Case Law Details
Additional Joint Deputy Assistant Commissioner of Income Tax Officer & Ors. Vs Multiplier Brand Solutions Pvt. Ltd. (Supreme Court of India)
The Supreme Court considered an appeal filed by the Revenue against the Bombay High Court’s judgment which had set aside an assessment order passed under the faceless assessment regime on the ground of non-compliance with the mandatory procedure prescribed under Section 144B of the Income-tax Act, 1961.
The dispute arose because the assessment order dated 13 May 2021 was passed without issuing a show-cause notice along with a draft assessment order, despite the proposed assessment involving a variation prejudicial to the assessee.
Before the Bombay High Court, the assessee challenged the assessment order on the ground that the mandatory requirement under Section 144B(1)(xvi)(b) had not been followed.
In its affidavit, the Revenue admitted that no draft assessment order had been issued. It explained that the Assessment Unit had finalized the assessment because the Risk Unit had not indicated that a show-cause notice or draft assessment order should be issued. The Revenue further contended that issuance of a draft assessment order was not mandatory and depended upon the Risk Unit’s recommendation.
The Bombay High Court rejected this contention. It observed that it had consistently held that the provisions of Section 144B are mandatory. Under Section 144B(1)(xvi)(b), where a variation prejudicial to the assessee is proposed, issuance of a draft assessment order is compulsory.
Since it was undisputed that no draft assessment order had been issued, the High Court held that there was non-compliance with the mandatory procedure prescribed under Section 144B. Referring to Section 144B(9), it held that failure to comply with the prescribed procedure rendered the assessment order non est.
Accordingly, the High Court quashed and set aside:
- the assessment order dated 13 May 2021;
- the consequential demand notice; and
- the penalty notice issued on the same date.
The High Court clarified that it had expressed no opinion on the merits of the assessment and left it open to the Revenue to take further steps in accordance with law.
The Revenue challenged the High Court’s decision before the Supreme Court.
Before the Supreme Court, the Revenue argued that the High Court should not have entertained the writ petition under Article 226 against the assessment order. It further submitted that even if there had been a breach of the principles of natural justice because no show-cause notice with a draft assessment order had been issued, the appropriate course was to remand the matter to the Assessing Officer with liberty to pass a fresh assessment order after complying with Section 144B.
The Supreme Court held that since the assessment order had admittedly been passed without issuing the mandatory show-cause notice together with the draft assessment order under Section 144B, the High Court had committed no error in holding that the assessment order could not stand.
However, the Supreme Court also observed that the Faceless Assessment Scheme had been introduced recently, and therefore the Revenue should have been given an opportunity to correct the procedural lapse.
Accordingly, while affirming the finding that the mandatory procedure under Section 144B had not been followed, the Supreme Court modified the High Court’s judgment.
Instead of finally setting aside the proceedings, the Supreme Court remanded the matter to the Assessing Officer with a direction to pass a fresh assessment order after following the due procedure prescribed under Section 144B.
The Court further directed that all contentions and defences available to the assessee on the merits of the case would remain open and should be considered by the Assessing Officer independently in accordance with law.
Thus, while upholding the mandatory nature of Section 144B and the invalidity of the assessment made without issuing a draft assessment order and show-cause notice, the Supreme Court granted the Revenue an opportunity to complete the assessment afresh by following the statutory procedure.
Read HC Judgment in this case: Bombay HC Quashes Assessment as Mandatory Draft Assessment Order Was Not Issued
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. 1378/2021, 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 Ambhoj Kumar Sinha, 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.
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