Ellathkandi Khaleel Ahammad V. Union of India and Additional/Joint/Deputy/Assistant Commissioner of Income Tax/Income Tax Officer, National Tax Officer, National Faceless Assessment Centre and Income Tax Officer, Ward 1 and TPS

WP(C)/13513/2022

AI Insights

The case revolves around the petitioner, Ellathkandi Khaleel Ahammad, who challenged the assessment order and penalty notices issued by the Income Tax Department under the faceless assessment scheme. The petitioner contested the validity of the notices and the subsequent orders, arguing that they were issued without following the mandatory procedural requirements, particularly the lack of a Draft Assessment Order (DAO) as required under Section 144B of the Income Tax Act, 1961. The court examined the procedural lapses in the issuance of notices and the handling of the petitioner's objections, ultimately finding that the respondents did not comply with the statutory requirements, leading to the setting aside of the impugned orders.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 821457 (HC-KERALA)
• Appeal Type: Others
• Pronouncement Date: 04-07-2022
• Assessment Year: misc
• Other Referred Cases: JKN Driveshafts (India) Ltd. v. Income Tax Officer [(2003) 259 ITR 19 (SC)]
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: S MANU; CHRISTOPHER ABRAHAM
• Assessee Lawyers: M NAMBIAR; K MATHAI; JOSON KURYAN THOMAS; PAULO ABRAHAM; RAJAKANNAN
• Keywords: Electronic notice; Faceless assessment; Income Tax; Natural Justice; Penalty; Technical glitches
• Section: 147; 148; 143(2); 271(1)(c); 274; 144B; 271C; 156

Judgement Text

"IN THE HIGH COURT OF KERALA AT ERNAKULAM PRESENT THE HONOURABLE MR.JUSTICE N.NAGARESH MONDAY, THE 4TH DAY OF JULY 2022 / 13TH ASHADHA, 1944 WP(C) NO. 13513 OF 2022 PETITIONER: ELLATHKANDI KHALEEL AHAMMAD AGED 48 YEARS ELLATHKANDI HOUSE, KADAVATHUR P.O., THALASSERY, KANNUR-670676. BY ADVS. M.GOPIKRISHNAN NAMBIAR K.JOHN MATHAI JOSON MANAVALAN KURYAN THOMAS PAULOSE C. ABRAHAM RAJA KANNAN RESPONDENTS: 1 UNION OF INDIA REPRESENTED BY ITS REVENUE SECRETARY, MINISTRY OF FINANCE, NEW DELHI-110004. 2 ADDITIONAL/JOINT/DEPUTY/ASSISTANT COMMISSIONER OF INCOME TAX/INCOME TAX OFFICER, NATIONAL TAX OFFICER, NATIONAL FACELESS ASSESSMENT CENTRE, ROOM NO.401, 2ND FLOOR, E-RAMP, JAWAHARLAL NEHRU STADIUM, NEW DELHI-110003. 3 INCOME TAX OFFICER, WARD 1 AND TPS, AAYAKAR BHAVAN, KONNOTHUMCHAL, CHOVVA P.O., KANNUR-670006. BY ADV.S. MANU, ASGI ADV. CHRISTOPHER ABRAHAM, SC THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION ON 04.07.2022, THE COURT ON THE SAME DAY DELIVERED THE FOLLOWING: W.P.(C) No.13513/2022 : 2 : CR N. NAGARESH, J. ````````````````````````````````````````````````````````````` W.P.(C) No.13513 of 2022 ````````````````````````````````````````````````````````````` Dated this the 4th day of July, 2022 J U D G M E N T ~ ~ ~ ~ ~ ~ ~ ~ ~ When faceless assessment is resorted to through insensate technology, the product sometimes would be soulless justice, as in the present case. Constitutional courts in such situations cannot remain indurated. An income tax assessee has been accused of suppressing a source of investment and an assessment order has been passed in gross violation of the principles of natural justice and violating mandatory statutory requirements. He is also threatened with the proposed imposition of penalty under Section 271C of the Income Tax Act, 1961. W.P.(C) No.13513/2022 : 3 : 2. The 3rd respondent-Income Tax Officer issued Ext.P5 notice dated 30.09.2020 to the petitioner under Section 143(2) read with Section 147 of the Income Tax Act, 1961 seeking to verify the tax liability in respect of ₹17,50,000/- invested in the firm M/s.Sona Fashion Jewellery during the financial year 2012-'13. The petitioner was required to respond electronically in ‘E-proceedings’ facility in e-Filing website www.incometaxindiaefiling.gov.in. The petitioner objected to the validity of the notice and sought for a copy of the Form showing recording of satisfaction and the approval of the higher authority for issuing Section 148 notice. 3. By Ext.P8 notice, the petitioner was again required to submit accounts and documents electronically. The petitioner submitted Ext.P9 objection questioning the legality of Section 147/148 proceedings. The petitioner’s objections were rejected as per Ext.P10 and the case was reopened for proper taxation of the assessment year 2013-'14. Thereafter, Ext.P11 Show-cause Notice dated 30.08.2021 W.P.(C) No.13513/2022 : 4 : was issued to the petitioner in respect of the proposed variation. The petitioner's response was to be given through www.incometax.gov.in. by 23.59 hours of 07.09.2021. The petitioner was also given the option of personal hearing through video conferencing. The petitioner gave Ext.P12 reply. 4. The 2nd respondent thereupon passed Ext.P13 assessment order and notice of demand under Section 156 of the Income Tax Act, 1961. Ext.P14 notice for penalty under Section 274 read with Section 271(1)(c) of the Income Tax Act was also served on the petitioner. The petitioner is aggrieved by Ext.P13 order and Exts.P14 and P14(a) penalty notices. 5. The counsel for the petitioner argued that the new IT Portal (www.incometax.gov.in) was not functional since the date of its launch. No Draft Assessment Order (DAO) preceded Ext.P14, as required under Section 144B of the Income Tax Act, 1961. When the petitioner objected to the very validity of the proceedings as per Exts.P9 and P12, the W.P.(C) No.13513/2022 : 5 : respondents ought to have passed orders on the objection of the petitioner before passing final orders, as held by the Apex Court in JKN Driveshafts (India) Ltd. v. Income Tax Officer [(2003) 259 ITR 19 (SC)]. 6. I have heard the learned counsel for the petitioner, the learned Assistant Solicitor General of India representing the 1st respondent-Union of India and the learned Standing Counsel for Income Tax Department. 7. The petitioner would contend that when the respondents issued Ext.P4 notice dated 18.03.2020 under Section 148, the petitioner had filed his objections regarding the absence of recording satisfaction and approval of higher authority for issuing Section 148 notice. The respondents ought to have taken a decision on the petitioner’s objection before proceeding with reopening of assessment. The National Faceless Assessment Centre disposed of the petitioner's objection on 16.08.2021 and the Income Tax Officer, on 24.08.2021. W.P.(C) No.13513/2022 : 6 : 8. The respondents would defend the said allegation stating that at the time of issuance of Ext.P5 notice on 30.09.2020, the petitioner had not filed any objection and the objection was filed only on 12.11.2020. Therefore, the question of disposing of the objection before issuance of Notice under Section 143(2) does not arise at all. 9. The system of assessment of income tax has been changed by the Income Tax Department and a Faceless Assessment Scheme has been introduced with the avowed object of reducing human interface and better transparency. To facilitate faceless assessment, Sections 143(3A) and 143(3B) were incorporated in the Act, 1961. The new IT Portal www.incometax.gov.in was operational from June, 2021, since when the stakeholders have been facing technical glitches, errors and challenges in accessing the Portal. 10. It has to be noted that the Faceless Assessment Scheme of the Government of India has various facets which are intended to protect the interests of the income tax W.P.(C) No.13513/2022 : 7 : assessees. The Scheme has codified the well settled principles of natural justice. Faceless assessment contemplates issuance of notices at crucial phases of assessment/reassessment. It contemplates providing opportunity of personal hearing through video conferencing and even preparation of a Draft Assessment Order to which the assessees can submit their objections. 11. To decide the legality of the orders impugned in the writ petition, this Court finds that it would suffice to verify whether the respondents have acted in accordance with Section 144B while issuing Exts.P13, P14 and P14(a) orders. Sub-section 1(xiv) of Section 144B captioned 'Faceless Assessment', reads as follows: (xiv) the assessment unit shall, after taking into account all the relevant material available on the record make in writing, a draft assessment order or, in a case where intimation referred to in clause (xiii) is received from the National Faceless Assessment Centre, make in writing, a draft assessment order to the best of its judgment, either accepting the income or sum payable by, or sum refundable to, the assessee as per his return or making variation to the said income or sum, and send a copy of such order to the National Faceless Assessment Centre; W.P.(C) No.13513/2022 : 8 : (xv) the assessment unit shall, while making draft assessment order, provide details of the penalty proceedings to be initiated therein, if any; (xvi) the National Faceless Assessment Centre shall examine the draft assessment order in accordance with the risk management strategy specified by the Board, including by way of an automated examination tool, whereupon it may decide to- (a) finalise the assessment, in case no variation prejudicial to the interest of assessee is proposed, as per the draft assessment order and serve a copy of such order and notice for initiating penalty proceedings, if any, to the assessee, along with the demand notice, specifying the sum payable by, or refund of any amount due to, the assessee on the basis of such assessment; or (b) provide an opportunity to the assessee, in case any variation prejudicial to the interest of assessee is proposed, by serving a notice calling upon him to show cause as to why the proposed variation should not be made; or (c) assign the draft assessment order to a review unit in any one Regional Faceless Assessment Centre, through an automated allocation system, for conducting review of such order. The assessment unit is therefore duty bound to make in writing a Draft Assessment Order and send a copy of such order to the National Faceless Assessment Centre. Where W.P.(C) No.13513/2022 : 9 : there is a proposal to make any variation which is prejudicial to the interest of the assessee, Section 144B contemplates forwarding of Draft Assessment Order to the assessee. 12. If any proposal for variation prejudicial to the interest of the assessee is made, Section 144B(1)(xvi)(b) mandates that the National Faceless Assessment Centre has to provide an opportunity to the assessee by serving a notice calling upon the assessee to show-cause as to why the proposed variation should not be made. In the case of the petitioner, a Draft Assessment Order was not served on the petitioner before finalising the assessment, though Ext.P13 refers to a Draft Assessment Order. There is nothing on record to show that a Draft Assessment Order was drawn as contemplated under Section 144B(1)(xiv) and served on the petitioner. The petitioner is entitled to succeed in the writ petition on that ground. The writ petition is therefore allowed. Ext.P13 assessment order and Exts.P14 and P14(a) notices for penalty are set aside. The 2nd respondent is directed to W.P.(C) No.13513/2022 : 10 : finalise the assessment proceedings for the assessment year 2013-'14 afresh, in accordance with law. Sd/- N. NAGARESH, JUDGE aks/05.07.2022 W.P.(C) No.13513/2022 : 11 : APPENDIX OF WP(C) 13513/2022 PETITIONER'S EXHIBITS Exhibit P1 TRUE COPY OF THE NOTIFICATION NO.61/2019/F.NO.370149/154/2019-TPL {S.O. 3264(E)} DATED 12.9.2019 ISSUED BY THE CENTRAL BOARD OF DIRECTOR TAXES, UNDER THE 1ST RESPONDENT. Exhibit P2 TRUE COPY OF THE NOTIFICATION NO.60/2020/F.NO.370149/154/2019-TPL {S.O. 2745(E)} DATED 13.8.2020 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES, UNDER THE 1ST RESPONDENT. Exhibit P3 TRUE COPY OF THE NOTIFICATION NO.61/2020/F.NO.370149/154/2019-TPL {S.O. 2746(E)} DATED 13.8.2020 ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES, UNDER THE 1ST RESPONDENT. Exhibit P4 TRUE COPY OF THE NOTICE DATED 18.3.2020 ISSUED BY THE INCOME TAX OFFICER, WARD 2, KANNUR (CURRENTLY THE 3RD RESPONDENT). Exhibit P5 TRUE COPY OF THE NOTICE DATED 30.9.2020 ISSUED BY THE 3RD RESPONDENT UNDER SECTION 143(2) OF THE ACT READ WITH SECTION 147 OF THE ACT, FOR THE A.Y. 2013-14. Exhibit P6 TRUE COPY OF THE REPLY DATED 28.10.2020 SUBMITTED BY THE PETITIONER. Exhibit P7 TRUE COPY OF THE LETTER DATED 12.11.2020 SUBMITTED BY THE PETITIONER BEFORE THE 3RD RESPONDENT. Exhibit P8 TRUE COPY OF THE NOTICE DATED 15.2.2021 ISSUED BY THE 2ND RESPONDENT FOR THE A.Y. 2013-14. Exhibit P9 TRUE COPY OF THE LETTER DATED 18.2.2021 SUBMITTED BY THE PETITIONER BEFORE THE 3RD RESPONDENT. Exhibit P10 TRUE COPY OF THE NOTICE DATED 16.8.2021 ISSUED BY THE 2ND RESPONDENT FOR THE A.Y. 2013-14. W.P.(C) No.13513/2022 : 12 : Exhibit P11 TRUE COPY OF THE NOTICE DATED 30.8.2021 ISSUED BY THE 2ND RESPONDENT FOR THE A.Y. 2013-14. Exhibit P12 TRUE COPY OF THE LETTER (WITHOUT ANNEXURES) DATED 4.9.2021 FILED BY THE PETITIONER BEFORE THE 2ND RESPONDENT, IN RESPONSE TO EXT. P11 NOTICE. Exhibit P13 TRUE COPY OF THE ASSESSMENT ORDER DATED 21.9.2021 ISSUED BY THE 2ND RESPONDENT FOR A.Y. 2013-14. Exhibit P14 TRUE COPY OF THE NOTICE OF PENALTY DATED 21.9.2021 ISSUED BY THE 2ND RESPONDENT UNDER SECTION 274 READ WITH SECTION 271(1)(C) OF THE ACT. Exhibit P14(A) TRUE COPY OF THE NOTICE OF PENALTY DATED 21.9.2021 ISSUED BY THE 2ND RESPONDENT UNDER SECTION 274 READ WITH SECTION 271F OF THE ACT. Exhibit P15 TRUE COPY OF AN ARTICLE DATED 22.8.2021, DOWNLOADED FROM WWW.CACLUBINDIA.COM, PROVIDING INFORMATION RELATING TO THE GLITCHES IN THE NEW IT PORTAL. "