Shri Balaji Enterprise V. National Faceless Assessment Centre, Delhi

SCA/15522/2021

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The case involves Shri Balaji Enterprise, a company engaged in infrastructure development and property renting, which challenged an assessment order and demand notice issued by the National Faceless Assessment Centre, Delhi. The petitioner argued that the assessment was conducted without considering their submissions and without providing an opportunity for a personal hearing, thus violating the principles of natural justice. The respondent defended the assessment, stating that the explanations provided by the petitioner were considered. The court examined the procedural requirements under section 144B of the Income Tax Act, 1961, which governs faceless assessments, and found that the mandatory procedures were not followed, leading to the quashing of the assessment order and demand notice.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 805657 (HC-GUJARAT)
• Appeal Type: Others
• Pronouncement Date: 12-07-2022
• Assessment Year: misc
• Other Referred Cases: Sanjay Aggarwal v. National Faceless Assessment Centre Delhi, M/s. Jansons Industries Ltd. v. State Tax Officer, CIT v. Chhabil Dass Agarwal, A.K. Kraipak and Ors. v. Union of India and Ors, Tin Box v. CIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: NIKUNT RAVAL
• Assessee Lawyers: HARDIK VORA
• Keywords: Disallowance of interest expenses; E-assessment Scheme; Faceless assessment; Natural Justice; Unexplained cash credit
• Section: 143(3); 68; 144B; 156

Judgement Text

"C/SCA/15522/2021 JUDGMENT DATED: 12/07/2022 IN THE HIGH COURT OF GUJARAT AT AHMEDABAD R/SPECIAL CIVIL APPLICATION NO. 15522 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 ? ========================================================== SHRI BALAJI ENTERPRISE Versus NATIONAL FACELESS ASSESSMENT CENTRE, DELHI ========================================================== Appearance: MR. HARDIK V VORA(7123) for the Petitioner(s) No. 1 MR NIKUNT RAVAL FOR MRS KALPANA K RAVAL(1046) for the Respondent(s) No. 2 NOTICE SERVED for the Respondent(s) No. 1 ========================================================== CORAM:HONOURABLE MR. JUSTICE N.V.ANJARIA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 12/07/2022 ORAL JUDGMENT Page 1 of 16 C/SCA/15522/2021 JUDGMENT DATED: 12/07/2022 (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. Nikunt Raval waives service of Rule. 3.Heard learned advocate Mr. Hardik Vora for the petitioner and learned advocate Mr. Nikunt Raval 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 24.09.2021 passed under Section 143(3) read with Section 144B of the Income Tax Act, 1961 (hereinafter mentioned as “the Act”) making addition of Rs. 1,28,14,939/- and also challenged the demand notice issued under Page 2 of 16 C/SCA/15522/2021 JUDGMENT DATED: 12/07/2022 section 156 of the Act, which all related to the Assessment Year 2018-2019. 5.Brief facts of the case are that the petitioner is engaged in the business of infrastructure development and renting of property. The petitioner filed return of income declaring total income of Rs.2,99,010/-. 5.1) Case of the petitioner was selected for scrutiny under the E-assessment Scheme, 2019. Various information was called for and various notices were issued from time to time. Petitioner gave detailed replies to all the notices. 5.2) The respondent prepared a draft assessment order dated 13.09.2021 wherein it was proposed to make total addition of Rs.4,90,72,232/- on account of unexplained Page 3 of 16 C/SCA/15522/2021 JUDGMENT DATED: 12/07/2022 cash credit under section 68 of the Act and disallowance of interest expenses capitalized to WIP of Rs. 37,73,339/- were sought to be added. 5.3) The petitioner-assessee submitted his detailed submissions dated 17.09.2021. The assessee also requested for personal hearing through video conference. 5.4) Respondent issued notice on 18.09.2021 and requested to provide copies of ITR, balance sheet reflecting transactions, loan confirmation and bank statement of parties to establish the identity, creditworthiness and genuineness of the loan transaction. The petitioner replied to such notice vide letter dated 20.09.2021 and supplied all necessary details. Page 4 of 16 C/SCA/15522/2021 JUDGMENT DATED: 12/07/2022 5.5) The respondent issued letter dated 21.09.2021 for necessary compliance of the attached notice dated 18.09.2021. The petitioner thereafter vide letters dated 22.09.2021, 23.09.2021 and 24.09.2021 submitted all necessary documents as requested for. 5.6) It is the case of the petitioner that without considering the submission made by the petitioner, the respondent passed the final assessment order dated 24.09.2021 making addition of Rs. 90,41,600/- and disallowed interest expense of Rs. 37,73,339/- and also issued demand notice under section 156 of the Act raising demand of Rs.1,08,42,063/-. 5.7) Being aggrieved by such action of the respondent, the petitioner has preferred the present petition. Page 5 of 16 C/SCA/15522/2021 JUDGMENT DATED: 12/07/2022 6.Learned advocate Mr. Hardik Vora for the petitioner submitted that though the petitioner has given all the details as required by the Assessing Officer, the Assessing Officer without affording any opportunity of hearing to the petitioner passed the assessment order and therefore, there was breach of principles of natural justice. 6.1) Learned advocate relied upon the following judgments to canvas his contention that opportunity of personal ought to have been given to the petitioner : 1) Decision of Delhi High Court in case of Sanjay Aggarwal v. National Faceless Assessment Centre Delhi, w.P.(C) No. 5741/2021. Page 6 of 16 C/SCA/15522/2021 JUDGMENT DATED: 12/07/2022 2) Decision of Madras High Court in case of M/s. Jansons Industries Ltd. v. State Tax Officer reported in 2020-TIOL-1759-HC-MAD- VAT. 3) Decision of Supreme Courts : i) in case of CIT v. Chhabil Dass Agarwal reported in 357 ITR 357. ii) in case of A.K. Kraipak and Ors. v. Union of India and Ors reported in (1969) 2 SCC 262 iii) in case of Tin Box v. CIT reported in (2001) 9 SCC 725. 6.2) 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 7 of 16 C/SCA/15522/2021 JUDGMENT DATED: 12/07/2022 of the Act, 1961. 6.3) 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. 6.4) 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 advocate Mr. Nikunt Raval for the respondent has opposed this petition and would submit that after examining the explanations of the petitioner, Page 8 of 16 C/SCA/15522/2021 JUDGMENT DATED: 12/07/2022 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 Page 9 of 16 C/SCA/15522/2021 JUDGMENT DATED: 12/07/2022 (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 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 10 of 16 C/SCA/15522/2021 JUDGMENT DATED: 12/07/2022 (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 Page 11 of 16 C/SCA/15522/2021 JUDGMENT DATED: 12/07/2022 the request is covered by the circumstances 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 Page 12 of 16 C/SCA/15522/2021 JUDGMENT DATED: 12/07/2022 therein. 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 Page 13 of 16 C/SCA/15522/2021 JUDGMENT DATED: 12/07/2022 give explanation for proposed addition during 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 14 of 16 C/SCA/15522/2021 JUDGMENT DATED: 12/07/2022 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 143(3) 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 Page 15 of 16 C/SCA/15522/2021 JUDGMENT DATED: 12/07/2022 order 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 16 of 16 "