Case Law Details
Sujatha Revikumar Vs JCIT (Kerala High Court)
Introduction: In a significant ruling, the Kerala High Court addressed the procedural lapses in tax assessments under the Income Tax Act, 1961, particularly concerning Section 144B, which mandates the preparation and sharing of a draft assessment order with the assessee. The case, Sujatha Revikumar Vs JCIT, highlights the criticality of adhering to the prescribed procedures to uphold the principles of natural justice in tax assessments. This article delves into the court’s findings and its implications for the assessment process under the National Faceless Assessment scheme.
Detailed Analysis: The petitioner, Sujatha Revikumar, engaged in the business of money lending, faced an assessment for the year 2021-22 under the National Faceless Assessment scheme. The assessment concluded with an order (Ext.P14) without adhering to the procedural requirement of Section 144B of the Income Tax Act, which necessitates the preparation of a draft assessment order for review by the assessee. This procedural lapse was contested on the grounds of violating the principles of natural justice, as it deprived the assessee of the opportunity to respond to the draft assessment, including the right to request a personal hearing in case of any adverse variations.
The Kerala High Court, referencing its precedents and the Supreme Court’s rulings, underscored the importance of following the statutory procedure laid down in Section 144B. It was observed that the assessment order issued to the petitioner was devoid of the preliminary step of preparing and sharing a draft assessment order, thus failing to comply with the statutory mandate. The court, emphasizing the procedural safeguards intended to protect the assessee’s rights, set aside the assessment order and directed the issuance of a fresh order in compliance with Section 144B.
Conclusion: The Kerala High Court’s decision in Sujatha Revikumar Vs JCIT underscores the judiciary’s stance on ensuring procedural compliance in tax assessments, particularly under the National Faceless Assessment scheme. By setting aside the assessment order for non-adherence to Section 144B of the Income Tax Act, the court reaffirms the significance of procedural fairness and the principles of natural justice in the taxation process. This ruling serves as a critical reminder for assessing authorities to strictly follow the prescribed procedures, thereby safeguarding the assessees’ rights to fair assessment and review.
FULL TEXT OF THE JUDGMENT/ORDER OF KERALA HIGH COURT
The petitioner, through various proprietorship concerns is engaged in the business of money lending on deposit of gold ornaments as security and is functioning on the basis of licenses issued under the Kerala Money Lenders Act, 1958. During the assessment year 2021-22, the petitioner had written off a sum of Rs.7,68,97,170/- on account of fraud committed by some staff, who had made false entries regarding gold loans. It is stated that a police case has been registered and the same is being proceeded with. After the introduction of the National Faceless Assessment, the case of the petitioner was selected for the purpose of faceless assessment as is evident from Ext.P1 notice. The grievance of the petitioner is that the assessment has been concluded as per Ext.P14 without following the procedure which is prescribed under Section 144B of the Income Tax Act, 1961 (‘the Act’ for short). As per Section 144B (1) (xvi) of the Act, on receipt of the income or loss determination proposal from the assessment unit, the National Faceless Assessment Centre may convey to the assessment unit to prepare draft order in accordance with the income or loss determination proposal which shall thereafter prepare a draft order or assign the income or loss determination proposal to a review unit through an automated allocation system for conducting review of such proposal. Going by the procedure, the draft assessment order is to be conveyed to the assessee who can submit his response to the draft assessment. The Statute also gives a right to the assessee for requesting a personal hearing in case there is any variation which is prejudicial to the assessee as proposed in the draft assessment order. The petitioner submits that in the case on hand, Ext.P14 has been issued even without preparing a draft assessment order. It is hence submitted that the procedure prescribed by law has been violated and consequently there is also a violation of principles of natural justice, since the petitioner is not put on notice by issuing a draft assessment order. This Court as well as the Hon’ble Supreme Court have in several similar matters set aside the assessment orders and directed the assessing Authority to re-do the assessment in accordance with the procedure laid down in Section 144B. See National Faceless Assessment Centre & Ors. v. Automotive Manufacturers (P) Ltd. [2023 SCC Online SC 631], Ellathkandi Khaleel Ahammed Vs. Union of India & Ors. [2022 SCC Online KER 8978].
2. A reading of Ext.P14 would clearly show that even though notices had been issued under Sections 143 (2) and Section 142, there has been no draft assessment order prepared as contemplated in Section 144B. Nor has the petitioner been issued with a copy of such draft assessment order, if any.
In view of the statutory provision and the decisions of this Court and the Hon’ble Supreme Court, Ext.P14 is set aside with liberty to the respondents to issue fresh assessment orders after complying with the procedure prescribed in Section 144B of the Income Tax Act, 1961. The respondents are directed to drop any further proceedings that have been undertaken pursuant to Ext.P14.
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