Riddhi Steel and Tube Limited V. The National Faceless Assessment Centre

SCA/14569/2021

AI Insights

The case involves Riddhi Steel and Tube Limited challenging an assessment order passed by the National Faceless Assessment Centre (NFAC) under Sections 147 and 144B of the Income Tax Act, 1961, for the Assessment Year 2013-14. The petitioner argued that the assessment was conducted in gross violation of natural justice, as they were given only one day's time to respond to a show-cause notice proposing a significant addition to their income, despite the fact that more than ten days were available to the respondent for framing the assessment. The court examined the procedural adherence of the NFAC under the Faceless Assessment Scheme and found that the principles of natural justice were not followed, leading to the quashing of the assessment order.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 798239 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 01-08-2022
• Assessment Year: misc
• Other Referred Cases: Golden Tobacco Limited v. NFAC, Mantra Industries Limited v. NFAC, Gandhi Realty (India) Private Limited v. ACIT/ITO, Index India Private Limited v. ACIT/ITO
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: M R BHATT; KARAN SANGHANI
• Assessee Lawyers: TUSHAR HEMANI; VAIBHAVI PARIKH
• Keywords: Assessment Order; Faceless assessment; Income Tax; Natural Justice
• Section: 147; 148; 143(3); 142(1); 143(2); 144B; 156

Judgement Text

"C/SCA/14569/2021 JUDGMENT DATED: 01/08/2022 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 14569 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 ? NO 2 To be referred to the Reporter or not ? NO 3 Whether their Lordships wish to see the fair copy of the judgment ? NO 4 Whether this case involves a substantial question of law as to the interpretation of the Constitution of India or any order made thereunder ? NO ================================================================ RIDDHI STEEL AND TUBE LIMITED Versus THE NATIONAL FACELESS ASSESSMENT CENTRE ================================================================ Appearance: MR TUSHAR HEMANI, SENIOR ADVOCATE WITH MS VAIBHAVI K PARIKH(3238) for the Petitioner(s) No. 1 MR MR BHATT, SENIOR ADVOCATE WITH MR KARAN SANGHANI FOR 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 : 01/08/2022 ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) Page 1 of 12 C/SCA/14569/2021 JUDGMENT DATED: 01/08/2022 Heard learned Senior Advocate Mr.TusharHemani assisted by learned advocate Ms.Vaibhavi K. Parikh for the petitioner and learned Senior Advocate Mr.M.R. Bhatt assisted by learned advocate Mr.KaranSanghani for M.R. Bhatt & Co. for the respondent. 2. Rule returnable forthwith. Learned advocate Mr.Karan Sanghani waives service of notice of Rule on behalf of the respondent. Having regard to the controversy arising in this petition in narrow compass, with the consent of the learned advocates appearing for the respective parties, the same is taken up for final disposal today itself. 3. The petitioner has prayed for quashing and setting aside the impugned Assessment Order dated 21stSeptember, 2021 passed under Section 147 read with Section 144B of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) as well as the demand notice issued under Section 156 of the Act for the Assessment Year 2013-14 on the ground that the same is passed in gross violation of principles of natural justice. 4. The brief facts of the case are that, the petitioner is a company incorporated under the provisions of the Companies Act, 1956. The petitioner filed its return of income for the Page 2 of 12 C/SCA/14569/2021 JUDGMENT DATED: 01/08/2022 Assessment Year 2013-14 on 28thSeptember, 2013 declaring total income of Rs.2,72,98,894/-. The Assessment Order under Section 143(3) of the Act was passed on 8thJanuary, 2016 determining the total income of the petitioner at Rs.3,22,34,959/-. 4.1 Thereafter, the Assessing Officer issued notice dated 23rdMarch, 2020 under Section 148 of the Act, after dully recording the reasons for re-opening after obtaining prior approval of appropriate authority. The petitioner filed its return of income on 1stJune, 2020 in response to the notice issued under Section 148 of the Act. 4.2 Thereafter, the notice under Section 143(2) of the Act was issued on 29thSeptember, 2020. The case of the petitioner was transferred to Faceless Assessment Scheme-2019. Accordingly, the notices under Section 142(1) of the Act along with the questionnaire were issued on 5thFebruary, 2021, 10th February, 2021, 16th February, 2021 and 28th August, 2021. The petitioner furnished the details in compliance to such notices from time to time along with the written submissions, balance-sheet, etc. 4.3 The Assessing Officer issued notice dated 28thAugust, 2021 under Section 142(1) of the Act calling upon the petitioner to furnish the Page 3 of 12 C/SCA/14569/2021 JUDGMENT DATED: 01/08/2022 details of nature of transactions carried out with M/s.Radhe Corporation and details of unsecured loan along with proof of identity, creditworthiness and genuineness of the transactions with M/s.Radhe Corporation. 4.4 The petitioner vide letter dated 6thSeptember, 2021 furnished the details pertaining to M/s.Radhe Corporation and further stated that documentary evidences were furnished vide letter dated 22nd February, 2021. 4.5 The Assessing Officer, thereafter, prepared a draft assessment order determining total income of the petitioner at Rs.8,02,79,316/- and sent the same with the show- cause notice dated 18thSeptember, 2021 calling upon the petitioner to show cause as to why the assessment should not be completed as per the draft assessment order as per provisions of section 144B of the Act. The petitioner was given time to file reply through registered e-filing by 23.59 hours of 20thSeptember, 2021. The petitioner on the same day, i.e., on 18thSeptember, 2021, requested for adjournment on the ground that gathering material from multiple sources would requires some time. 4.6 The Assessing Officer, however, framed the assessment under Section 147 read with Page 4 of 12 C/SCA/14569/2021 JUDGMENT DATED: 01/08/2022 Section 144B of the Act vide order dated 21stSeptember, 2021 determining the assessed income at Rs.8,02,79,613/- and raised demand of Rs.3,65,20,610/-. 4.7 The petitioner has, therefore, preferred this petition challenging the assessment order as the same was passed in violation of principles of natural justice under Article 226 of the Constitution of India. 5. Learned Senior Advocate Mr.TusharHemani for the petitioner submitted that the impugned order passed under Section 147 read with Section 144B of the Act is in gross violation of principles of natural justice because, the petitioner was granted merely one day’s time for furnishing reply to the show-cause notice proposing huge addition despite the fact that more than 10 days’ time was available with the respondent for framing the assessment when the show-cause notice was issued to the petitioner under Section 144B of the Act. 5.1 Learned Senior Advocate Mr.Hemani submitted that the show-cause notice dated 18th September, 2021 was issued with a direction to file reply by 20th September, 2021. It was pointed out that 18thSeptember, 2021 was Saturday and 20th September, 2021 was Monday and the petitioner Page 5 of 12 C/SCA/14569/2021 JUDGMENT DATED: 01/08/2022 made request for adjournment on 18th September, 2021. It was therefore, submitted that the respondent Assessing Officer effectively granted merely one day’s time to the petitioner for furnishing reply to the show-cause notice. It was submitted that instead of considering the request for adjournment, the respondent straightaway passed the impugned assessment order. 5.2 Learned Senior Advocate Mr.Hemani further submitted that the Assessing Officer has also not considered the reply dated 6th September, 2021 filed by the petitioner in response to the notice dated 28th August, 2021 while passing the impugned assessment order. 5.3 It was submitted that as per the scheme of Faceless Assessment as provided under Section 144B of the Act, the Assessing Officer was required to provide an opportunity of hearing to the petitioner for the proposed addition as per the draft assessment order. It was submitted that the respondent Assessing Officer did not provide opportunity of hearing to the petitioner by not granting adjournment as envisaged under Section 144B(1)(xxii) and Section 144B(7)(vii),(viii) and (ix) of the Act and therefore, the impugned assessment order is in violation of principles of natural justice. Page 6 of 12 C/SCA/14569/2021 JUDGMENT DATED: 01/08/2022 5.4 In support of his submissions, learned Senior Advocate Mr.Hemani has relied upon the decision of Bombay High Court in the case of Golden Tobacco Limited v. NFAC and others, rendered in Writ Petition No.1282 of 2021 dated 28.10.2021, Mantra Industries Limited v. National Faceless Assessment Centre (NFAC or NeAC) reported in [2021] 131 TAXMANN.COM 165 (Bombay), decision of this Court in the case of Gandhi Realty (India) Private Limited v. Asst/Jt./Dy./ACIT/ITO rendered in Special Civil Application No.7662 of 2021 dated 5.10.2021 and decision of this Court in the case of Index India Private Limited v. Addl./Jt./Dy./ACIT/ITO rendered in Special Civil Application No.16690 of 2021 dated 14.12.2021. He, therefore, submitted that the present petition be allowed and the impugned assessment order be quashed and set aside. 6. On the other hand, learned Senior Advocate Mr.M.R. Bhatt for the respondent authority submitted that the case noting history as well as e-proceedings on filing portal reveals that no application for adjournment was filed by the petitioner because, such adjournment request is not shown in the Income Tax Business Application (ITBA) nor in the order sheet. It was therefore, submitted that in absence of any reply by the petitioner to the show-cause cum draft assessment Page 7 of 12 C/SCA/14569/2021 JUDGMENT DATED: 01/08/2022 order, the impugned assessment order came to be framed after considering the exhaustive submissions made by the petitioner during the course of assessment proceedings. It was therefore, submitted that after examining the explanation of the petitioner the impugned order has been passed and therefore, no interference is required by this Court and the petition may be dismissed accordingly. 7. We have heard the learned advocates appearing for the respective parties and perused the impugned order. The facts are not in dispute as per Annexure-E Page-76 of the petition is an extract from the e-filing portal, wherein, the adjournment details are stated to show that the adjournments request was made on 18thSeptember, 2021 and reason for seeking adjournment is stated “gathering of material from multiple sources requires time” and adjournment was sought up to 5th October, 2021. Thus, the petitioner sought adjournment on 18thSeptember, 2021, however, without considering the request of the petitioner for adjournment to file reply to the show-cause notice dated 18th September, 2021, the impugned assessment order was passed on 21st September, 2021. 8. Section 144B of the Act provides detailed procedure for Faceless Assessment. Section 144B Page 8 of 12 C/SCA/14569/2021 JUDGMENT DATED: 01/08/2022 was introduced by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 w.e.f. 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. 9. Section 144B(1)(xvi) provides for an opportunity to the assessee, in case any variation prejudicial to the interest of assessee is proposed in the draft assessment order by serving a notice calling upon the assessee to show cause as to why the proposed variation should not be made. Thus, there is a mandatory provision to provide an opportunity of hearing to the assess by issuing a show-cause notice along with the draft assessment order, which in the facts of the case was issued on 18thSeptember, 2021 calling upon the assessee to furnish the reply before 23.59 hours of 21st September, 2021. Though the assessee prayed for adjournment on 18thSeptember, 2021, without considering the same, the impugned assessment order was passed on 21st September, 2021. Thus, there is clear violation of principles of natural justice by the Page 9 of 12 C/SCA/14569/2021 JUDGMENT DATED: 01/08/2022 respondent authority contrary to the provisions of Section 144B of the Act. 10. It is also pertinent to note that as per Sub-Section (vii) of Section 144B(7), the assessee is also required to be given personal hearing so as to make his oral submissions or present his case before the income-tax authority on request. However, in the facts of the case, the request for adjournment by the petitioner was not at all replied and the impugned assessment order is passed without providing an opportunity of hearing to the assessee so as to enable him to give explanation for proposed addition. Section 144B(1)(xii) provides that on receipt of show- cause notice, the assessee may furnish his response to the National Faceless Assessment Centre and as per clause (xiv), the 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. However, the respondent authority without giving any opportunity of hearing to the petitioner by not considering the request for adjournment, passed the impugned assessment order. 11. In view of above, it can safely be said that the impugned order was passed by the respondent in violation of principles of natural Page 10 of 12 C/SCA/14569/2021 JUDGMENT DATED: 01/08/2022 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. Ratio laid down by the Bombay High Court as well this Court in the following decisions would squarely be applicable to the facts of this case : 1) Golden Tobacco Limited v. The National Faceless Assessment Centre and others (judgment dated 28.10.2021 in Writ Petition No.1282/2021). 2) Mantra Industries Ltd. v. National Faceless Assessment Centre reported in (2021) 131 taxmann.com 165(Bombay). 3) Gandhi Reality (India) Private Limited v. Assistant/Joint/Deputy/Assistant Commissioner of Income Tax/Income Tax Officer (Order dated 05.10.2021 in Special Civil Application No.7662/2021). 4) Idex India Private Limited v. Additional/Joint/Deputy/Assistant Commissioner of Income Tax/Income Tax Officer (order dated 14.12.2021 in Special Civil Application No. 16690/2021). 12. In the result, this petition succeeds and is accordingly allowed. The impugned order of assessment dated 21stSeptember, 2021 for the Page 11 of 12 C/SCA/14569/2021 JUDGMENT DATED: 01/08/2022 assessment year 2013-14 passed by the respondent authority under Section 147 read with Section 144B of the Act at Annexure-A along with the demand notice under Section 156 of the Act are quashed and set aside. The respondent Assessing Officer shall be at liberty to proceed with the assessment under the provisions of Section 144B of the Act from the stage of issuance of draft assessment order as permissible under the law after issuance of show-cause notice so as to provide an opportunity of hearing to the petitioner as per the provisions of Section 144B of the Act. Such exercise shall be completed within 12 weeks from the date of receipt of the copy of this order. It is made clear that we have not examined the merits of the case as the impugned order is quashed and set aside and the matter is remanded back only on the ground of breach of principles of natural justice. Rule is made absolute to the aforesaid extent. No order as to costs. (N.V.ANJARIA, J) (BHARGAV D. KARIA, J) Dolly Page 12 of 12 "