Niranjankumar Trikamlal Patel V. National Faceless Assessment Centre

SCA/18249/2021

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The case involves Niranjankumar Trikamlal Patel, a partner in M/s. Yogammrut Developers, who challenged the assessment order and demand notice issued by the National Faceless Assessment Centre (NFAC) for the Assessment Year 2013-2014. The petitioner argued that the assessment was conducted without following the procedural requirements of Section 144B of the Income Tax Act, 1961, which mandates a draft assessment order and an opportunity for the assessee to respond before finalizing the assessment. The respondents contended that the assessment was justified based on the explanations provided by the petitioner. The court, after examining the relevant provisions and the facts of the case, concluded that the mandatory procedures for a faceless assessment were not followed, leading to a violation of natural justice.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 688664 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 19-07-2022
• Assessment Year: misc
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: AMAN SHAH; M R BHATT CO ADVOCATE
• Assessee Lawyers: KETAN SHAH
• Keywords: Assessment Order; Faceless assessment; Income Tax; Natural Justice; Opportunity of Hearing
• Section: 147; 148; 142(1); 143(2); 133A; 144B; 156

Judgement Text

"C/SCA/18249/2021 JUDGMENT DATED: 19/07/2022 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 18249 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 ? ========================================================== NIRANJANKUMAR TRIKAMLAL PATEL Versus NATIONAL FACELESS ASSESSMENT CENTRE ========================================================== Appearance: MR KETAN H SHAH(2705) for the Petitioner(s) No. 1 MR. AMAN K SHAH(9992) for the Petitioner(s) No. 1 for the Respondent(s) No. 1 M R BHATT & CO.(5953) for the Respondent(s) No. 1 ========================================================== CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 19/07/2022 ORAL JUDGMENT Page 1 of 17 C/SCA/18249/2021 JUDGMENT DATED: 19/07/2022 (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) 1.With request and consent of learned advocates for the parties, the petition was taken up for final consideration today. 2.Rule, returnable forthwith. Learned advocate Mr.Karan Sanghani for M.R.Bhatt & Co. waives service of Rule. 3.Heard learned advocate Mr. Ketan H. Shah for the petitioner and learned Senior Advocate Mr. M.R. Bhatt assisted by learned advocate Mr.Karan Sanghani for M.R. Bhatt & Co. for the respondents. 4.By this petition under Article 226 of the Constitution of India, the petitioner has prayed to set aside assessment order dated 25.09.2021 passed under Section 147 read with Section 144B of the Income Tax Act, 1961 Page 2 of 17 C/SCA/18249/2021 JUDGMENT DATED: 19/07/2022 (hereinafter mentioned as “the Act”) and also challenged the demand notice of even date issued under section 156 of the Act, which all related to the Assessment Year 2013-2014. 5.Brief facts of the case are that the petitioner is one of the partners of M/s. Yogammrut Developers of Ahmedabad involved in Real Estate Business having equal share in the partnership firm. 5.1) The assessee filed his return of income for the Assessment Year 2013-2014 declaring total income of Rs.2,77,740/-. The revised return of income was filed by the assessee on 9.10.2014 declaring total income of Rs. 2,54,680/-. 5.2) A survey under section 133A of the Act was carried out in case of other partner of the firm on 22.10.2013, and it was found Page 3 of 17 C/SCA/18249/2021 JUDGMENT DATED: 19/07/2022 that the assessee had made investmnet of Rs. 1,70,65,000/- in M/s. Yogammrut Developers which was not disclosed in the return of income for the Assessment year 2013-2014. 5.3) Therefore, case of the petitioner was reopened under section 147 of the Act by the respondent and accordingly, notice under section 148 of the Act dated 31.03.2020 was issued to the petitioner. Subsequently, notice under section 142(1) of the Act dated 29.09.2020 was issued. Thereafter a show cause notice dated 3.03.2021 was issued against the petitioner. 5.4) It is the case of the petitioner that no draft order in reference to section 144B of the Act has been passed in case of the assessee and straightaway final assessment order dated 25.09.2021 was passed under section 147 read with section 144B of Page 4 of 17 C/SCA/18249/2021 JUDGMENT DATED: 19/07/2022 the Act and further demand notice under section 156 of the Act of even date for Rs.1,15,53,030/- was issued against the petitioner. 5.5) Being aggrieved by such action of the respondent, the petitioner has preferred the present petition. 6.Learned advocate Mr. Shah for the petitioner submitted that as per the provisions of section 144B(1) of the Act, National Faceless Assessment Centre (For short NFAC”) shall serve a notice on the assessee under section 143(2) of the Act and assessee may file response within a period of 15 days to NFAC and in the events referred to in clause (iii) (a),(b) or (c) of section 144B of the Act, NFAC is to intimate the assessee about the assessment. It was further submitted that under sub-section(1) of section 144B, upon Page 5 of 17 C/SCA/18249/2021 JUDGMENT DATED: 19/07/2022 completion of process from clauses (i) to (xiii), the respondent is supposed to make a draft assessment order after taking into account all the material available on record. It was further submitted that as per clause (xvi) of section 144B(1) NFAC would decide the further course of action regarding finalisation of draft assessment order. It was further submitted that if the draft assessment order or the final assessment order is prejudicial to the interest of the assessee, an opportunity should be given to the assessee to present his case as per sub- clause(b) of clause (xvi) and option should be given to furnish response as per clause (xxii) of section 144B of the Act. 6.1) It was further submitted that sub- clause (a) of clause (xxiii) prescribes courses to be adopted by NFAC in case of non response to the show cause notice by the Page 6 of 17 C/SCA/18249/2021 JUDGMENT DATED: 19/07/2022 assessee and sub-clause(b) of clause (xxiii) obligates NFAC to forward the response of the assessee to the assessment unit. It was further submitted that if reply is received pursuant to show cause notice, sub-clause(b) of clause (xxiii) comes into operation pursuant to which the matter goes to the Assessing Officer and clause (vii) of sub- section(7) comes into play whereby opportunity of hearing assumes significance. 6.2) Learned advocate Mr. Shah further submitted that in case of variations in draft assessment order and final assessment order, there is further provision for opportunity to the assessee by serving notice in terms of clauses (xxii), (xxiv) and (xxv). It was submitted that sub-section(7) of section 144B for the purpose of faceless assessment under clause (vii) provides that in case where variation is proposed in draft assessment Page 7 of 17 C/SCA/18249/2021 JUDGMENT DATED: 19/07/2022 order, an opportunity is to be provided to the assessee. 6.3) Referring to the Standard Operating Procedure under Faceless Assessment Scheme, 2019, under circular dated 19.11.2020 and circular dated 23.11.2020, it was submitted that personal hearing is to be allowed to the assessee. It was submitted that sub-section (9) of section 144B, declares that assessment made under section 143(3) or under section 144(4) referable to sub-section(2) other than sub-section(8) on or after 1st day of April, 2021 shall be non-est, if such assessment is not made in accordance with procedure laid down under section 144B of the Act. 6.4) Learned advocate further submitted that the impugned order is in violation of mandatory provisions of clauses (xiv), (xvi) and (xxii) of sub-section (1) of section 144B Page 8 of 17 C/SCA/18249/2021 JUDGMENT DATED: 19/07/2022 of the Act, 1961. 6.5) It was submitted that as per the Scheme of Faceless Assessment as provided under section 144B of the Act, 1961, draft assessment order is to be provided to the assessee for the proposed addition so as to give an opportunity of hearing. 6.6) It was submitted that the respondent authority has not provided the opportunity of hearing through video conference as envisaged under section 144B (7) (vii), (viii) and (ix) of the Act, 1961 and therefore, the impugned order is in violation of the principles of natural justice. 7.On the other hand, learned Senior Advocate Mr. M.R. Bhatt assisted by learned advocate Mr.Karan Sanghani for M.R. Bhatt & Co. for the respondents has opposed this petition and Page 9 of 17 C/SCA/18249/2021 JUDGMENT DATED: 19/07/2022 would submit that after examining the explanations of the petitioner, the impugned order has been passed by the respondent and, therefore, no interference is required by this Court. He, therefore, would submit that the present petition be dismissed. 8.We have heard learned advocates appearing for the respective parties and perused the 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 Page 10 of 17 C/SCA/18249/2021 JUDGMENT DATED: 19/07/2022 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; (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 Page 11 of 17 C/SCA/18249/2021 JUDGMENT DATED: 19/07/2022 (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 (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 Page 12 of 17 C/SCA/18249/2021 JUDGMENT DATED: 19/07/2022 referred to in sub-clause (h) of clause (xii); (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 13 of 17 C/SCA/18249/2021 JUDGMENT DATED: 19/07/2022 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) is given to the petitioner so as to enable the petitioner to give explanation for proposed addition during Page 14 of 17 C/SCA/18249/2021 JUDGMENT DATED: 19/07/2022 the hearing before the National Faceless Assessment Centre. Section 144B(1)(xii) 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 15 of 17 C/SCA/18249/2021 JUDGMENT DATED: 19/07/2022 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 Income Tax Act, 1961 dated 25.09.2021 and demand notice under section 156 of the Act of even date 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 Page 16 of 17 C/SCA/18249/2021 JUDGMENT DATED: 19/07/2022 so as to provide an opportunity of 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 17 of 17 "