Ensuring Fairness in Faceless Tax Assessments: A Ruling on Procedural Violations under Section 144B.


18 November 2024 Income Tax >> Tax Laws  

In a recent judgment of Teerth Developers & Teerth Realties JV (AOP) through Vijay Tukaram Raundal Pune v/s The Additional/Joint/Deputy/ Assistant Commissioner of Income Tax/Income Tax Officer, through the Principal Chief Commissioner of Income Tax (National e-Assessment Centre), New Delhi & Others, a petitioner challenged an assessment order passed by the Income Tax Officer (ITO) under Section 143(3) of the Income Tax Act (IT Act), concerning the assessment year 2018-19. The petitioner’s primary contention was that the assessment was carried out in violation of the principles of natural justice and in contravention of the statutory provisions under Section 144B of the IT Act, which mandates the issuance of a show cause notice-cum-draft assessment order before passing a final assessment order.

The petitioner, a taxpayer who had filed its return of income for the year 2018-19 on October 29, 2018, found its case selected for scrutiny by the department between December 2020 and January 2021. During this period, the petitioner provided requested information in response to notices from the Income Tax Department, including details related to payments made to companies that were reportedly struck off by the Registrar of Companies.

 
 


Despite several requests from the petitioner for extensions to provide additional information, the case proceeded without the petitioner being given sufficient time to furnish complete details. The petitioner argued that in line with the provisions of Section 144B, particularly clauses (xiv), (xix), (xx), and (xxii), a show cause notice-cum-draft assessment order should have been issued before the final order was passed, allowing the petitioner a reasonable opportunity to respond.

However, when the final assessment order was issued on June 12, 2021, it was noted that the show cause notice had been issued, although the petitioner never received such notice. This discrepancy led the petitioner to file a Right to Information (RTI) request, which revealed that no show cause notice had been issued, confirming the petitioner’s claim that the procedural requirements had not been followed.

The petitioner’s legal counsel argued that the assessment order was illegal due to the failure to adhere to the mandatory procedural safeguards under Section 144B of the IT Act. This section explicitly requires the issuance of a draft assessment order with an opportunity for the taxpayer to respond if any variation prejudicial to the taxpayer’s interest is proposed. The non-compliance with this procedure led the petitioner to file a writ petition, seeking to quash the assessment order and the consequential demand notice.

In its response, the Revenue Department conceded that there was no material evidence supporting the claim that a show cause notice had been issued. The case was thus argued on the basis that the absence of a show cause notice violated the principles of natural justice and rendered the assessment order invalid.

The Court, agreeing with the petitioner’s argument, relied on the provisions of Section 144B and the principles of natural justice, emphasizing that any order passed in contravention of these procedures is deemed illegal and invalid. Referring to the Supreme Court’s judgment in *Tin Box Co. v. Commissioner of Income-tax*, the Court highlighted that an assessment order that does not provide a proper opportunity to the taxpayer cannot be sustained.

The Court ruled in favor of the petitioner, setting aside the assessment order and directing the Revenue Department to initiate the process again, following the proper legal procedures. The Revenue was ordered to issue a show cause notice-cum-draft assessment order and allow the petitioner to respond before passing a final assessment order.

This ruling underscores the importance of adhering to the procedural safeguards provided under the Income Tax Act, particularly in the context of faceless assessments. The decision highlights the judiciary's commitment to protecting the rights of taxpayers by ensuring that due process and principles of natural justice are followed in every stage of the assessment process.


Income Tax Act, 1961    

FINANCE ACT, 2022