Sapna Flour Mills Ltd. V. Union Of India And 3 Others

WTAX/718/2022

AI Insights

The case involves Sapna Flour Mills Ltd., which challenged an assessment order for the assessment year 2013-14. The petitioner argued that the assessment was conducted without a personal hearing, despite a request for one, and that the procedure followed was not in accordance with the amended Section 144B of the Income Tax Act, 1961, which governs faceless assessments. The court examined the amendments to Section 144B, particularly the changes brought by the Finance Act, 2022, and found that the omission of sub-section (9), which provided for non-est status of assessments not following the prescribed procedure, did not violate the principles of natural justice. However, the failure to provide a personal hearing as requested by the petitioner was a significant procedural irregularity.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 803242 (HC-ALLAHABAD)
• Appeal Type: Others
• Pronouncement Date: 09-12-2022
• Assessment Year: misc
• Other Referred Cases: Commissioner of Customs (Import), Mumbai vs. Dilip Kumar and Company and others, Willie Slaney vs. The State of Madhya Pradesh, Commissioner of Income Tax vs. Vatika Township Private Limited, Ramesh Kumar Soni vs. State of Madhya Pradesh, Hitendra Vishnu Thakur and others vs. State of Maharashtra and others, U.P. State Industrial Development Corporation Ltd. vs. Commissioner of Income Tax-II, Kanpur, The State of Maharashtra and others vs. Greatship (India) Limited
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: A S G I; GAURAV MAHAJAN; NAVEEN GUPTA
• Assessee Lawyers: ABHINAV MEHROTRA; SATYA MEHROTRA
• Keywords: Assessment Order; Faceless assessment; Income Tax; Natural Justice; Retrospective amendment
• Section: 148; 143(2); 144B; 143(3D); 144B(9)

Judgement Text

"1 Reserved on 27.9.2022 Delivered on 09.12.2022 Court No. - 39 Case :- WRIT TAX No. - 718 of 2022 Petitioner :- Sapna Flour Mills Ltd. Respondent :- Union Of India And 3 Others Counsel for Petitioner :- Abhinav Mehrotra,Satya Vrata Mehrotra Counsel for Respondent :- A.S.G.I.,Gaurav Mahajan,Naveen Chandra Gupta Hon'ble Mrs. Sunita Agarwal,J. Hon'ble Vipin Chandra Dixit,J. (Delivered by Justice Sunita Agarwal) 1. Heard Sri Abhinav Mehrotra learned Advocate for the petitioner, Sri N.C. Gupta learned counsel appearing on behalf of respondent no. 1 and Sri Gaurav Mahajan, learned counsel appearing for respondents no. 2 & 3. Learned A.S.G.I. was present at the initial stage of hearing. 2. The challenge is to the assessment order dated 30.3.2022 for the assessment year 2013-14. The petitioner company is engaged in a business of running a Flour mill, manufacturing of Flour from Wheat. It filed its return of income for the assessment year 2013-014 declaring a total income of Rs. 32,32,210/- on 12.8.2013. This return of income was revised on 13.8.2013. The notice under Section 148 of the Income Tax Act was issued to the petitioner on 31.3.2021. The petitioner filed return of income in response to the notice under Section 148 of the Act on 28.4.2021. Another notice dated 30.6.2021 under Section 143(2) read with Section 147 of the Income Tax Act, 1961 was issued acknowledging the response of the petitioner to the notice under Section 148 of the Act and the statement of reasons recorded for the purpose of reopening assessment were enclosed therein. The detailed objections were filed by the petitioner on 22.10.2021 challenging the jurisdiction of the assessing officer, in response to the notice under Section 148 of the Income Tax Act. 2 3. By order dated 9.12.2021, the objections filed by the petitioner against reopening of the assessment order vide letter dated 22.10.2021 had been disposed of. The order dated 9.12.2021 is appended as Annexure '7' to the writ petition. 4. The show cause-cum-draft assessment order dated 27.3.2022 was then served upon the petitioner proposing to make certain additions in the return of total income of the petitioner. The petitioner filed response to the said notice on 28.3.2022 with the request for hearing in the matter through video conferencing as envisaged in the show cause-cum-draft assessment order. 5. It is contended that thereafter no response had been received by the petitioner and he kept waiting for personal hearing in the manner. The impugned assessment order dated 30.3.2022 has, thus, been passed in gross violation of the principles of natural justice, inasmuch as, no oral/personal hearing in the matter was granted to the petitioner, neither any communication was received by the petitioner from the office of respondent no. 2 of rejecting the request of the petitioner seeking personal hearing. 6. The challenge to the assessment order is two folds. Firstly, it is argued by the learned counsel for the petitioner that with the coming into force of the Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 read with the Finance Act, 2021, a sea-change is brought in the administration of Income Tax Law, including the regulation of substantial and procedural rights and obligations of the parties. One of such amendment, relevant for the purpose, is the introduction of Section 143(3D) and 144B of the Income Tax Act, whereby the old scheme of e-assessment, contained under Section 143(3A) to 143(3C) of the Income Tax Act, has been made inapplicable to the assessment made after 1.4.2021. Section 144B of the Income Tax Act provides that no order of assessment can be made unless 3 the same is complaint with the scheme of the statute. It is argued that Section 144B was inserted as a benefit to the assessee in case of an assessment made not in accordance with the procedure laid down under Section 144. 7. The provisions of Section 144B(9) of the Income Tax Act have been placed before us to submit that the said provision provided that in case an order of assessment not being made by the National Faceless Assessment Centre, in accordance with the provisions of the scheme, embeded in the provisions of Section 144B, then the assessment order shall be non-est in law. However, Section 144B(9) has been omitted by Section 42(b) of the Finance Act, 2022. 8. The contention is that the amendment omitting Section 144B(9) brought by the Finance Act, 2022 is bad in law as it has been given retrospective operation as it seeks to take away vested rights of the taxpayer. It is argued that Section 144B(9) was a safeguard against illegal, arbitrary, perfunctory and unsustainable assessment order issued by the revenue authorities. The amendment in the statute would encourage arbitrary exercise of power, which is clearly repressive and unconstitutional. The argument is that the Parliament being aware of the hardship caused to the taxpayer when due process of law is not followed, thought in its wisdom to incorporate sub-section (9) of Section 144B. The Law made to safeguard the interest and right of the public cannot be repealed citing the reasons for bringing amendments. 9. The contention is that the Finance Bill, 2022 proposes to omit the provisions of sub-section (9) of Section 144B with retrospective effect, i.e. from 1.4.2021, i.e. from the date of its inception. The omission of sub-section (9) of Section 144B will make the entire Section 144B unconstitutional, inasmuch as, the omission of the check/safeguard would result in arbitrary, whimsical, capricious decision making process. 10. With the above submissions, learned counsel for the petitioner 4 sought to impress upon the Court that Section 42 of the Finance Act, 2022, omitting sub-section (9) of Section 144B of the Income Tax Act be held unconstitutional, being ultra-vires to the Constitution. 11. In support of his arguments, learned counsel for the petitioner has placed the object and purpose of bringing the Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Bill, 2020, the introduction of Section 144B, the statement of object of the amendment brought by the Finance Bill, 2022 and the decisions of the Apex Court in Commissioner of Customs (Import), Mumbai vs. Dilip Kumar and Company and others1; Willie Slaney vs. The State of Madhya Pradesh2 and Commissioner of Income Tax vs. Vatika Township Private Limited3 to assert that a legislature is not expected to enact a law which is contrary to the existing law or dilutes the rigor of law and the said principle assumes importance in the taxing statute which is to be construed strictly being fiscal statute. It was further argued that in procedural statute, if consequence provided, it has to be given full effect. It is submitted that the assessment creates a vested right upon the assessee and any provision inserted by amendment cannot be given retrospective effect to deprive of the assessee of his vested right. 12. To deal with these submissions of the learned counsel for the petitioner, we may go through the amendments brought by the Finance Act, 2021 and the Finance Act, 2022. 13. With the launch of Faceless Assessment Scheme-2019 in Income Tax Department, the Taxation and other Laws (Relaxation and Amendment of Certain Provisions) Bill, 2020 was enforced w.e.f. 31st March, 2020, providing for insertion of Section 144B w.e.f. 1st April, 2021. Section 144B provides the procedure in a faceless assessment. Sub-sections (1) to (8) provided as to in what manner and mode, the faceless assessment would be made. Sub-section (9) of Section 144B 1 (2018) 9 SCC 1 2 AIR 1956 SC 116 3 (2014) 1 SCC 1 5 provided that: “(9) Notwithstanding anything contained in any other provision of this Act, assessment made under sub-section (3) of section 143 or under section 144 in the cases referred to in sub-section (2) (other than the cases transferred under sub-section (8), on or after the 1st day of April, 2021, shall be non-est if such assessment is not made in accordance with the procedure laid down under this section.” 14. The Finance Bill, 2022 brought amendment in faceless assessment under Section 144B of the Act. The object and purpose of bringing the amendment in Section 144 as indicated in the Finance Bill, 2022 is relevant to be noted as under:- “Amendment in Faceless Assessment under section 144B of the Act The Central Government has undertaken a number of measures to make the processes under the Act electronic, by eliminating person to person interface between the taxpayer and the Department to the extent technologically feasible, and provide for optimal utilisation of resources and a team-based assessment with dynamic jurisdiction. As part of this policy, vide Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, Section 144B was inserted in the Act to provide the procedure for faceless assessment with effect from 01.04.2021 and the Faceless Assessment Scheme, 2019 ceased to operate that date. However, various difficulties are being faced by the administration and the taxpayers in the operation of the faceless assessment procedure. In view of the above, it is proposed that the existing provisions of the section 144B of the Act may be amended to streamline the process of faceless assessment in order to address the various legal and procedural problems being faced in the implementation of the said section.” Sub-section (9) of Section 144B, which provided that the assessment proceedings shall be void if the procedure mentioned in the section was not followed has been omitted, taking note of the fact that large number of disputes have been raised under the said sub-section involving technical issues arising due to use of information technology leading to unnecessary litigation. The amendments to omit sub-section (9) 6 of Section 144B has been given effect retrospectively from 1st April, 2021, i.e. sub-section (9) of Section 144B has been omitted from its date of inception. 15. Taking note of the fact that the omission of sub-section (9) of Section 144B was with a view to streamline the process of faceless assessment, to remove legal and procedural problems being faced in the implementation of Section 144B introduced with the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, w.e.f. 1.4.2021, we may further record that the amendments, subject matter of challenge brought by the Finance Act, 2022, are procedural in nature. 16. It is settled that amendments relating to procedure operate retrospectively and the only exception is that whatever be the procedure which was correctly adopted and proceedings concluded under the old law, the same cannot be reopened for the purpose of applying the new procedure. 17. Some legal pronouncement pertaining to the field are relevant to be noted hereunder:- In Ramesh Kumar Soni vs. State of Madhya Pradesh4, the question was relating to change of forum and whether any law relating to forum of trial is procedural or substantive in nature. The decision of the Apex Court in Hitendra Vishnu Thakur and others vs. State of Maharashtra and others5 was considered therein wherein the legal position with regard to the procedural law being retrospective in nature had been considered. Paragraph ‘26’ of the said decision, as noted in the paragraph ‘11’ of the decision of the Apex Court in Ramesh Kumar Soni (supra) is reproduced hereinunder. “26. The Designated Court has held that the amendment would operate retrospectively and would apply to the pending cases in which investigation was not complete on the date on which the Amendment Act 4 (2013) 14 SCC 696 5 (1994) 4 SCC 602 7 came into force and the challan had not till then been filed in the court. From the law settled by this Court in various cases the illustrative though not exhaustive principles which emerge with regard to the ambit and scope of an Amending Act and its retrospective operation may be culled out as follows: (i) A statute which affects substantive rights is presumed to be prospective in operation unless made retrospective, either expressly or by necessary intendment, whereas a statute which merely affects procedure, unless such a construction is textually impossible, is presumed to be retrospective in its application, should not be given an extended meaning and should be strictly confined to its clearly defined limits. (ii) Law relating to forum and limitation is procedural in nature, whereas law relating to right of action and right of appeal even though remedial is substantive in nature. (iii) Every litigant has a vested right in substantive law but no such right exists in procedural law. (iv) A procedural statute should not generally speaking be applied retrospectively where the result would be to create new disabilities or obligations or to impose new duties in respect of transactions already accomplished. (v) A statute which not only changes the procedure but also creates new rights and liabilities shall be construed to be prospective in operation, unless otherwise provided, either expressly or by necessary implication.” The law relating to amendment of procedural statute, thus, as settled is that a statute which merely affects procedure is presumed to be retrospective in its application and should be given an extended meaning and should be strictly confined to its clearly defined limits. 18. In the instant case, a comparative study of the pre-amendment Section 144B and post-amendment Section 144B shows that various checks and measures have been added in the amendment by the Finance Act, 2022 in order to complete faceless assessment which has been brought in the Income Tax Act to increase ease of compliance for taxpayers, bring transparency and efficiency by removal of human interface with the department, in order to reduce litigation. The idea of bringing faceless assessment is to increase ease of doing business. The 8 faceless assessment scheme was introduced in the year 2021 and Section 144B prescribing procedure was introduced to implement faceless assessment in the Income Tax department. In one year of implementation of the scheme, the procedure for faceless assessment provided by Section 144B, for the difficulties faced in its implementation further amendments have been brought to simplify the procedure, to remove flaws on technical issues and checks and balances to ease the process both for the assessee and the department. 19. In the pre-amendment provision, (Section 144B) an assessee was required to request for personal hearing on the notice served upon him to show cause on the draft assessment order in accordance with clause (vii) of sub-section (7) and the personal hearing was accorded only on the approval of the Chief Commissioner or the Director General, in charge of the Regional Assessment Centre, under which the concerned unit is set up, if he is of the opinion that the request is covered by the circumstances referred to in sub-clause (b) of clause (xii). Whereas, in the amendments brought into sub-section (7) of Section 144B by the Finance Act, 2022, sub-section (viii) of Section 7 has been amended to provide for personal hearing wherever the request for personal hearing has been received after service of a notice calling upon the assessee to show cause under clause (vii) of Section 7. The Income Tax Authority of relevant unit is mandated by use of words “shall allow” to provide for such hearing, through National Faceless Assessment Centre through video conferencing or video telephone and any other method of communication of telecommunication application. The personal hearing has, thus, been provided to the assessee in faceless assessment proceeding, without any approval of the Chief Commissioner or the Director General or the opinion formed by the incharge of the Regional Faceless Assessment Centre as provided in the pre-amendment sub-section (7)(viii) of Section 144B. Various other measures have been introduced in the amendments brought by the Finance Act, 2022 in the procedure for completion of faceless assessment 9 under Section 144B to ease the process and avoid all technical objections. The omission of sub-section (9) of Section 144B was with various new measures for checks and balances having been provided in the procedure prescribed under Section 144B. Even otherwise, Section 144B being a procedural statute, no right much less substantive right can be said to have been conferred by sub-section (9) of Section 144B upon the taxpayer which provided for the proceeding of the assessment being non-est if not made in accordance with the procedure laid down under Section 144B. The said sub-section in our considered opinion, was for imposing a burden upon the department rather than conferment of any right upon the assessee and further as noted in the amendment bill that it has lead to large number of litigation on technical grounds due to some procedural difficulty in implementation of faceless assessment. The challenge to the amendment brought by the Finance Act, 2022 in omission of sub-section (9) of Section 144B, for the above discussion, cannot be sustained. 20. The second limb of arguments of the learned counsel for the petitioner is that with the implementation of the faceless assessment with the introduction of Section 144B of the Income Tax Act, it is mandatory that the notice is served upon the assessee by National Faceless Assessment Centre as contemplated under Section 144B(1)(i) under sub- section (2) of Section 143. It is argued that, in the instant case, notice under Section 143(2) came to be issued from the office of the Assistant Commissioner of Income Tax, DCIT Circle Faizabad on 30.6.2021 and not by National Faceless Assessment Centre in accordance with the amended procedure w.e.f. 1.4.2021. 21. It is further argued that the assessee had objected to the draft assessment order and further requested for personal hearing in the matter. The request in this regard was uploaded on the website on 29th March, 2022 on receipt of the show cause notice under Section 147 of the Income 10 Tax Act. Personal hearing, however, has not been granted to the petitioner herein. The assessment order dated 30.3.202 has, thus, been passed in violation of the principles of natural justice incorporated in the statute by the Finance Act, 2022 as noted above. 22. Reliance is placed on the decision of this Court in Jagjeet Singh Gujral vs. Union of India and 2 others6 to assert that personal opportunity of hearing cannot be denied to the petitioner when he made the request which had been acknowledged by the respondent authorities. 23. It was argued that the issuance of notice under Section 143(2) is mandatory. The omission on the part of the assessing authority to issue notice under Section 143(2) through the National Faceless Assessment Centre cannot be a procedural irregularity and the same is not curable and the requirement of notice under Section 143 cannot be dispensed with. 24. To substantiate the said proposition, reliance is placed on the decision of the Division Bench decisions of this Court in U.P. State Industrial Development Corporation Ltd. vs. Commissioner of Income Tax-II, Kanpur7. 25. Learned counsel for the respondent-department, however, relied upon the decision of the Apex Court in The State of Maharashtra and others vs. Greatship (India) Limited8 dated 20th September, 2022 to challenge the entertainability of the writ petition against the order of assessment by-passing the statutory remedy of appeal. The contention is that the Apex Court has highlighted therein that self restraint has to be exercised by the High Courts as judicial prudence not to entertain the writ petitions without any valid reason shown by the assessee to by-pass the statutory remedy of appeal. 26. Considering the above submissions of the learned counsels for the parties and perused the record, we may note that it is brought before us that in the instant case, the proceedings for assessment were apparently 6 Writ Tax No. 945 of 2021 7 Income Tax Appeal No. 11 of 2015 8 Civil Appeal No. 4956 of 2022 11 conducted under the Faceless Assessment Scheme-2019. With the insertion of Section 143(3D) read with Section 144B w.e.f. 1.4.2021 by the Finance Act, 2021, the assessment proceedings were to be conducted in accordance with the procedure prescribed under Section 144B of the Income Tax Act, 1961 for faceless assessment. Sub-section 1(i) of Section 144B provided for service of notice on the assessee under sub-section (2) of Section 143 by the National Faceless Assessment Centre. 27. In the instant case, the notice under Section 143(2) read with Section 147 of the Income Tax Act, 1961 dated 30.6.2021 was issued by the Assistant C.I.T., Faizabad instead of the National Faceless Assessment Centre. 28. On receipt of the said notice, the assessee filed detailed objections dated 20.10.2021. The notice under Section 148 of the Income Tax Act, 1961 for the assessment year 2013-14 has, however, been issued to the assessee on 31.3.2021. It may be noted that in reply to the notice dated 31.3.2021, the assessee had filed response on 28.4.2021 and the notice under Section 143(2) read with Section 147 of the Income Tax Act was, thereafter, issued on 30.6.2021. Section 144B inserted by Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act’ 2020, w.e.f. 1st day of April, 2021 (1.4.2021) provided in sub-section (1) for the assessment under sub-section (3) of Section 143 or under Section 144, in the cases referred to in sub-section (2), to be made in a faceless manner. 29. By amendment of Section 144B w.e.f. 1.4.2022, the assessment, reassessment or recomputation under sub-section (3) of Section 143 or under Section 144 or under Section 147, as the case may be with respect to cases referred to in sub-section (2), has to be made in a faceless manner as per the procedure prescribed therein. 30. The reassessment proceeding, in the instant case, has been 12 initiated with the issuance under Section 148 of the Act, 1961 on 31.3.2021 issued by the Assistant CIT, DCIT Circle, Faizabad. The subsequent notice dated 30.6.2021 under Section 143(2) read with Section 147 of the Act, issued from the office of the Assistant CIT, DCIT Circle, Faizabad, therefore, cannot be said to suffer from any error of law. 31. It may further be noted that all the subsequent proceeding was conducted through National Faceless Assessment Centre. 32. A further perusal of the communication dated 22.11.2021 issued by the National Faceless Assessment Centre, Delhi (at page ‘60’ of the paper book) indicates that the assessing officer was directed to decide the objection raised by the assessee/petitioner against reopening of the assessment for the assessment year 2013-14. The order of rejection of the objection filed by the petitioner was then passed on 9.12.2021 and was communicated through the National Faceless Centre. 33. The notice under Section 142(1) was then issued to the petitioner on 26.1.2022 through the National Faceless Assessment Centre, Delhi asking him to furnish the details on or before 3.2.2022. The reply was filed by the petitioner on 1.2.2022. The show cause notice-cum-draft assessment order dated 27.3.2022 was then served upon the petitioner through the National Faceless Assessment Centre, Delhi. The response to the same was filed by the petitioner on 28.3.2022 and a request for providing personal hearing through video conferencing was uploaded on 29.3.2022. The copy of the response dated 29.3.2022 to the show cause notice-cum-draft assessment order with the request for hearing through video conferencing is appended as Annexure ‘11’ to the writ petition and the copy of the E-filing page of the Income Tax Department, is appended at page ‘101’ of the paper book, wherein the date of assessee’s request for video conferencing was uploaded as 29th March, 2022 and the reason for seeking video conference is “Matter requires explanation due to complexity of facts”. Whereas ITD response-date and VC link details are blank. 13 34. The categorical submission of the learned counsel for the petitioner is that the petitioner awaited personal hearing in the matter but the order impugned dated 30th April, 2022 came to be passed in violation of the principles of natural justice. No oral/personal hearing was granted in the matter. 35. Taking note of the above fact, having noticed that the request was made by the petitioner for personal hearing in the matter on receipt of the show cause notice-cum-draft assessment order, the action of the respondent in not providing opportunity of hearing to the petitioner giving no response to the request made by the petitioner for grant of opportunity of hearing through video conferencing resulted in violation of the principles of natural justice. The assessment order dated 30.3.2022 records that the assessee had submitted a reply vide letter dated 28.3.2022. The request for personal hearing appears to have been acknowledged on 29.3.2022. The assessment order, however, does not indicate that any personal hearing was granted to the petitioner on or before 30.3.2022. It also does not record any reason for denial of opportunity of hearing to the petitioner. 36. It may further be noted here that in faceless assessment procedure set in place w.e.f. 1.4.2022 by amendment in Section 144B(7), the personal hearing through video conferencing has been made mandatory, in case of the request made by the assessee. 37. In the facts and circumstances of the case, having noticed that the petitioner herein had participated at every stage of the proceeding and submitted reply to the notices issued to him from time to time, the reply to the show cause-cum-draft assessment order dated 28.3.2022 given by the assessee runs into about 20 pages. The petitioner had specifically asked for grant of opportunity of personal hearing through video conferencing by communication on the website and the said request had been acknowledged by the respondent authorities. We, however, do not find any good reason for denial of such an opportunity to the petitioner herein. 14 38. As from the material on record of the writ petition, it becomes evident that personal opportunity of hearing was not granted to the petitioner, we do not find any good reason to grant any time to file response/counter affidavit. The impugned assessment order is, thus, found to be in violation of the principles of natural justice and against the procedure set in place for conducting reassessment proceeding. Being deficit in essential procedural compliances, the assessment order dated 30.3.2022 is hereby set aside. 39. The matter is remitted back to the competent authority/National Faceless Assessment Centre for passing fresh assessment order after providing due opportunity of hearing to the petitioner by fixing a date for personal hearing through video conferencing on receipt of the copy of this order. The petitioner is directed to cooperate in the proceedings to be conducted by the competent authority and not to seek unnecessary adjournment. The writ petition is, accordingly, allowed to the above extent. (Vipin Chandra Dixit,J.) (Sunita Agarwal,J.) Order Date :- 9.12.2022 Brijesh Digitally signed by BRIJESH KUMAR Date: 2022.12.10 13:11:04 IST Reason: Location: High Court of Judicature at Allahabad "