Case Note & Summary
The matter arose from a writ petition filed by Golden Tobacco Limited, a company engaged in manufacturing tobacco products and real estate, challenging a faceless assessment order and demand notice. For Assessment Year 2018-2019, the petitioner had filed its return of income under Section 139 declaring total losses of Rs.40,65,00,408. The Income Tax Authority issued a scrutiny notice under Section 143(2) on 22/9/2019. The petitioner furnished a reply on 7/10/2020 with computation of income, tax audit report, and financial statements. The Faceless Assessment Scheme, 2019, was applied to the pending proceedings from 15/10/2020. A notice under Section 142(2) was issued on 23/12/2020 seeking details; the petitioner filed a partial reply on 7/1/2021. Another notice was issued on 26/3/2021, to which the petitioner replied on 28/3/2021. On 26/4/2021, the National Faceless Assessment Centre passed an assessment order under Section 143(3) read with Section 144B of the Income Tax Act, 1961, making an addition of Rs.120.94 crore and issued a notice of demand under Section 156 raising a demand of Rs.8,14,31,550. The petitioner alleged violation of principles of natural justice on the ground that no draft assessment order was served and no opportunity of personal hearing was provided. The court issued notice on 1/7/2021 and directed no further action based on the impugned assessment order. The respondents filed a reply on 16/9/2021 disputing the absence of service and lack of opportunity, contending that ample opportunity was granted. The court examined the provisions of Section 144B, particularly clauses (xvi), (xxii), (xxiv) and sub-sections (7) and (9). It observed that when a draft assessment order proposes a variation prejudicial to the assessee, the National Faceless Assessment Centre must serve a show cause notice, and the assessee may respond and request a personal hearing. Sub-section (9) renders an assessment non-est if the procedure under Section 144B is not followed, indicating the mandatory nature of the procedural safeguards. The court discussed the canons for interpreting mandatory versus directory provisions, focusing on whether non-compliance renders the entire proceeding invalid. The provided extract did not include the final operative directions, but the court emphasized that show cause notice and personal hearing are essential to natural justice in faceless assessment.
Headnote
A) Tax Law - Faceless Assessment Procedure - Mandatory Natural Justice Safeguards - Income Tax Act, 1961, Sections 144B(1)(xvi), 144B(1)(xxii), 144B(1)(xxiv), 144B(7), 144B(9) - The National Faceless Assessment Centre is required to issue a show cause notice with the draft assessment order when any variation prejudicial to the assessee is proposed, and the assessee has a right to respond and request personal hearing before the income-tax authority in any unit; if the assessment is not made in accordance with the procedure laid down under Section 144B, sub-section (9) renders it non-est. The court reasoned that the legislative intent behind serving the show cause notice is to inform the assessee of the nature of the prejudicial variation to be met during hearing, and the mandatory nature is reinforced by sub-section (9). Held that the procedure under Section 144B is mandatory and violation thereof breaches principles of natural justice (Paras 6-8). B) Statutory Interpretation - Mandatory versus Directory Provision - Non-est Consequence - Income Tax Act, 1961, Section 144B(9) - To determine whether a provision is mandatory or directory, the court must consider whether non-compliance renders the entire proceeding invalid, along with context, consequences, purpose, and object. Section 144B(9) expressly provides that an assessment made under Section 143(3) or Section 144 in faceless cases is non-est if not made in accordance with the procedure laid down under Section 144B, thereby indicating that the procedure is mandatory rather than directory. Held that non-compliance with the faceless assessment procedure invalidates the assessment, and the issue must be examined in light of statutory purpose and principles of natural justice (Paras 8-9).
Issue of Consideration
Whether the assessment order dated 26/4/2021 passed under Section 143(3) read with Section 144B of the Income Tax Act, 1961 and the demand notice under Section 156 were invalid for breach of principles of natural justice due to failure to serve draft assessment order and provide opportunity of personal hearing; and whether the procedure under Section 144B is mandatory.
Law Points
- Section 144B(1)(xvi) requires show cause notice before prejudicial variation
- Section 144B(7) confers right to request personal hearing
- Section 144B(9) renders assessment non-est if procedure not followed
- natural justice principles are mandatory in faceless assessment
- mandatory versus directory determined by consequence of non-compliance
