Nayan Maganlal Movaliya HUF V. National Faceless Assessment Centre

SCA/17541/2021

AI Insights

The case involves Nayan Maganlal Movaliya HUF, who challenged an assessment order and demand notice issued by the National Faceless Assessment Centre for the Assessment Year 2013-14. The petitioner argued that the assessment was made in gross violation of the principles of natural justice, as they were not given adequate time to respond to the show cause notice and were not provided a personal hearing despite requests. The respondent contended that the assessment was finalized based on evidence of bogus transactions and that the petitioner had not submitted any adjournment request in the ITBA system. The court examined the procedures under section 144B of the Income Tax Act, 1961, which governs faceless assessments, and found that the respondent had not followed the prescribed procedures, leading to a violation of natural justice.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 805633 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 03-10-2022
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Applicant
• Court: HIGH COURT
• Department Lawyers: NIKUNT RAVAL; KALPANA RAVAL
• Assessee Lawyers: TUSHAR HEMANI; VAIBHAVI PARIKH
• Keywords: Assessment Order; Demand notice; Faceless assessment; Income Tax; Natural Justice
• Section: 147; 148; 271(1)(c); 69A; 144B

Judgement Text

"C/SCA/17541/2021 JUDGMENT DATED: 03/10/2022 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 17541 of 2021 FOR APPROVAL AND SIGNATURE: HONOURABLE MR. JUSTICE N.V.ANJARIA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA ========================================================== 1 Whether Reporters of Local Papers may be allowed to see the judgment ? 2 To be referred to the Reporter or not ? 3 Whether their Lordships wish to see the fair copy of the judgment ? 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? ========================================================== NAYAN MAGANLAL MOVALIYA HUF Versus NATIONAL FACELESS ASSESSMENT CENTRE ========================================================== Appearance: MR TUSHAR HEMANI, SENIOR ADVOCATE WITH MS VAIBHAVI K PARIKH(3238) for the Petitioner(s) No. 1 for the Respondent(s) No. 1 MR NIKUNT RAVAL FOR MRS KALPANAK RAVAL(1046) for the Respondent(s) No. 1 ========================================================== CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 03/10/2022 ORAL JUDGMENT Page 1 of 26 C/SCA/17541/2021 JUDGMENT DATED: 03/10/2022 (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) 1.Heard learned Senior Advocate Mr. Tushar Hemani for learned advocate Ms. Vaibhavi Parikh for the petitioner and learned advocate Mr. Nikunt Raval for learned advocate Ms. Kalpana Raval for the respondent. 2.Having regard to the controversy involved in this petition, with the consent of the learned advocates for the respective parties, the petition is taken up for final hearing. 3.Rule returnable forthwith. Learned advocate Mr. Nikunt Raval waives service of notice of rule on behalf of the respondent. 4.The petitioner has preferred the present petition claiming the following reliefs: Page 2 of 26 C/SCA/17541/2021 JUDGMENT DATED: 03/10/2022 “(a) quash and set aside the impugned Assessment Order dated 24.09.21 as well as the demand notice dated 24.09.21 for the Assessment Year 2013-14 at ANNEXURE \"A (Colly.)\" to this petition; (b) pending the admission, hearing and final disposal of this petition, to stay the implementation and operation of the impugned Assessment Order dated 24.09.21 as well as the demand notice dated 24.09.21 for the Assessment Year 2013-14 at ANNEXURE \"A (Colly.)\" to this petition; (c) any other and further relief deemed just and proper be granted in the interest of justice; (d) to provide for the cost of this petition.” 5.Brief facts of the case are that the petitioner is an Hindu Undivided Family((HUF). The petitioner filed return of income for the Assessment Year 2013-2014 on 28.09.2013 declaring total income at Rs.1,90,230/-. Page 3 of 26 C/SCA/17541/2021 JUDGMENT DATED: 03/10/2022 5.1) The case of the petitioner was reopened by issuance of notice dated 21.04.2020 under section 148 of the Income Tax Act,1961 (For short “the Act”). 5.2) The respondent prepared a draft assessment order determining total income of petitioner at Rs.26,61,370/- after proposing sizable addition and issued show cause notice dated 21.09.2021 calling upon the petitioner to show cause as to why the proposed variation as per the draft assessment order should not be made and assessment should not be completed accordingly. 5.3) It is the case of the petitioner that vide letter dated 22.09.2021, the petitioner had requested for an adjournment and also stated that time of only 2 effective days was granted for replying to such notice. Further, since the concerned person who was Page 4 of 26 C/SCA/17541/2021 JUDGMENT DATED: 03/10/2022 attending the matter was out of station due to certain impending legal matters, request was made for a very short accommodation i.e. till 02.10.2021 so as to enable the petitioner to file appropriate submissions. 5.4) The petitioner thereafter addressed another letter dated 22.09.2021, stating that the draft assessment order was on the basis of search and seizure actions carried out in the case of third parties with adverse inferences being drawn in the case of the petitioner purely on presumption and surmises and that too without providing the petitioner an opportunity to rebut the relevant material. The draft assessment order therefore, required detailed arguments as regards inferences drawn and hence, request was made for personal hearing. Page 5 of 26 C/SCA/17541/2021 JUDGMENT DATED: 03/10/2022 5.5) The respondent thereafter framed the assessment under section 147 read with section 144B of the Act vide order dated 24.09.2021 determining total income at Rs.26,61,370/- after making sizable addition as per the draft assessment order. Consequently, demand of Rs. 13,52,711/- came to be raised. 5.6) Being aggrieved by the impugned order, the petitioner has preferred the present petition. 6.Learned Senior Advocate Mr. Tushar Hemani for the petitioner at the outset submitted that the impugned assessment order has been passed in gross violation of the principles of natural justice and therefore, the impugned order deserves to be quashed and set aside. 6.1) It was submitted that the show cause Page 6 of 26 C/SCA/17541/2021 JUDGMENT DATED: 03/10/2022 notice dated 21.09.2021 was issued along with draft assessment order with a direction to file response by 23.09.2021. The petitioner therefore, made a request for adjournment on 22.09.2021 for furnishing reply to the show cause notice along with request for personal hearing. However, the impugned order dated 24.09.2021 came to be passed by the respondent though the last date for framing the assessment under section 147 read with section 144B was 31.03.2022. It was submitted that the respondent had granted merely two days' time for furnishing reply to show cause notice proposing huge addition despite the fact that more than six months' time was available for framing the assessment when show cause notice was issued. It was therefore, submitted that reasonable opportunity was not at all afforded for furnishing reply to the show cause notice issued by the respondent. Page 7 of 26 C/SCA/17541/2021 JUDGMENT DATED: 03/10/2022 6.2) It was submitted that in the impugned show cause notice it was stated that response should be submitted through the registered e-filing account by 23.59 hours of 23.09.2021 and, if required, the petitioner may request for personal hearing so as to make oral submissions or present the case and on approval of such request, personal hearing shall be conducted exclusively through video conference. It was therefore, submitted that the petitioner was granted time only till 23:59 hours of 23.09.2021 for filing written reply and so also for requesting for personal hearing, if required. The petitioner therefore, made requests for adjournment on 22.09.2021 i.e. the very next day and such adjournment applications were not rejected by the respondent. 6.3) It was submitted that instead of Page 8 of 26 C/SCA/17541/2021 JUDGMENT DATED: 03/10/2022 considering the request for adjournment or the request for personal hearing, the respondent straightaway passed the impugned order after making sizable addition which, in turn, resulted into huge demand. 6.4) It was submitted that though in the impugned order it is stated that a draft assessment order dated 21.09.2021 was issued to the petitioner to file his objection by 23.09.2021, but the petitioner has not filed any objection/reply, the same is not correct inasmuch as the petitioner had filed two letters dated 22.09.2021 requesting for adjournment as well as personal hearing. However, both the letters have been completely overlooked by the respondent. Therefore, there is gross violation of principles of natural justice. 6.5) Learned Senior Advocate Mr. Hemani Page 9 of 26 C/SCA/17541/2021 JUDGMENT DATED: 03/10/2022 submitted that the assessment for the year under consideration was getting time barred on 31.03.2022 and therefore, the respondent ought not to have shown such undue haste in framing the assessment and the respondent ought not to have finalized the assessment by completely overlooking adjournment applications and request for personal hearing. 6.6) It was submitted that the principles of natural justice are always to be observed and that no adverse order must be passed against any person unless such person is afforded a reasonable opportunity of being heard. Thus, it is implied that whenever any adverse order is likely to be passed, the person concerned must be afforded a reasonable opportunity of being heard prior to passing such adverse order. Page 10 of 26 C/SCA/17541/2021 JUDGMENT DATED: 03/10/2022 6.7) It was submitted that it is a trite law that when the statute is silent, with no positive words in the Act or the Rules spelling out the need to hear the party whose rights or interests are likely to be affected, requirement to follow fair procedure before taking a decision must be read into the statute, unless the statute provides otherwise. The principles of natural justice operate in areas not covered by any law. They do not supplant the law of the land but only supplement it. They are not embodied rules and their aim is to secure justice or to prevent miscarriage of justice. The principles of natural justice need to be adhered in each and every case. It was submitted that it is a settled law that it is not permissible for any authority to jump over the compliance of natural justice on the ground that even if opportunity of hearing Page 11 of 26 C/SCA/17541/2021 JUDGMENT DATED: 03/10/2022 had been afforded, it would have served no fruitful purpose. Whether opportunity of hearing would serve any purpose or not has to be considered at a later stage and such things cannot be presumed by the authority. It was therefore, submitted that the principles of natural justice are always to be observed and no authority can dispense with requirement of principles of natural justice on the presumption that no prejudice is going to be caused to the party concerned. 6.8) Learned Senior Advocate Mr. Hemani thereafter referred to some of the legal principles which have evolved over a period of time in relation to the principles of natural justice as under: \"Justice must not only be done but should manifestly be seen to be done\". For that purpose, it is mandatory to Page 12 of 26 C/SCA/17541/2021 JUDGMENT DATED: 03/10/2022 adhere to the \"Principles of natural justice\": “Principles of natural justice are applicable in every case. They do not supplant the law of the land but only supplement it. They are not embodied rules and their aim is to secure justice or to prevent miscarriage of justice. Principles of natural justice need to be adhered in each and every case.” “The intention behind affording a \"reasonable opportunity of being heard is to enable an assessee to understand what is being weighed against him so as to suitably defend his position” “Needless to mention that such opportunity must be real, effective and realistic. A notional opportunity would Page 13 of 26 C/SCA/17541/2021 JUDGMENT DATED: 03/10/2022 tantamount to a mere formality and would obviously not meet the requirements of principles of natural justice” “It is a trite law that right to fair hearing is a guaranteed right of everyone” “Granting of an \"effective opportunity\" is a sine qua non prior to passing adverse order against any assessee” “Principles of natural justice operate as implied mandatory requirement” “One of the fundamental principles of natural justice is that no person must be condemned unheard i.e. Audi Alteram Partem.” Page 14 of 26 C/SCA/17541/2021 JUDGMENT DATED: 03/10/2022 “In fact, principles of natural justice have been elevated to the status of \"fundamental rights\" guaranteed in The Constitution of India.” 6.9) Learned advocate Mr. Hemani thereafter broadly culled out the principles from various decisions as under: “Notice be given to the other side and also the evidence being relied upon in support of the notice be made known to the other side; Personal hearing be given to affected party; & An order be passed with reasons i.e. speaking order Page 15 of 26 C/SCA/17541/2021 JUDGMENT DATED: 03/10/2022 An \"order\" which infringes principles of natural justice, passed in violation of Audi Alteram Partem, is a nullity in the eye of law.” 6.10) It was therefore, submitted that any order passed in violation of principles of natural justice is not tenable in the eye of law and since the impugned order has been passed in gross violation of principles of natural justice, the same must be quashed and set aside. 7.On the other hand, learned advocate Mr. Nikunt Raval for the respondent submitted that the assessment order has been finalized by the respondent under section 147 read with section 144B of the Act. It was submitted that on 24.09.2021 at assessed income of Rs.26,61,370/- demand raised is for Rs.13,52,711/- and on verification of ITBA Page 16 of 26 C/SCA/17541/2021 JUDGMENT DATED: 03/10/2022 system, it was found that there was no adjournment application shown on 22.09.2021. 7.1) It was submitted that the Assessing Officer found that the transaction related to trading in the scrip namely, M/s. Twenty First Century India was bogus, coloured and not genuine and these transactions have been entered into to accommodate unaccounted money of the petitioner assessee in regular books of accounts and to facilitate in the scheme of entry accommodation through penny stocks. It was submitted that on the basis of available evidence it was proved that the Long Term Capital Gain shown by the assessee amounting to Rs.24,71,140/- is not genuine one and the same is treated unexplained money under section 69A of the Act. The Assessing Officer having found that the assessee has concealed the particulars of income and furnished inaccurate particulars of income Page 17 of 26 C/SCA/17541/2021 JUDGMENT DATED: 03/10/2022 and therefore, initiated penalty under section 271(1)(c) of the Act. 7.2) It was submitted that on verification of the ITBA system (case history notings) work list the adjournment request dated 22.09.2021 has not been reflected. The show cause notice for proceedings issued under section 147 of the Act shown on 21.09.2021 and hearing fixed on or before 23.09.2021 by 12:30 P.M. The said Assessment Order has been passed after taking approval from the Range Regional Assessment Unit. Thereafter, the Assessing Officer has passed / finalized the assessment order under section 147 read with section 144B of the Act. It was therefore, prayed that the petition may be dismissed. 8.We have heard learned advocates appearing for the respective parties and perused the Page 18 of 26 C/SCA/17541/2021 JUDGMENT DATED: 03/10/2022 impugned order as well as gone through relevant provisions of law. In order to adjudicate the issue involved with regard to providing opportunity of hearing, it would be germane to refer to the relevant provisions of section 144B of the Act, 1961 which reads as under : “144B. (1) Notwithstanding anything to the contrary contained in any other provisions of this Act, the assessment under sub-section (3) of section 143 or under section 144, in the cases referred to in sub-section (2), shall be made in a faceless manner as per the following procedure, namely:— xxx (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 Page 19 of 26 C/SCA/17541/2021 JUDGMENT DATED: 03/10/2022 National Faceless Assessment Centre; (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; xxx Page 20 of 26 C/SCA/17541/2021 JUDGMENT DATED: 03/10/2022 (xxii) the assessee may, in a case where show-cause notice has been served upon him as per the procedure laid down in sub-clause (b) of clause (xvi), furnish his response to the National Faceless Assessment Centre on or before the date and time specified in the notice or within the extended time, if any; xxx 144B(7) For the purposes of faceless assessment- xxx (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; (viii) the Chief Commissioner or the Director General, in charge of the Regional Faceless Assessment Centre, under which the concerned unit is set up, may approve the request for personal hearing referred to in clause (vii) if he is of the opinion that the request is covered by the circumstances referred to in sub-clause (h) of clause (xii); Page 21 of 26 C/SCA/17541/2021 JUDGMENT DATED: 03/10/2022 (ix) where the request for personal hearing has been approved 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 or video telephony, in accordance with the procedure laid down by the Board;” 9.Section 144B of the Act, 1961 provides detailed procedure for Faceless Assessment introduced by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 with effect from 1st April, 2021. Section 144B(1) starts with a non-obstante clause i.e. “notwithstanding anything to the contrary contained in any other provisions of this Act, the assessment under sub-section (3) of section 143 or under section 144, in the cases referred to in sub- section (2), shall be made in a faceless manner...” as per the procedure prescribed therein. Page 22 of 26 C/SCA/17541/2021 JUDGMENT DATED: 03/10/2022 10. The above-referred clause of section 144B(1) and 144B(7) deals with the procedure to be adopted by the National Faceless Assessment Centre on receipt of draft order from the assessment unit who has prepared the draft after providing opportunity to the assessee by serving a notice 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. Therefore, such personal hearing in era of Faceless assessment is to be provided through video conferencing. 11. It is not in dispute that in facts of the case no draft assessment along with show cause notice as required under section 144B(1) and section 144B(7) of the Act is given to the petitioner so as to enable the petitioner to give explanation for proposed Page 23 of 26 C/SCA/17541/2021 JUDGMENT DATED: 03/10/2022 addition during the hearing before the National Faceless Assessment Centre. Section 144B(1)(xiii) provides that on receipt of show cause notice, assessee may furnish his response to the National Faceless Assessment Centre and as per clause (xiv), assessment unit shall make a revised draft assessment order after considering the response of the assessee and send it to the National Faceless Assessment Centre. As per the provisions of section 144B(7) in case of variation prejudicial to the assessee as proposed in the draft assessment order, the assessee is entitled to request for personal hearing and upon such request, the personal hearing may be provided by the authority, if the case of the assessee is covered by circumstances provided therein in exercise of powers under sub-clause (h) of clause (xii) of section 144B(7) of the Act, 1961. Page 24 of 26 C/SCA/17541/2021 JUDGMENT DATED: 03/10/2022 12. In view of above, it can be safely be said that the impugned order was passed by the respondent in violation of principles of natural justice without affording an opportunity of personal hearing by not following the prescribed procedure laid down as per the provisions of section 144B of the Act, 1961 for Faceless assessment. 13. In the result, this petition succeeds and is accordingly allowed. The impugned order of assessment passed by the respondent under Section 147 read with section 144B of the Act dated 24.09.2021 and demand notice under section 156 of the Act are quashed and set aside. The respondent/Revenue will be at liberty to proceed with assessment under the provisions of section 144B of the Act, 1961 as permissible under the law after issuance of show cause notice-cum-draft assessment order so as to provide an opportunity of Page 25 of 26 C/SCA/17541/2021 JUDGMENT DATED: 03/10/2022 hearing to the petitioner. The petitioner shall be given an opportunity of hearing as per the provisions of section 144B of the Act, 1961. Such exercise shall be completed within 12 weeks from the date of receipt of copy of this order. 14. Rule is made absolute to the aforesaid extent. Direct service is permitted. 15. It is made clear that we have not examined the merits of the case. (N.V.ANJARIA, J) (BHARGAV D. KARIA, J) RAGHUNATH R NAIR Page 26 of 26 "