure to do so renders the assessment order a nullity. The petitioner had specifically requested personal hearing after the show cause notice-cum-draft assessment order, but the respondent passed the final order without granting such hearing, violating the mandatory procedure. (Paras 3, 13-14, 18-19) B) Income Tax - Faceless Assessment - Nullity of Order - Non-Compliance with Section 144B - Section 144B(6)(viii) of the Income Tax Act, 1961 - The court held that the assessment order passed without granting personal hearing as mandated by Section 144B(6)(viii) is without jurisdiction and a nullity. Consequently, the demand notice under Section 156 and penalty show cause notices under Sections 270A and 271AA(1) are also vitiated and cannot survive. (Paras 3, 18-19, 21) C) Income Tax - Penalty Proceedings - Consequential Orders - Sections 270A, 271AA(1), 274 of the Income Tax Act, 1961 - The court held that since the assessment order itself is a nullity, the penalty show cause notices issued under Section 274 read with Sections 270A and 271AA(1) are also without foundation and must be quashed. (Paras 3, 21)
Issue of Consideration
Whether the final assessment order passed under Section 143(3) read with Section 144B of the Income Tax Act, 1961 is a nullity for non-compliance of principles of natural justice, specifically the mandatory requirement of granting personal hearing under Section 144B(6)(viii), and whether the consequent demand notice and penalty show cause notices are also vitiated.
Final Decision
The court allowed the writ petition, quashing and setting aside the impugned assessment order dated 9 September 2022, the demand notice dated 9 September 2022, and the show cause notices for penalty dated 9 September 2022. The court directed that the assessment proceedings be conducted afresh in accordance with law, granting the petitioner a reasonable opportunity of hearing, including a personal hearing through video conferencing if requested.
Law Points
- Principles of natural justice
- audi alteram partem
- mandatory personal hearing under Section 144B(6)(viii) of Income Tax Act
- 1961
- nullity of assessment order for non-compliance
- consequential demand and penalty notices also vitiated
