Case Law Details
Inox Wind Energy Limited Vs ACIT (Gujarat High Court)
The petitioner challenged an assessment order dated 29 December 2022 passed under section 143(3) of the Income-tax Act, 1961 for Assessment Year 2021-22, seeking its quashing under Articles 226 and 227 of the Constitution of India. The petitioner had filed its return declaring nil income after adjusting brought-forward losses. The case was initially selected for scrutiny under the Faceless Assessment Scheme, during which multiple notices under sections 142(1) and 143(2) were issued and replies were furnished. Subsequently, the case was transferred to the Jurisdictional Assessing Officer under section 144B(8), who also issued several notices under section 142(1), to which the petitioner responded. Thereafter, the Assessing Officer passed the assessment order making additions, determining taxable income of Rs. 71.06 crore, raising a demand of Rs. 24.30 crore, and issuing a penalty notice.
The petitioner contended that no show cause notice setting out the proposed additions, reasons, and supporting material was issued before the assessment order. It argued that this deprived it of an opportunity to seek a personal hearing and violated the principles of natural justice. The petitioner relied upon CBDT Instruction No. 20/2015, Instruction No. 3/2018, the letter dated 11 July 2016, Circular No. 27/2019, and the circular dated 6 September 2021, all of which, according to the petitioner, required issuance of a show cause notice before proposed additions and enabled an assessee to seek a personal hearing where an adverse view was contemplated. The petitioner also submitted that although an appeal had been filed before the Commissioner (Appeals), the writ petition was maintainable because of the alleged breach of natural justice.
The Revenue opposed the petition, submitting that the petitioner had been afforded sufficient opportunity through six notices under section 142(1), including a notice dated 20 December 2022 requiring documentary evidence and warning that issues would be decided based on available material if no response was received. It argued that the petitioner never requested a personal hearing and that, after transfer under section 144B(8), the faceless assessment procedure and related standard operating procedures did not apply. The Revenue also contended that all issues could be raised in the pending statutory appeal.
The High Court examined section 144B(8), which permits transfer of a case from the National Faceless Assessment Centre to the Jurisdictional Assessing Officer. It observed that while sections 144B(1) and 144B(2) governing faceless assessment procedures would not apply after such transfer, the CBDT instructions, circulars and letters had to be read harmoniously to determine the procedure applicable in transferred cases.
The Court referred to Instruction No. 20/2015, which requires an Assessing Officer proposing additions or disallowances to issue an appropriate show cause notice specifying the reasons and supporting evidence before passing the final assessment order. It also referred to Instruction No. 3/2018, the letter dated 11 July 2016, Circular No. 27/2019, and the circular dated 6 September 2021, each of which envisages issuance of a show cause notice where an adverse view is contemplated and provides that a personal hearing may be granted after the assessee responds to such notice and requests a hearing.
The Court held that these instructions and circulars continued to apply even where an assessment was transferred under section 144B(8). It found that a show cause notice setting out the proposed additions and supporting reasons was a prerequisite for enabling the assessee to seek a personal hearing. The notices issued under section 142(1), which sought information for completing the assessment, could not substitute for such a show cause notice because they were intended only for gathering information during the assessment process.
Accordingly, the High Court concluded that the Assessing Officer had committed a breach of the principles of natural justice by passing the assessment order without issuing the required show cause notice specifying the proposed additions and the evidence supporting them. The assessment order was therefore quashed and set aside, and the matter was remanded to the Assessing Officer to issue a proper show cause notice, enabling the assessee to submit its response and, if required, seek a personal hearing in accordance with Circular No. 27/2019 and the circular dated 6 September 2021. The Court directed that this exercise be completed within 12 weeks from receipt of the order.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
1. By this petition under Articles 226 and 227 of the Constitution of India, the petitioner has prayed for quashing and setting the assessment order under section 143(3) dated 29.12.2022 passed by the respondent-Assessing Officer for the Assessment Year 2021-22.
2. Having regard to the controversy in narrow compass with the consent of the learned advocates of both the sides, the matter is taken up for hearing.
3. The petitioner-Company filed Return of Income for the Assessment Year 2021-2022 on 15.03.2022 declaring total income at Rs. Nil after adjusting brought forward losses of Rs. 48,70,49,209/-.
3.1 Case of the assessee was selected for scrutiny on 27.06.2022 and several correspondence took-place between the faceless Assessing Officer and the petitioner in view of the Faceless Assessments Scheme as provided under section 144B of the Income Tax Act, 1961 (for short ‘the Act’).
3.2 It is the case of the petitioner that the petitioner by reply dated 26.08.2022 submitted computation, Annual Report, details of TDS in Form 26AS and intimation under section 143(1) of the Act in support of the return filed.
3.3 The respondent thereafter issued notice under section 142(1) of the Act on 31.10.2022 which was replied by the petitioner on 15.11.2022. Another notice dated 02.11.2022 was issued under section 142(1) of the Act seeking various details which was supplied by the petitioner by replies dated 05.11.2022 and 15.11.2022.
3.4 The third notice under section 142(1) was issued on 17.11.2022 which was also replied by the petitioner on 19.11.2022 and 24.11.2022.
3.5 It appears that thereafter the case of the petitioner was transferred by order dated 12.12.2022 from faceless Assessing Officer to the respondent Jurisdictional Assessing Officer under section 144(B)(8) of the Act.
3.6 The respondent-Jurisdictional Officer again issued notice under section 142(1) of the Act on 13.22.2022 seeking various details which was supplied by the petitioner by replies dated 17.12.2022 and 19.12.2022. Thereafter, fifth notice under section 142(1) was issued by the respondent on 19.12.2022 seeking further details which was also replied by the petitioner on 21.12.2022. The sixth notice under section 142(1) was issued by the respondent on 20.12.2022 which was also replied by the petitioner on 21.12.2022.
3.7 It is the case of the petitioner that after the aforesaid notices and replies exchanged between the petitioner and the respondent-Assessing Officer, no further show cause notice was issued to the petitioner on the proposed addition indicating the reasons along with necessary evidence/reasons forming the basis for such additions by the respondent Assessing Officer and accordingly the petitioner is deprived of opportunity of personal hearing as the impugned assessment order was passed on 29.12.2022 by assessing the income at Rs. 71,06,57,281/- raising a demand of Rs. 24,30,03,540/- along with a notice for penalty under section 274 read with section 271A of the Act.
4. Learned advocate Mr. B.S.Soparkar for the petitioner submitted that as per the Instruction No. 20/2015 issued by the Central Board of Direct Taxes, the respondent-Assessing Officer was mandatorily required to issue a show cause notice duly indicating the reasons for proposed additions/disallowance along with the necessary evidence/reasons forming the basis of the same before passing final order against the proposed additions and the respondent-officer was required to give due consideration to the submissions made by the assessee in response to the show-cause notice. It was submitted that absence of the show cause notice, the petitioner is deprived of the opportunity of personal hearing resulting into breach of principles of natural justice.
4.1 Learned advocate Mr. Soparkar also referred to and relied upon the provisions of section 144B(8) to submit that once the case of the petitioner is transferred to the jurisdictional Assessing Officer, the aforesaid instruction is required to be followed by the respondent-Assessing Officer. It was submitted that as per the Scheme of the faceless assessment, the Assessing Unit is required to be issued a draft assessment order along with show-cause notice to the petitioner so as to give an opportunity of hearing and make submissions to the proposed addition. It was submitted that the same procedure ought to have been followed by the Assessing Officer in view of the above instruction dated 29.12.2015.
4.2 Learned advocate Mr. Soparkar also referred to and relied upon the Instruction No. 3/2018 dated 28.08.2018 issued by the CBDT to submit that in cases where the assessment proceedings being carried out through E-proceedings, the personal hearing and attendance may take place where the show-cause notice contemplating any adverse view is issued. It was submitted that in absence of the show-cause notice prior to passing of the impugned order, the petitioner could not avail the benefit of the aforesaid instruction to get the opportunity of personal hearing and attendance before the respondent-Assessing Officer.
4.3 Learned advocate Mr. Soparkar also referred to and relied upon the letter (F)No. 225/162/2016/ITA.II) dated 11.07.2016 whereby, the format of notice under section 143(2) of the Act is prescribed in all cases of limited scrutiny, complete scrutiny and manual scrutiny which contains Clause-4 to the effect that specific questionnaire/ show-cause notice shall be given to the assessee so as to provide another opportunity in case any adverse view is contemplated. It was submitted that though the notice under section 143(2) is issued by the respondent-Assessing Officer as is evident from the screenshot of the portal placed on record on 27/28th June,2022, the Assessing Officer has not issued any show-cause notice to the petitioner for proposed addition and straight away passed the assessment order. It was therefore submitted the impugned order is required to be quashed and set aside and the matter may be sent back to the Assessing Officer for issuance of the show cause notice so as to enable the petitioner to avail the opportunity of personal hearing and make submission for the proposed addition to be made by the Assessing Officer on the basis of the evidence placed on record by the petitioner in response to the notice issued under section 142(1) of the Act.
4.4 Learned advocate Mr.Soparkar for the petitioner has filed the appeal before the CIT(A) as abundant caution but this petition is required to be entertained as there is a clear breach of the principle of natural justice by not giving an opportunity of hearing by the Assessing Officer and therefore, as per the law laid down by the Hon’ble Apex Court in case of Mariamma Roy vs. Indian Bank and ors reported in (2009) 16 SCC 187 (SC) and in case of Satwati Deswal vs State of Haryana and ors reported in (2010) 1 SCC 126 (SC) and therefore, the petition should be entertained irrespective of the pendency of the appeal before the CIT(A).
4.5 Learned advocate Mr. Soparkar has also referred to and relied upon the circular dated 06.09.2021 which applies to the case to case basis in which the assessment proceedings are conducted under section 144B(8) of the Act. Heavy reliance was placed on Clause (B) of the Circular which provides that request for personal hearing shall generally be allowed to the assessee with the approval of the Range Head, mainly after assessee has filed written submission to the show-cause notice. It was submitted that in absence of the show-cause notice, the petitioner would not be in a position to pray for personal hearing. It was therefore, submitted that once the show-cause notice is issued, the petitioner can avail the benefit of the aforesaid circular to avail the opportunity of personal hearing.
4.6 Reliance was also placed on Circular No. 27/2019 to submit that show cause notic is required to be issued before passing the assessment order so as to provide opportunity of hearing to the assessee if any additions are to be made by the assessing officer.
5. On the other hand, learned Senior Standing Counsel Mr. Karan Sanghani for the respondent-Assessing Officer referred to and relied upon the facts disclosed by the Assessing Officer in the impugned assessment order to contend that the petitioner-assessee is given ample opportunity by issuing notice under section 142(1) of the Act on six occasions as is evident from the record and reliance was placed on the contents of the notice under section 142(1)(2) to demonstrate that the petitioner was called upon to show cause for making various additions by the Assessing Officer. Referring to such notice under section 142(1) of the Act, it was submitted that the petitioner now cannot complain about the breach of the natural justice by not providing an opportunity of hearing as the Assessing Officer has referred to the submissions made by the petitioner-assessee while framing the assessment order.
5.1 It was submitted that the petitioner can raise all the contentions which are raised in this petition in the appeal which is already filed before the CIT (A) which is sub-judiced and therefore, this petition should not be entertained at this stage permitting the petitioner to raise all the contentions before the CIT (A).
5.2 Learned advocate Mr. Sanghani thereafter referred to and relied upon affidavit-in-reply filed on behalf of the respondent-Assessing Officer and specifically relied upon the averments made in paras 7 to 10 which read as under:
“7. With respect to the contentions raised in para 2.6, it is submitted that, the petitioner has been afforded sufficient opportunity of being heard, which is “self-explanatory from para 2.3 of the petition. After affording sufficient opportunity to file response to the notices, the impugned order u/s 143(3) dated 29.12.2022 was passed after considering all submission made by the assessee during the course of the assessment.Vide notice u/s 142(1) dated 20.12.2022, the petitioner was made aware and show caused that;
“you are requested to submit full and complete documentary evidence on given date and time. Please note the if, you fail to do so, the issues on which queries have been raised so for will be decided on the basis of the material available with this office.”
8. In respect of the personal hearing, it is submitted that as per extant procedure/guide-line for conducting assessment personal hearing is not required to be granted unless and until the assessee seeks for the same in writing. In the case in hand, the assessee has not asked for the same in any of its submission. Therefore, question of granting personal hearing does not arise. With regards to the contention of the assessee on issue of Show cause notice cum draft order, it is submitted that the assessment proceeding in the case of petitioner has been transferred from Faceless Assessment Officer to Jurisdictional Assessing Officer u/s 144B(8) of the Act, hence, provision of sections 144B and SOP issued in respect of Faceless assessment is not applicable. Further, as stated supra, notice u/s 142(1) cum show cause was issued on 20.12.2022, in continuation to the notice u/s 142(1) of the Act issued on various dates, the assessee was categorically issued show-cause stating that;
“you are requested to submit full and complete documentary evidence on given date and time. Please note the if you fail to do so, the issues on which queries have been raised so for will be decided on the basis of the material available with this office,”
Further, in response to the Show Cause Notice issued on 20.12.2022, the assessee has not sought any personal hearing, which is a mandatory condition for allowing personal hearing as per laid down procedure for handling of assessment by JAO received on transfer from Faceless Assessment u/s 144B(8) of the Act issued vide F.No.225/97/2021/ITA-II dated 06.09.2021.
10. Thus, contention of the assessee that the replies of the assessee were not considered as well as the order passed u/ s. 143(3) of the Act was without issuing show cause notice cum draft assessment order is incorrect and liable to be rejected.”
6. Referring to the above averments, it was submitted that the petition may not be entertained in view of the fact that sufficient opportunity was provided by the Assessing Officer to the petitioner and therefore, the petitioner cannot now agitate for not providing an opportunity of hearing relying upon the instructions and letters of the CBDT. It was also pointed out that as per provision of section 144B(8) of the Act, the respondent-Assessing Officer is required to conduct proceedings by way of E-proceedings only and accordingly, the respondent has given ample opportunity to the petitioner to make submissions.
7. Having heard learned advocate for the respective parties it is necessary to refer to the provisions of 144B(8) of the Act under which the case of the petitioner was transferred to the Jurisdictional Assessing Officer from the faceless assessment unit to frame the assessment.
“Section 144B:- Faceless Assessment
… … … …
… … … …
(8) Notwithstanding anything contained in sub-section (1) or sub-section (2), the Principal Chief Commissioner or the Principal Director General in charge of National Faceless Assessment Centre may at any stage of the assessment, if considered necessary, transfer the case to the Assessing Officer having jurisdiction over such case, with the prior approval of the Board.”
8. On perusal of the aforesaid provision, the respondent-Assessing Officer is required to frame the assessment notwithstanding anything contained in sub-section (1) or sub-section (2) of section 144B with prior approval of the Board. In view of the above, it is true that the provision of sections 144B(1) and 144B(2) would not be applicable in the assessment procedure to be followed by the cases in which section 144B(8) is applied. Therefore, reliance placed by learned advocate Mr. Soparkar on the Instruction No. 20 of 2015 read with Instruction No. 3 of 18 and Circular No. 27/2019 dated 06.09.2021 are required to be harmoniously construed to apply to the cases which are taken out of the procedure prescribed under section 144B(1)/(2) of the Act while transferring the same to the Jurisdictional Assessing Officer under section 144B(8).
9. Clause 4 of Instruction No. 20/2015 issued by the CBDT . reads as under:
“4. The Board further desires that in all cases under scrutiny, where the Assessing Officer proposes to make additions or disallowances, the assessee would be given a fair opportunity to explain his position on the proposed additions/disallowances in accordance with the principle of natural justice. In this regard, the Assessing Officer shall issue an appropriate show cause notice duly indicating the reasons for the proposed additions/disallowances along with necessary evidences/reasons forming the basis of the same. Before passing the final order against the proposed additions/disallowances, due consideration shall be given to the submissions made by the assessee in response to the show cause notice.”
10. Similarly, the Instruction No. 3/2018 and 1/2018 provide for personal hearing in case of show-cause notice contemplating any adverse view issued by the Assessing Officer reads as under:
“In cases where assessment proceedings being carried out through the “F-Proceeding’ as per para 4 above, personal hearing/attendance may take place in following situation(s):
I. where books of account have to be examined;
II. where Assessing Officer invokes provisions of section 131 of the Act;
III. where examination of witness is required to be made by the concerned assessee or the Department;
IV. where show-cause notice contemplating any adverse view is issued by the Assessing Officer and assessee requests through their ‘E-filing’ account for personal hearing to explain the matter.
However, details have to be uploaded on ITBA subsequently.”
11. Letter dated 11.07.2016 provides for the draft of the notice to be issued under section 143(2) of the Income Tax Act,1961. Clause 4 thereof reads as under:
“4. Specific questionnaire/show cause notice shall be sent giving you another opportunity in case any adverse view is contemplated.”
12. Circular No. 27/2019 dated 26.09.2019 is very crucial in the facts of the case as the said circular is applicable to the cases which are not covered by the E-assessment Scheme the said circular reads as under:
“SECTION 143 OF THE INCOME-TAX ACT, 1961 – ASSESSMENT – GENERAL – CONDUCT OF ASSESSMENT PROCEEDINGS THROUGH ‘B-PROCEEDING’ FACILITY DURING FINANCIAL YEAR 2018-29
CIRCULAR NO. 27/2019 (F.No. 225/249/2018-ITA.III] DATED 26.09.2019
The Central Board of Direct Taxes (‘Board’), in exercise of Its powers under section 119 of the Income-tax Act, 1961 (‘Act’) and in accordance with provision of section 2(23C) of the Act, hereby directs as under:
(i) In all cases (other than the cases covered under the ‘e-Assessment scheme, 2019″ notified by the Board), whey assessment is to be framed under section 143(3) of the Act during the financial year 2019-20, it is hereby directed that such assessment proceedings shall be conducted electronically subject to exceptions in para below. Consequently, assessees are required to produce/cause to produce their response/evidence to any notice/communication./show cause issued by the Assessing Officer electronically (unless specified otherwise) through their ‘E-filing’ account on the ‘E-filing’ portal. For smooth conduct of assessment proceedings through E-Proceeding.’ it is further directed that requisition of information in cases under ‘E-Proceeding’ should be sought after a careful scrutiny of case records.
(ii) In following cases, where assessment is to be framed during the Finance Year 2019-20, “E-proceeding’ shall not be mandatory:
a. Where assessment is to be framed under section(s) 153A, 153C and 144 of the Act. In respect of assessments ty be framed under section 147 of the Act, any relaxation from e-proceeding due to the difficulties in migration of data from ITD to ITBA etc. shall be dealt as per clause (f) below;
b. In set aside assessments;
c. Assessments being framed in non-PAN cases;
d. Cases where Income-tax return was filed in paper mode and the assessee concerned does not yet have an ‘E-filing’ account;
e. In all cases at stations connected through the VSAT or with limited capacity of bandwidth (list of such stations shall be specified by the Pr. DGIT (System));
f. In cases covered under para 1(i) above, the jurisdictional Pr. CIT/CIT, in extraordinary circumstances such as complexities of the case or administrative difficulties in conduct of assessment through ‘E-Proceeding’, can permit conduct of assessment proceedings through the conventional mode. It is hereby further directed that Pr.CIT/CIT is required to provide such relaxation only in extraordinary circumstances after examining the necessity for such relaxation and recording the reasons for providing such relaxations.
(iii) However, it is clarified that issue of notices and departmental communications in such cases shall be strictly governed by the guidelines issued by CBDT vide its Circular No.19/2019 dated 14-8-2019 regarding generation/allotment/quoting of Document Identification Number (DIN).
(iv) In cases where assessment proceedings are being carried out through the ‘E-Proceeding’ as per para (i) above, personal hearing/attendance may take place in following situation(s):
a. Where books of account have to be examined;
b. Where Assessing Officer invokes provisions of section 131 of the Act;
c. where examination of witness is required to be made by the assessee or the Department;
d. Where a show cause notice contemplating any adverse view is issued by the Assessing Officer and assessee requests through their ‘E-filing’ account for personal hearing to explain the matter.
However, the details pertaining to above shall be uploaded on ITBA subsequently.
2. This may be brought to the notice of all concerned for immediate compliance.”
13. Similarly, the Circular dated 06.09.2021 is also applicable to the cases which are not covered by the Faceless Assessment Scheme as per section 144B(1)/(2) of the Act and Clause B of the said circular reads as under:
“B. The request for personal hearings shall generally be allowed to the assessee with the approval of Range Head, mainly after the assessee has filed written submission to the show cause notice. Personal hearing may be allowed to the assessee preferably through Video Conference. If Video Conference is not technically feasible, personal hearings may be conducted in a designated area in Income Tax Offices. The hearing proceedings may be recorded.”
14. Therefore, on harmonious reading of the above circulars, instructions and letters, it appears that since 2015 as per the desire of the Board, the Assessing Officer is mandatorily required to issue an appropriate show cause notice duly indicating the reasons for the proposed additions/ disallowance along with necessary evidence/reasons forming basis of the same before passing the final order. As the matter of fact, such position will continue even when the case is transferred to the respondent Assessing Officer under section 144B(8) of the Act as per Circular No. 27/2019 which was issued by the CBDT applicable to the cases where the assessment were framed not covered under the E-assessment notified by the Board. As per clause 4 of the Circular No. 27/2019 it is specifically provided that in case where assessment proceedings are being carried out through E-proceedings includes all the cases other than cases covered under the E-Assessment Scheme, 2019, personal hearing/attendance may take place where a show-cause notice contemplating any adverse view is issued by the Assessing Officer and the assessee requests through the E-filing account for personal hearing to explain the matter.
15. In the facts of the case when the case of the petitioner is transferred to the respondent-Assessing Officer under section 144 (B)(8), the Circular dated 06.09.2021 would be applicable which also provides for that the request for personal hearing shall be allowed after the assessee has filed written submissions to the show-cause notice meaning thereby that the show cause notice is a prerequisite for granting personal hearing to the petitioner assessee and in absence of the show-cause notice, no opportunity of personal hearing would be made available to the assessee in cases which are transferred from faceless Assessment Unit to the Jurisdictional Assessing Officer. Reliance placed by the learned advocate for the respondent on the notices issued under section 142(1) of the Act would not be of any help as section 142(1) is with regard to the inquiry before the assessment where the Assessing Officer for the purpose of making the assessment under the Act may serve any person who has made a return for furnishing the return, a notice requiring to provide various details for the purpose of framing the assessment. As the petitioner assessee has furnished all the details it would be incumbent upon respondent Assessing Officer to issue show cause notice for the proposed addition duly indicating the reasons for the proposed addition/disallowance along with necessary evidence/reasons forming the basis of the same as per the Instruction No. 20/2021 read with Circular No. 27/2019 to enable the petitioner to avail the opportunity of hearing in compliance of the principle of natural justice.
16. In view of the foregoing reasons we are of the opinion that the Assessing Officer has committed fragrant breach of the principle of natural justice by not issuing show-cause notice indicating reasons for proposed addition/disallowance along with necessary evidence forming basis of the same and therefore, impugned assessment order is hereby quashed and set aside and the matter is remanded back to the stage of issuance of show-cause notice by the Assessing Officer to the petitioner duly indicating the reasons for proposed addition/disallowance along with necessary evidence reasons forming the basis of the same so as to enable the petitioner-assessee to request for personal hearing if any required in compliance of the Circular No. 27/2019 read with circular dated 06.09.2021 applicable in the facts of the case. Such exercise shall be completed within a period of 12 weeks from the date of receipt of copy of this order.
Rule is made absolute to the aforesaid extent. No order as to costs.
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