SC Remands Faceless Assessment as Mandatory Section 144B Procedure Was Not Followed

DCIT Vs Abacus Real Estate Private Limited (Supreme Court of India)

The Revenue challenged the Bombay High Court judgment that had set aside an assessment order passed under the faceless assessment scheme on the ground that the mandatory procedure prescribed under Section 144B of the Income-tax Act, 1961 had not been followed. The High Court had held that the assessment order was non est because the assessee had not been issued or served with a show-cause notice along with a draft assessment order before the final assessment was made.

Before the High Court, the assessee had challenged the assessment order, demand notice, and penalty notice dated 19.04.2021 for Assessment Year 2018-19, contending that although notices under Sections 143(2) and 142(1) had been received and responded to, no show-cause notice with a draft assessment order had been issued despite the proposed variations being prejudicial to the assessee. The assessment order itself did not mention issuance of any such notice.

The Revenue relied on an affidavit stating that a draft assessment order had been issued on 12.04.2021 by the Regional E-Assessment Unit. The High Court declined to accept this explanation, observing that the assessment order contained no reference to any draft assessment order, no evidence of its service had been produced, and Section 144B(5) required all communications in a faceless assessment to originate through the National Faceless Assessment Centre (NFAC). The Court also noted that the affidavit had not been filed by the officer who had passed the assessment order. Holding that Section 144B prescribed a mandatory procedure and that non-compliance rendered the assessment non est, the High Court quashed the assessment order, demand notice, and penalty notice while leaving it open to the Revenue to proceed afresh in accordance with law. It also clarified that no observations had been made on the merits of the assessment.

The Revenue appealed before the Supreme Court, contending that the High Court ought not to have entertained the writ petition and that, even if it found a breach of the principles of natural justice due to non-service of the show-cause notice and draft assessment order, the matter should have been remanded to the Assessing Officer for passing a fresh assessment order after following the procedure prescribed under Section 144B.

After hearing both sides, the Supreme Court held that, since the assessment order had been passed without issuing a show-cause notice along with a draft assessment order as mandatorily required under Section 144B, the High Court had committed no error in holding that the mandatory procedure had not been followed. However, the Supreme Court observed that the Faceless Assessment Scheme had been introduced recently and that the Revenue ought to have been given an opportunity to correct the procedural lapse. Accordingly, it modified the High Court’s judgment and remanded the matter to the Assessing Officer to pass a fresh assessment order after following the due procedure prescribed under Section 144B of the Act. The Supreme Court further directed that all contentions and defences available to the assessee on merits would remain open for consideration by the Assessing Officer in accordance with law. The appeal was disposed of accordingly.

Read HC Judgment in this case: Bombay HC Quashes Assessment as Mandatory Section 144B Procedure Was Not Followed

FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER

1. Leave granted.

2. Feeling aggrieved and dissatisfied with the impugned judgment and order dated 25.10.2021 passed by the High Court of Judicature at Bombay in Writ Petition No. 1221/2021, by which the Division Bench of the High Court in exercise of powers under Article 226 of the Constitution of India has set aside the Assessment Order declaring it as non est as the mandatory requirement under Section 144B of the Income Tax Act, 1961 (for short “the Act”), namely, the show cause notice with a draft Assessment Order was not issued and served upon the assessee, the Revenue has preferred the present Appeal.

3. Shri Balbir Singh, learned ASG, appearing for the Revenue has submitted that, as such, the High Court ought not to have entertained the writ Petition under Article 226 of the Constitution of India challenging the order of assessment. It is submitted that even otherwise if the Hon’ble Court was of the opinion that the assessment proceedings were in breach of principles of natural justice inasmuch as the show cause notice with draft Assessment Order was not served, in that case the matter ought to have remanded to the Assessing Officer and with a liberty in favour of the Assessing Officer to pass a fresh order in accordance with law and after following due procedure as required under Section 144B of the Act.

4. Having heard Shri Balbir Singh, learned ASG, appearing of the Revenue and Shri Alok Yadav, learned counsel appearing for the respondent-assessee and having gone through the impugned judgment and order passed by the High Court and considering the fact that the Assessment Order was passed without issuing a show cause notice with a draft Assessment Order as was mandatorily required under Section 144B of the Act, as such, it cannot be said that the High Court has committed any error. However, at the same time, considering the fact that the Faceless Assessment Scheme has been introduced recently and therefore, the Revenue ought to have been given some leverage to correct themselves and take the corrective measures and therefore the High Court ought to have remanded the matter to the Assessment Officer to pass a fresh order in accordance with law, after following the due procedure as required under the law, namely, more particularly, under Section 144B of the Act.

5. In view of the above for the reasons stated above, we modify the impugned judgment and order passed by the High Court and remand the matter to the Assessment Officer to pass a fresh Assessment Order, after following due procedure in accordance with law under Section 144B of the Act.

All the contentions/defences which are available to the assessee on merits are kept open to be considered by the Assessing Officer in accordance with law and on its own merits.

With this, the present Appeal stands disposed of.