Non issue of Draft Assessment order before passing Final order violates Section 144B

Orissa Stevedores Ltd. Vs Union of India And Others (Orissa High Court)

1. The challenge is that the order is violative of the principles of natural justice as no opportunity of hearing was given to the Petitioner.

2. Figures of the taxable income and demand for AY 2018-19 in the impugned assessment order of the NFAC are disproportionately high. The impugned assessment order is not only in considerable variation of the figures for the earlier AYs but is also prejudicial to the interests of the assessee.

3. The requirement of Section 144-B (1) (xvi) of the ITA Act for triggering the procedure of first preparing a draft assessment order and providing it to the Petitioner for its response stands attracted in this case.

4. This Court sets aside the impugned assessment order of the NFAC as well as all consequential demand notices/orders and grants liberty to the Department to pass a fresh assessment order for the AY in question in accordance with law.

5. The Department shall give the Petitioner a personal hearing on a date and at a time which shall be communicated to the Petitioner sufficiently in advance.

FULL TEXT OF THE HIGH COURT ORDER /JUDGEMENT

1. The matter is taken up by video conferencing mode.

2. The challenge in the present writ petition is to an assessment order dated 14^th June, 2021 passed by the National Faceless Assessment Centre (NFAC) under Section 143 (3) read with Section 144-B of the Income Tax Act, 1961 (IT Act) raising a demand of Rs.735.16 crores on the Petitioner for the Assessment Year (AY) 2018-2019.

3. The principal ground of challenge is that the above order is violative of the principles of natural justice. No opportunity of hearing was given to the Petitioner apart from two letters issued to it by the Department on 23^rd September, 2019 and 14^th October, 2020 seeking clarifications. Mr. S. K. Acharya, learned counsel for the Petitioner submits that in terms of Section 143 (3) of the IT Act read with Section 144 B thereof, it was mandatory for the Department to have first prepared a draft assessment order and provided a copy thereof to the Petitioner, giving the Petitioner an opportunity of responding thereto, before passing the final assessment order.

4. Reliance has been placed on two judgments of the Delhi High Court dated 27^th May, 2021 in W.P.(C) No. 5552 of 2021 (YCD Industries v. National Faceless Assessment Centre, Delhi) and in W.P.(C) No. 5491 of 2021 (M/s. Lokesh Constructions P. Ltd. v. The Assistant Commissioner of Income Tax). In both the aforementioned judgments of the Delhi High Court, similar assessment orders by the NFAC were challenged and were set aside by the High court on identical ground viz., that no show cause notice-cum-draft assessment order in terms of Section 144-B of the IT Act was issued to the Petitioner prior to passing the final assessment order and no notice under Section 156 and Section 274 read with Section 270A of the IT Act was issued either.

5. Learned counsel for the Department, however, sought to distinguish the said judgments by submitting that the requirement of preparing a draft assessment order under Section 144-B of the I.T. Act would arise only when the Department proposes to make any variation which is prejudicial to the assessee.

6. In the present case, the Petitioner has placed on record in a tabular form the details of the returned income and demand beginning from AY 2013-14 up to AY 2017-18. According to Mr. Acharya, this shows that when compared with those figures, the assessed taxable income and demand for AY 2018-19 were unreasonably and shockingly high. For e.g., the assessed income for the AY 2016-17 was Rs.66.07 crores and the demand was Rs.1.09 crore. For the AY 2017-18 the assessed income was Rs.58.13 crores and the demand was Rs.4.94 crores. However, in terms of the impugned assessment order for AY 2018-19 as determined by the NFAC, the returned income is a loss of Rs.3.55 crores, the assessed income is Rs.1531.89 crores (an increase of over Rs. 1475 crores over the earlier AY) and the demand is Rs.735.16 crores (an increase of over Rs. 730 crores over the earlier AY).

7. The above figures, which are not disputed, substantiate the contention of the Petitioner that the figures of the taxable income and demand for AY 2018-19 in the impugned assessment order of the NFAC are disproportionately high. The impugned assessment order is not only in considerable variation of the figures for the earlier AYs but is also prejudicial to the interests of the assessee. In other words, the requirement of Section 144-B (1) (xvi) of the ITA Act for triggering the procedure of first preparing a draft assessment order and providing it to the Petitioner for its response stands attracted in this case.

8. Consequently, this Court sets aside the impugned assessment order dated 14^th June, 2021 of the NFAC as well as all consequential demand notices/orders and grants liberty to the Department to pass a fresh assessment order for the AY in question in accordance with law. The Department shall give the Petitioner a personal hearing on a date and at a time which shall be communicated to the Petitioner sufficiently in advance. It is needless to say that the Petitioner assessee will cooperate in the fresh assessments proceedings and furnish the relevant documents and information available with it relevant to the proceedings.

9. The writ petition is disposed of in the above terms.

10. As the restrictions due to resurgence of COVID-19 situation are continuing, learned counsel for the parties may utilize a printout of the order available in the High Court’s website, at par with certified copy, subject to attestation by the concerned advocate, in the manner prescribed vide Court’s Notice No.4587, dated 25^th March, 2020 as modified by Court’s Notice No. 4798, dated 15^th April, 2021.