Basant Lal Jain, V. The Union of India

WP/10398/2022

AI Insights

The case revolves around a writ petition filed by the sole proprietor of M/s. Vardhaman Bullion, challenging the assessment order passed by the Income Tax Department under Section 147 read with Section 144B of the Income Tax Act, 1961. The petitioner argued that the assessment was conducted without a personal hearing, despite a request made through the online portal, which was still marked as 'open' at the time the assessment order was issued. The court examined the procedural adherence to the Faceless Assessment Scheme and the rights of the assessee under the scheme, ultimately finding in favor of the petitioner due to the failure to provide a personal hearing.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 731944 (HC-ANDHRA_PRADESH)
• Appeal Type: Others
• Pronouncement Date: 05-05-2022
• Assessment Year: misc
• Other Referred Cases: Bharat Aluminium Company Ltd. v. Union of India, Sanjay Agarwal v. National Faceless Assessment Centre, Piramal Enterprises Limited v. Additional/Joint/ Deputy Assistant Commissioner of Income-Tax/Income Tax Officer & others, Swadeshi Cotton Mills v. Union of India
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Keywords: Assessment Order; Faceless assessment; Natural Justice; Personal hearing; Video Conference
• Section: 147; 148; 142(1); 143(2); 271(1)(c); 144B; 156

Judgement Text

"HONOURABLE SRI JUSTICE C. PRAVEEN KUMAR And HONOURABLE SMT. JUSTICE V. SUJATHA Writ Petition No.10398 of 2022 ORDER: (Per Hon‟ble Smt. Justice V. Sujatha) Challenging the action of the 2nd respondent in passing the Assessment Order dated 30.03.2022 for the Assessment Year 2016-2017 in DIN:ITBA/AST/S/147/2021-2022/ 1042056755(1), under Section 147 read with Section 144B of the Income Tax Act, 1961 assessing the income of the petitioner as Rs.1,21,60,850/- and computing amount payable as Rs.68,91,571/- as tax payable and Rs.28,84,824/- towards the present writ petition is filed. 2. The case of the petitioner, in brief, is that the petitioner is the sole proprietor of M/s. Vardhaman Bullion having PAN No.ABYPM0979P and is being assessed on the rolls of the 4th respondent. For the Assessment Year 2016-2017, the petitioner filed his returns and received acknowledgement. While so, the petitioner received a notice under Section 148 of the Income Tax Act, 1961 (for short “the Act”) from the 4th respondent stating that the income chargeable to tax for the Assessment Year 2016-2017 has escaped assessment within the meaning of Section 147 of the Act and therefore, he proposed to assess/re-assess the income or loss for the Assessment Year 2016-2017 and called upon the petitioner to submit the returns of relevant Assessment Year within thirty CPK, J & VS, J W.P.No.10398 of 2022 2 days. Upon receipt of such notice, the petitioner immediately uploaded the returns for the Assessment Year 2016-2017. Thereafter, the petitioner received another notice on 29.06.2021 issued under Section 143 (2) read with Section 147 of the Act, stating that there are certain clarifications, which are necessary for reopening the assessment and in view of the same, the petitioner was directed to submit his objections, if any, for reopening the assessment. The petitioner has submitted a reply to the notice dated 29.06.2021 stating that as no reasons are recorded for reopening the assessment in the said notice, he has no query to provide any clarification. Thereafter, the petitioner received another notice on 18.11.2021 issued under Section 142 (1) of the Act, directing him to furnish document and accounts as specified in the Annexure to the notice. Pursuant to the said notice, the petitioner uploaded all the necessary documents such as note on business activities, profit and loss account, balance sheet of his business, purchase invoices, sales invoices, bank account statement etc., to show that no income/loss has escaped the assessment. Thereafter, the petitioner received another notice dated 28.01.2022 issued under Section 142 (1) of the Act, 1961 seeking further clarification, pursuant to which, the petitioner also filed necessary documents. CPK, J & VS, J W.P.No.10398 of 2022 3 3. While so, a draft assessment order was communicated under Section 144B (1) (xiv) of the Act, through a show cause notice dated 17.03.2022, stating that the purchase bills submitted by the petitioner were on plain sheet of paper; complete name and address of the seller/consignor was not mentioned; that the bills are not signed; and that as to why VAT is not charged on the purchases. Thereafter, the petitioner has submitted his reply raising objections to the observations made in the draft Assessment Order. Further, as contemplated under Section 144B (7) (vii) of the Act, 1961, the petitioner requested for a personal hearing on 26.03.2022 stating that the material submitted by him was not considered in the draft Assessment Order. The petitioner further stated that as per Section 144B (7) (vii) of the Income Tax Act, 1961, once a request is made by an assessee for personal hearing, it is the duty of the 3rd respondent authority to approve and give such personal hearing. The petitioner further stated that under the Faceless Assessment Scheme, 2019 communicated through F.No.Pr.CCIT/NeAC/ SOP/2020-21, dated 23.11.2020 issued by the 2nd respondent, which was also extended to Faceless Assessment under Section 144B of the Act, 1961, through circular dated 31.03.2021, personal hearing through Video Conference can be allowed for a period of 30 minutes, which can be extended by the Assessing Officer upon his discretion upon fulfilment of certain conditions prescribed. The petitioner further stated CPK, J & VS, J W.P.No.10398 of 2022 4 that he not only filed the reply to the Draft Assessment Order, but also made a request for personal hearing as per the procedure in the online portal on 26.03.2022 much prior to the passing of Assessment Order. But, the said request for personal hearing is neither accepted by the 3rd respondent nor has been rejected and shown the same as “open” in the e- portal. Surprisingly, the 2nd respondent passed the impugned Assessment Order on 30.03.2022 assessing a tax liability of Rs.40,06,747/- and computed total amount payable along with interest under Section 234B of the Act as Rs.68,91,571/-, without providing any opportunity of personal hearing even though the same was specifically requested by the petitioner without closing the e-portal. Challenging the same, the present writ petition is filed. 4. Heard the learned counsel for the petitioner and Smt. M. Kiranmayee, learned standing counsel for the respondents. 5. Learned counsel for the petitioner, while reiterating the contentions, would submit that under the Faceless Assessment Scheme, 2019 communicated through F.No.Pr.CCIT/NeAC/SOP/2020-21, dated 23.11.2020 issued by the 2nd respondent, which was also extended to Faceless Assessment under Section 144B of the Act, personal hearing through Video Conference can be allowed for a period of thirty minutes, which can be extended by the Assessing Officer CPK, J & VS, J W.P.No.10398 of 2022 5 upon his discretion upon fulfilment of certain conditions prescribed. He submits that as per the information available in the e-portal of the Income Tax Department, the link for Virtual Conference and the Password for the same would be displayed two hours prior to the schedule time of the Virtual Conference, whereas the request of the petitioner for personal hearing is neither accepted nor has been rejected and the same is still shown as “open request” in the e-portal, but, instead of considering such request for personal hearing, the 2nd respondent passed the impugned Assessment Order dated 31.03.2022 assessing the tax liability of Rs.1,21,60,580/- (Rs.40,06,747/- as tax payable + Rs.28,84,824/- towards interest) and computing amount payable as Rs.68,91,571/-, which is illegal, arbitrary, violative of principles of natural justice and also contrary to the procedure contemplated under Section 144B (7) (vii) of the Income Tax Act, 1961, and hence, the impugned assessment order is illegal, arbitrary and liable to be set aside. 6. On the other hand, Smt. M. Kiranmayee, learned standing counsel appearing for the respondents would submit that as per the draft Assessment Order dated 17.03.2022, the petitioner has to submit his response through his registered e-filing account on or before 22.03.2022; that the draft assessment order specifically show that the request for personal hearing to make oral submissions can be made only CPK, J & VS, J W.P.No.10398 of 2022 6 before expiry of compliance date and time and that on approval of request, personal hearing shall be conducted exclusively through video conference. She further submits that the petitioner made the request for video conferencing only on 26.03.2022 that is four days after the date of compliance. As such, the final assessment order was passed on 30.03.2022 treating as if the petitioner has no request for personal hearing. She further submits that grant of personal hearing is discretionary and under faceless assessment under Section 144B of the Act, the Assessee does not have a vested right to personal hearing and the same could be granted depending upon the individual facts of each case and fulfilling of the conditions laid down in SOP dated 23.11.2020. 7. Keeping in view the rival contentions of the parties, a short point that arises for consideration is whether the impugned assessment order is passed without following the provisions of Section 144B (7)(vii) of the Income Tax Act, 1961, and if so, whether it would amount to violation of principles of natural justice? 8. Before proceeding further, it would be appropriate to refer to Section 144B (7) (vii) and (ix) of the Act, which reads as under: “144B Faceless Assessment: (7) For the purposes of faceless assessment- (i) xxxxx (ii) xxxxx (iii) xxxxx CPK, J & VS, J W.P.No.10398 of 2022 7 (vi) xxxxx (v) xxxxx (vi) xxxxx (vii) in a case where a variation is proposed in the draft assessment order or final draft assessment order or revised draft assessment order, and an opportunity is provided to the assessee by serving a notice calling upon him to show cause as to why the assessment should not be completed as per the such draft or final draft or revised draft assessment order, the assessee or his authorised representative, as the case may be, may request for personal hearing so as to make his oral submissions or present his case before the income-tax authority in any unit; xxxxxxxx “STANDARD OPERATING PROCEDURE (SOP) FOR PERSONAL HEARING THROUGH VIDEO CONFERENCE UNDER THE FACELESS ASSESSMENT SCHEME, 2019 CIRCULAR F.NO.PR.CCIT/NeAC/SOP/2020-21, DATED 23- 11-2020. The Principal Chief Commissioner of Income Tax, National e- assessment Centre, with the prior approval of the Central Board of Direct Taxes, New Delhi, lays down the following circumstances in which personal hearing through Video Conference shall be allowed in the Faceless Assessment Scheme, 2019. Where any modification is proposed in the draft assessment order (DAO) issued by any AU and the Assessee or the authorised representative in his/her written response disputes the facts underlying the proposed modification and makes a request for a personal hearing, the CCIT ReAC may allow personal hearing through Video Conference, after considering the facts and circumstances of the case, as below:- 1. The Assessee has submitted written submission in response to the DAO. 2. The Video Conference will ordinarily be of 30 minutes duration. That may be extended on the request of the Assessee or authorised representative. 3. The Assessee may furnish documents/evidence, to substantiate points raised in the Video Conference during the session or within a reasonable time allowed by the AU, after considering the facts and circumstances of the case”. 9. A reading of the above provision makes it clear that in a case where a variation is proposed in the draft assessment order or final draft assessment order or revised draft CPK, J & VS, J W.P.No.10398 of 2022 8 assessment order, an opportunity would be provided to the assessee by serving a notice, calling upon him to show cause as to why the assessment should not be completed as per such draft or final draft or revised draft assessment order. The assessee or his authorised officer may request for personal hearing so as to make his oral submissions. It further makes it clear that if a request for personal hearing is provided by the Chief Commissioner or the Director General, in charge of the Regional Faceless Assessment Centre, such hearing shall be conducted exclusively through video conferencing or video telephony, including use of any telecommunication application software, which supports video conferencing, in accordance with the procedure laid down by the Board. 10. In the case on hand, a perusal of the material on record would show that even though the petitioner made a request for personal hearing through video conference on 26.03.2022, though belatedly made, the impugned draft assessment order was passed on 30.03.2022 even without considering such request by showing the status/action of the request as “open”. The said draft assessment order was passed even without closing the e-portal status. In support of his contention, the petitioner relied upon a judgment in Bharat Aluminium Company Ltd., v. Union of India1, rendered by the High Court of Delhi at New Delhi), wherein the High Court 1 (W.P.(C) No.14528 of 2021 and CM APPL.45702 of 2021 CPK, J & VS, J W.P.No.10398 of 2022 9 of Delhi, in similar circumstances, while holding that an assessee has a vested right to personal hearing, if such a request is made, then the impugned final assessment order is liable to be set aside and is to be remitted the matter back to the Assessing Officer for passing a reasoned order after affording a reasonable opportunity of hearing. 11. In Sanjay Agarwal v. National Faceless Assessment Centre2, the Delhi High Court held that as no standards, procedures and process in terms of sub-clause (h) of Section 144B (7) (xii) read with Section 144B (7) (viii) of the Act had been framed, it was incumbent upon Revenue to accord personal hearing to the petitioner. The Court emphasised that the aforesaid finding given by this court was due to Revenue counsel not producing the standard procedure and process framed by the Revenue. It was further held that the Standard Operating Procedure for personal hearing through video conference under the Faceless Assessment Scheme, 2019 was issued by CBDT vide Circular F.No.Pr.CCIT/NeAC/SOP/ 2020-21, dated 23.11.2020 and that CBDT vide order F.No.187/3/2020-ITA-1, dated 31.03.2021 extended the Circulars/notifications issued under Faceless Assessment Scheme to the Faceless Assessment under Section 144B of the Act and therefore, the SOP contained in the circular dated 23.11.2020 was equally applicable to the proceedings under Section 144B of the Act also. 2 (2021 (6) TMI 336) CPK, J & VS, J W.P.No.10398 of 2022 10 12. In Piramal Enterprises Limited v. Additional/Joint/ Deputy Assistant Commissioner of Income-Tax/Income Tax Officer & others3, the High Court of Bombay, while interpreting Section 144B of the Income Tax Act and the principles of natural justice, categorically held that when hearing has been envisioned and incorporated, it is imperative to observe principles of natural justice as stipulated. It is further held that when an assessee approaches with response to a show cause notice, the request made by an assessee, as referred to in clause (vii) of sub- section 7 of Section 144B, shall be taken into account and it would not be proper, looking at the prescribed procedure with strong undercurrent to have hearing on a request after notice, to say that petitioner would have opportunity pursuant to Section 144C, which would intercept the operation of the scheme contained under Section 144B. 13. In Bharat Aluminium Company Ltd., v. Union of India and others (stated supra), the High Court of Delhi held as follows: “The non-obstante clause and the use of expression „shall be made‟ in Section 144B (1) creates a mandatory obligation upon the respondent/Revenue to follow the prescribed procedure. This Court is also of the view that the use of the expression “may” in Section 144B (7)(viii) is not decisive. It is settled law that having regard to the context, the expression “may” used in a statute has varying significance. In some context, it is purely permissive, 3 (2021 SCC Online Bombay 1534) CPK, J & VS, J W.P.No.10398 of 2022 11 whereas in others, it may make it obligatory upon the person invested with the power to exercise it. The word “may” is capable of meaning “must” or “shall” in the light of the context. In fact, where a discretion is conferred upon a quasi judicial authority whose decision has civil consequences, the word “may” which denotes discretion should be construed to mean a command. “…….This Court is further of the view that a quasi judicial body must normally grant a personal hearing as no assessee or litigant should get a feeling that he never got an opportunity or was deprived of an opportunity to clarify the doubts of the assessing officer/decision maker. After all confidence and faith of the public in the justness of the decision making process which has serious civil consequences is very important and that too in an authority/forum that is the first point of contact between the assessee and the Income Tax Department. The identity of the assessing officer can be hidden/protected while granting personal hearing by either creating a blank screen or by decreasing the pixel/density/resolution. Consequently, this Court is of the view that the word “may” in Section 144B(viii) should be read as “must” or “shall” and requirement of giving an assessee a reasonable opportunity of personal hearing is mandatory. 14. In Swadeshi Cotton Mills v. Union of India4, the Supreme Court held that where there has been non- compliance with the implied requirement of the audi alteram partem rule of natural justice at the pre-decisional stage, the impugned order could be struck down as invalid on that score alone. But in view of the commitment/concession that a hearing would be afforded to the Company, the case is 4 1981 AIR 818 (SC) CPK, J & VS, J W.P.No.10398 of 2022 12 remitted to the concerned authority to give a full, fair and effective hearing. The Supreme Court held as follows: “…….the phrase „natural justice‟ is not capable of a static and precise definition. It cannot be imprisoned in the straight-jacket of a cast-iron formula. Rules of natural justice are not embodied of such rules. It was held that two fundamental maxims of natural justice have now become deeply and indelibly ingrained in the common consciousness of mankind as pre-eminently necessary to ensure that the law is applied impartially objectively and fairly. These twin principles are (i) audi alteram partem is a highly effective rule devised by the Courts to ensure that a statutory authority arrives at a just decision and it is calculated to act as a healthy check on the abuse or misuse of power. Its reach should not be narrowed and its applicability circumscribed…...” 15. Having regard to the facts and circumstances of the case and keeping in view the law laid down in the judgments referred above, this court is of the view that no standard, procedures and processes have been framed in terms of clause (xii) of Section 144B (7) of the Income Tax Act, 1961 and these standards, procedures and processes are required to be framed to guide the assessing officer as to whether or not personal hearing, in a given matter, should be granted and that since the statute itself makes the provision for grant of personal hearing, the respondents cannot veer away from the same. Hence, this court is of the view that since the assessee has a vested right to personal hearing and the same has to be given, if such a request is made and that the right to personal hearing cannot depend upon the facts of each case. Admittedly, the impugned draft assessment order was passed without considering the request for personal hearing CPK, J & VS, J W.P.No.10398 of 2022 13 through video conference, though made belatedly on 26.03.2022, even without closing the said request and keeping the status as “open”. Therefore, since no personal hearing had been granted before passing the impugned assessment order, there is a violation of principles of natural justice as well as mandatory procedure prescribed in “Faceless Assessment Scheme” as stipulated in Section 144B of the Income Tax Act. The impugned draft assessment order is liable to be set aside and also the demand notice and the proceedings initiated pursuant thereto for the Assessment Year 2016-2017 are also liable to be set aside. 16. Accordingly, the writ petition is allowed by setting aside the Assessment Order dated 30.03.2022 for the Assessment Year 2016-2017 in DIN:ITBA/AST/S/147/2021-2022/ 1042056755(1), under Section 147 read with Section 144B of the Income Tax Act, 1961 and the consequential Demand Notice dated 30.03.2022 issued under Section 156 of the Income Tax Act, 1961 and as well as the Penalty Notice issued under Section 274 read with Section 271 (1)(c) of the Income Tax Act by duly remitting the matter back to the Assessing Officer for a fresh assessment after affording a reasonable opportunity of hearing the petitioner and then pass appropriate orders in accordance with law as expeditiously as possible. CPK, J & VS, J W.P.No.10398 of 2022 14 As a sequel thereto, miscellaneous petitions, if any, shall stand closed. _________________________ C. PRAVEEN KUMAR, J ________________ V. SUJATHA, J Date: .05.2022 Ksn "