Rajapalayam, Virudhunagar District – 626 117,Tamil Nadu v. National Faceless Assessment Centre

BEFORE THE MADURAI BENCH OF MADRAS HIGH COURT DATED : 03.02.2022 CORAM THE HON'BLE MR. JUSTICE M.SUNDARW.P(MD)No.1631 of 2022 and W.M.P.(MD)No.1425 of 2022 The Ramco Cements Ltd.,Represented by its Authorised SignatoryMr.T.Mathivanan,Ramamandiram, Rajapalayam, Virudhunagar District – 626 117,Tamil Nadu. ... Petitioner -Vs- 1.National Faceless Assessment Centre, Represented by its Pr. Chief Commissioner of Income Tax, Ministry of Finance, Income Tax Department, 2[nd] Floor, Jawaharlar Nehru Stadium, New Delhi – 110 003. 2.The Office of the Deputy Commissioner of Income Tax, Corporate Circle, Madurai.... Respondents Prayer:Writ Petition filed under Article 226 of Constitution ofIndia, to issue a Writ of Certiorari, calling for the records of the1[st] respondent in the impugned order dated 17.01.2022 bearing No.DIN-ITBA/PNL/F/271(1)(c)/2021-22/1038807997(1) for the Assessment Year2016-2017 passed under Section 271 (1)(c) of the Income Tax Act,1961 and quash the same. For Petitioner : Mr.P.J.RishikeshFor Respondents : Mr.N.Dilipkumar, Senior Standing Counsel for Income Tax. O R D E R Read this in conjunction with and in continuation of earlierproceedings made in the previous listings on 31.01.2022 which readsas follows: 'Proceedings in W.M.P.(MD)No.1423/2022 in W.P.(MD)No.1631 of 2022 dated 31.01.2022: In the captioned Writ Miscellaneous Petition https://hcservices.ecourts.gov.in/hcservices/ an order dated 17.01.2022 being an order under Section271(1)(c) of the Income Tax Act, 1961 [penaltyproceedings] has been assailed.2.The aforementioned impugned order had beenuploaded in the official website, the same has beendownloaded from the official website and a photocopy ofthe hardcopy of the same has been placed on record.This also emanates from faceless assessment underSection 143(3) r/w. Section 144B & C of IT Act is thereason given in support of dispense with prayer. 3.Owing to the facts and circumstances of the caseon hand this Court finds the reason given for thedispense with prayer to be acceptable. Therefore,captioned WMP is ordered as prayed for.' Proceedings in W.P.(MD)No.1631 of 2022 dated31.01.2022: 'In the captioned main writ petition an orderdated 17.01.2022 bearing reference ITBA/PNL/F/271(1)(c)/2021-22/1038807997(1)[hereinafter'impugnedorder' for the sake of convenience and clarity] madeby the first respondent regarding assessment year2016-17 [hereinafter 'said AY' for the sake ofconvenience and clarity] qua writ petitioner assesseehas been assailed. This 17.01.2022 order imposingpenalty has been made under Section 271(1)(c) of 'theIncome Tax Act, 1961' [hereinafter 'IT Act' for thesake of brevity, convenience and clarity]. 2.Short facts shorn of elaboration or in otherwords facts that are imperative for appreciating theproceedings before this Court are that an assessmentorder dated 22.06.2021 [page No.63 of paper book] cameto be made regarding the assessee qua said AY; thatthis assessment order was preceded by the DRP [DisputeResolution Panel] route; that this assessment orderis pursuant to CASS [Computer Assisted Selection forScrutiny]; that broadly three issues arose viz., a)Transfer Pricing , b) Railway Siding Expenditure[as to which this is capital expenditure or revenueexpenditure] and c) Dividend which according toassessee is exempt; that the matter turned heavily onSection 14-A of IT Act pertaining to disallowance;that the DRP had held in favour of assessee withregard to TP; that vide this 22.06.2021 assessmentorder based on the DRP directions, additions underSection 14-A of IT Act r/w. Rule 8D of Income TaxRules, 1962 [hereinafter 'IT Rules' for the sake ofbrevity, convenience and clarity] was made in additionhttps://hcservices.ecourts.gov.in/hcservices/ to the normal income as well as the book profit underSection 115JB of IT Act; that vide this assessmentorder it was made clear that penalty under Section 271(1)(c) of IT Act will be initiated for 'inaccurateparticulars of income'; that post such assessmentorder a show cause notice [hereinafter 'SCN' for thesake of brevity] under Section 274 r/w. 271(1)(c) ofIT Act being SCN dated 22.06.2021 came to be issuedcalling upon the writ petitioner assessee to respondon or before 01.07.2021; that the writ petitionerassessee responded on 30.06.2021 vide a detailed replyinter alia contending that this is not a case ofinaccurate particulars of income; that what is ofsignificance is in the concluding paragraphs theassessee had sought for a personal hearing; that theassessee thereafter preferred a statutory appealbefore the jurisdictional Income Tax AppellateTribunal ie., ITAT, Chennai assailing theassessment order dated 22.06.2021 and this statutoryappeal before ITAT was made some time in August 2021;that thereafter the impugned order of first respondentcame to be made; that the impugned order does not sayanything about writ petitioner's request for personalhearing; that inter alia alleging violation of NJP[Natural Justice Principle] and contending that thisis not a case of inaccurate particulars of incomecaptioned main writ petition has been filed. 3.Mr.N.Dilip Kumar, learned Senior StandingCounsel for Income Tax who joined the virtual Courtaccepted notice on behalf of both the respondents.Learned Revenue Counsel contended that an alternateremedy is available to the writ petitioner by way ofan appeal under Section 246 of IT Act. It was alsocontended that pendency of appeal as against theassessment order ie., statutory appeal beforejurisdictional ITAT is no bar to make the penaltyorder under Section 271(1)(c) of IT Act. Howeverregarding personal hearing learned Revenue Counselrequested for a short accommodation to getinstructions and revert to this Court. 4.Therefore this Court deems it appropriate torecord the position regarding the personal hearingpoint. 5.The personal hearing point urged byMr.P.J.Rishikesh, learned Counsel representing theCounsel on record for writ petitioner is predicated onhttps://hcservices.ecourts.gov.in/hcservices/ a Scheme dated 12.01.2021 made by the CentralGovernment in exercise of its powers under Section 274(2A) of IT Act which kicked in on and from 01.04.2020.The title of this Scheme is 'Faceless Penalty Scheme2021' [hereinafter 'said Scheme' for the sake ofconvenience and clarity]. Section 274(2A) of IT Actreads as follows: '274(2A). The Central Government may make ascheme, by notification in the Official Gazette,for the purposes of imposing penalty under thisChapter so as to impart greater efficiency,transparency and accountability by-- (a) eliminating the interface between the[income tax authority and the assessee or anyother person] to the extent technologicallyfeasible; (b) optimising utilisation of the resoursesthrough economies of scale and functionalspecialisation; (c) introducing a mechanism for imposing ofpenalty with dynamic jurisdiction in which penaltyshall be imposed by one or more income-taxauthorities.' 6.As regard said Scheme paragraphs 5, 11(3) and 12(ix) are relevant and the same are as follows: '5. Procedure in penalty.–– (1) The penalty ina case referred to in paragraph 3 shall be leviedunder this Scheme as per the following procedure,namely:__ (i) where any income-tax authority or theNational Faceless Assessment Centre has, in a case,— (a) initiated penalty proceedings and issued ashow-cause notice for imposition of penalty; or(b) recommended initiation of penaltyproceedings, it shall refer such case, in the formspecified in clause (viii) of paragraph 12, to theNational Faceless Penalty Centre; (c) introducing a mechanism for imposing ofpenalty with dynamic jurisdiction in which penaltyshall be imposed by one or more income-taxauthorities.' 6.As regard said Scheme paragraphs 5, 11(3) and 12(ix) are relevant and the same are as follows: '5. Procedure in penalty.–– (1) The penalty ina case referred to in paragraph 3 shall be leviedunder this Scheme as per the following procedure,namely:__ (i) where any income-tax authority or theNational Faceless Assessment Centre has, in a case,— (a) initiated penalty proceedings and issued ashow-cause notice for imposition of penalty; or(b) recommended initiation of penaltyproceedings, it shall refer such case, in the formspecified in clause (viii) of paragraph 12, to theNational Faceless Penalty Centre; (ii) the National Faceless Penalty Centreshall in a case, where reference has been receivedas per clause (i), assign such case to a specificpenalty unit in any one of the Regional FacelessPenalty Centres through an automated allocationsystem; (iii) where in a case assigned to a penaltyunit, initiation of penalty proceedings has beenhttps://hcservices.ecourts.gov.in/hcservices/ recommended, such unit, after examination of thematerial available on record, may decide to,—(a) agree with the recommendation and preparea draft notice calling upon the assessee or anyother person, as the case may be, to show cause asto why penalty should not be levied under therelevant provisions of the Act; or (b) disagree with the recommendation, forreasons to be recorded in writing, and send suchdraft notice or the reasons, as the case may be, tothe National Faceless Penalty Centre; (iv) the National Faceless Penalty Centreshall upon receipt of the draft notice or reasonsreferred to in clause (iii) from the penalty unit,— (a) serve the show-cause notice, as per thedraft referred to in sub-clause (a) of clause(iii), upon the assessee or any other person, asthe case may be, specifying the date and time forfiling a response; or (b) not initiate penalty in cases referred toin sub-clause (b) of clause (iii); (v) where in the case assigned to a penaltyunit, penalty proceedings are already initiated,such unit shall prepare a draft notice calling uponthe assessee or any other person, as the case maybe, to show cause as to why penalty should not belevied under the relevant provisions of the Act andsend such notice to the National Faceless PenaltyCentre; (vi) the National Faceless Penalty Centreshall serve the show-cause notice, as per draftreferred to in clause (v), upon the assessee or anyother person, as the case may be, specifying thedate and time for filing a response; (vii) the assessee or any other person, as thecase may be, shall file a response to the show-cause notice, referred to in sub-clause (a) ofclause (iv) or in clause (vi), within the date andtime specified therein, or such extended date andtime as may be allowed on the basis of anapplication made in this behalf, with the NationalFaceless Penalty Centre; (viii) where response is filed by the assesseehttps://hcservices.ecourts.gov.in/hcservices/ or any other person, as the case may be, theNational Faceless Penalty Centre shall send suchresponse to the penalty unit, and where no suchresponse is filed, inform the penalty unit; (ix) the penalty unit may make a request tothe National Faceless Penalty Centre for, – (a) obtaining further information, documentsor evidence from any income-tax authority or theNational Faceless Assessment Centre; or (b) obtaining further information, documentsor evidence from the assessee or any other person;or (c) seeking technical assistance or conductingverification; (viii) where response is filed by the assesseehttps://hcservices.ecourts.gov.in/hcservices/ or any other person, as the case may be, theNational Faceless Penalty Centre shall send suchresponse to the penalty unit, and where no suchresponse is filed, inform the penalty unit; (ix) the penalty unit may make a request tothe National Faceless Penalty Centre for, – (a) obtaining further information, documentsor evidence from any income-tax authority or theNational Faceless Assessment Centre; or (b) obtaining further information, documentsor evidence from the assessee or any other person;or (c) seeking technical assistance or conductingverification; (x) the National Faceless Penalty Centreshall, upon receipt of request, referred to in sub-clauses (a) or (b) of clause (ix), issueappropriate notice or requisition to the income-taxauthority or the National Faceless AssessmentCentre or the assessee or any other person, as thecase may be, to submit such information, documentsor evidence, as may be specified by the penaltyunit, specifying the date and time for furnishing aresponse; (xi) the income-tax authority or the NationalFaceless Assessment Centre or the assessee or anyother person, as the case may be, shall furnish aresponse to the notice or requisition, as referredto in clause (x), within the date and timespecified therein, or such extended date and timeas may be allowed on the basis of an applicationmade in this behalf, to the National FacelessPenalty Centre; (xii) where a request for conducting ofcertain enquiry or verification or seekingtechnical assistance has been made by the penaltyunit, the National Faceless Penalty Unit shall sendsuch request to the National Faceless AssessmentCentre specifying a date and time for submitting areport; (xiii) where response to notice referred to inclause (x) is filed by the income-tax authority orthe National Faceless Assessment Centre or theassessee or any other person, as the case may be,https://hcservices.ecourts.gov.in/hcservices/ the National Faceless Penalty Centre shall sendsuch response to the penalty unit, and where nosuch response is filed, inform the penalty unit; (xiv) where a report in response to requestreferred to in clause (xii) is received by theNational Faceless Penalty Centre, it shall sendsuch report to the penalty unit, and where no suchreport is received, inform the penalty unit; (xv) the penalty unit shall, after consideringthe material on record including responsefurnished, if any, as referred to in clauses (viii)and (xiii) or report, if any, as referred to inclause (xiv), propose for,–– (a) imposition of the penalty and prepare adraft order for such imposition of penalty; or (b) non-imposition of the penalty, for reasonsto be recorded in writing and send the proposalalong with such draft order or reasons, as the casemay be, to the National Faceless Penalty Centre; (xvi) the National Faceless Penalty Centreshall examine the proposal, as referred to inclause (xv), in accordance with the risk managementstrategy specified by the Board, including by wayof an automated examination tool, whereupon it maydecide, - (a) in a case where imposition of penalty hasbeen proposed, to pass the penalty order as perdraft order referred to in sub-clause (a) of clause(xv), and serve a copy thereof upon the assessee orany other person, as the case may be; or (b) in a case where non-imposition of penaltyhas been proposed, not to impose penalty underintimation to the assessee or any other person, asthe case may be; or (c) assign the case to a penalty review unitin any one of the Regional Faceless Penalty Centresthrough an automated allocation system, forconducting review of such proposal; (a) in a case where imposition of penalty hasbeen proposed, to pass the penalty order as perdraft order referred to in sub-clause (a) of clause(xv), and serve a copy thereof upon the assessee orany other person, as the case may be; or (b) in a case where non-imposition of penaltyhas been proposed, not to impose penalty underintimation to the assessee or any other person, asthe case may be; or (c) assign the case to a penalty review unitin any one of the Regional Faceless Penalty Centresthrough an automated allocation system, forconducting review of such proposal; (xvii) the penalty review unit shall reviewthe proposal of penalty unit, as referred to inclause (xv), whereupon it may concur with, orsuggest modification to, such proposal, for reasonsto be recorded in writing, and intimate theNational Faceless Penalty Centre; https://hcservices.ecourts.gov.in/hcservices/ (xviii) where the penalty review unit concurswith the proposal of penalty unit, the NationalFaceless Penalty Centre shall follow the procedurelaid down in sub-clause (a) or sub-clause (b) ofclause (xvi); (xix) where the penalty review unit suggestsmodification to the proposal in sub-clause (a) orsub-clause (b) of clause (xv), the NationalFaceless Penalty Centre shall assign the case to aspecific penalty unit, other than the penalty unitreferred to in clause (xv), in any one of theRegional Faceless Penalty Centres through anautomated allocation system; (xx) where the case is assigned to a penaltyunit, as referred to in clause (xix), such penaltyunit, after considering the material on recordincluding suggestions for modification and reasonsrecorded by the penalty review unit,— (a) in a case where the modificationssuggested by the penalty review unit areprejudicial to the interest of assessee or anyother person, as the case may be, as compared tothe proposal of the penalty unit under clause (xv),shall follow the procedure laid down in clauses (v)to (xiv) and prepare a revised draft order forimposition of penalty; or (b) in a case where the modification are notprejudicial to the interest of assessee or anyother person, as the case may be, shall prepare arevised draft order for imposition of penalty; or(c) may propose non-imposition of penalty, forreasons to be recorded in writing, and send suchorder or reasons to the National Faceless PenaltyCentre; (xxi) upon receipt of revised draft order fromthe penalty unit, as referred to in clause (xx),the National Faceless Penalty Centre shall pass thepenalty order as per such draft and serve a copythereof upon the assessee or any other person ornot impose penalty under intimation to the assesseeor any other person, as the case may be; (xxii) where in a case, as referred to in sub-clause (a) or (b) of clause (i), the NationalFaceless Penalty Centre has passed a penalty order,or not initiated or imposed penalty, as the casehttps://hcservices.ecourts.gov.in/hcservices/ may be, it shall send a copy of such order orreasons for not initiating or imposing penalty tothe income-tax authority, referred to in clause (i)or the National Faceless Assessment Centre, as thecase may be, for such action as may be requiredunder the Act. (2) Notwithstanding anything contained in sub-paragraph (1), the Principal Chief Commissioner orthe Principal Director General, in charge of theNational Faceless Penalty Centre, may at any stageof the penalty proceedings, if considerednecessary, transfer such proceedings to the income-tax authority or the National Faceless AssessmentCentre having jurisdiction over the assessee or anyother person, in whose case the penalty proceedingsare initiated, with the prior approval of theBoard. 11.No personal appearance in the Centres orUnits.–– (2) Notwithstanding anything contained in sub-paragraph (1), the Principal Chief Commissioner orthe Principal Director General, in charge of theNational Faceless Penalty Centre, may at any stageof the penalty proceedings, if considerednecessary, transfer such proceedings to the income-tax authority or the National Faceless AssessmentCentre having jurisdiction over the assessee or anyother person, in whose case the penalty proceedingsare initiated, with the prior approval of theBoard. 11.No personal appearance in the Centres orUnits.–– (1) .....(2) .....(3) The Chief Commissioner or the DirectorGeneral, in charge of the Regional Faceless PenaltyCentre, under which the concerned penalty unit isset up, may approve the request for personalhearing, as referred to in sub-paragraph (2), if heis of the opinion that the request is covered bythe circumstances laid down under clause (ix) ofparagraph 12. 12.Power to specify format, mode, procedure and processes.–– The Principal Chief Commissioneror the Principal Director General, in charge of theNational Faceless Penalty Centre shall, with theapproval of Board, lay down the standards,procedures and processes for effective functioningof the National Faceless Penalty Centre, theRegional Faceless Penalty Centre, the penalty unitand the penalty review unit set-up under thisScheme, in an automated and mechanised environment,including format, mode, procedure and processes inrespect of the following, namely: (i) to (viii) .....(ix) circumstances in which personal hearingmay be approved as per sub-paragraph (3) ofparagraph 11.' https://hcservices.ecourts.gov.in/hcservices/ 7.A careful perusal of sub-paragraph 3 ofparagraph 11 read with Paragraph 12(ix) brings to lightthat the assessee can ask for personal hearing in apenalty proceedings but whether such request is to beapproved ie., whether personal hearing has to be givenis a decision which has to be taken by the ChiefCommissioner or Director General in charge of theRegional Faceless Penalty Centre. Therefore there is aprovision for personal hearing but it is notstatutorily imperative in every case in which anassessee asks for personal hearing. It is at thediscretion of these two authorities. 8.This takes us to the question as to how thediscretion has to be exercised by these twoauthorities. Paragraph No.12 talks about these twoauthorities (with the approval of the Board) layingdown standards, procedures and processes for effectivefunctioning of National Faceless Penalty Centre. Thereference to 'Board' is an obvious reference to CentralBoard of Direct Taxes [paragraph 2(vi) of saidScheme]. This takes us to the question as to whethersuch standards, procedures and processes have been laiddown. This Court is informed that for facelessassessment inter alia under Section 144B a SOP[Standard Operating Procedure] had been put in place. 9.Learned Revenue Counsel seeks time to ascertainthe following and revert to this Court;a) Whether standards, procedures and processes foreffective functioning of National Faceless PenaltyCentre have been put in place with the approval ofCBDT. b) The standards, procedures and processes put inplace for assessment qua faceless assessment inter aliaunder Section 144B of IT Act. 10.Registry to show the name of learned RevenueCounsel in the next listing. 11.As the Revenue Counsel requests for time tillThursday [03.02.2022] to get instructions and revert tothis Court, there shall be an order of interim stay asprayed for in captioned W.M.P. No.1425 of 2022 tillthe next listing. 12.List in the admission board ie., motion list on03.02.2022.' https://hcservices.ecourts.gov.in/hcservices/ 9.Learned Revenue Counsel seeks time to ascertainthe following and revert to this Court;a) Whether standards, procedures and processes foreffective functioning of National Faceless PenaltyCentre have been put in place with the approval ofCBDT. b) The standards, procedures and processes put inplace for assessment qua faceless assessment inter aliaunder Section 144B of IT Act. 10.Registry to show the name of learned RevenueCounsel in the next listing. 11.As the Revenue Counsel requests for time tillThursday [03.02.2022] to get instructions and revert tothis Court, there shall be an order of interim stay asprayed for in captioned W.M.P. No.1425 of 2022 tillthe next listing. 12.List in the admission board ie., motion list on03.02.2022.' https://hcservices.ecourts.gov.in/hcservices/ 2. Pursuant to the aforementioned proceedings captioned matteris before me today. Mr.P.J.Rishikesh, learned counsel representingthe counsel on record for writ petitioner, Mr.N.Dilipkumar, learnedSenior Standing Counsel for Income Tax on behalf of the respondents(Revenue Counsel) are before this virtual Court. 3. Owing to the short point in the captioned matter, main writpetition was taken up with the consent of learned counsel on bothsides. 4. Before proceeding further, this Court makes it clear thatthe short forms and short references used in the earlier proceedingsmade in the listing on 31.01.2022 will continue to be used in theinstant order also. To be noted, the aforementioned proceedings ofthis Court dated 31.01.2022 shall be read as an integral part andparcel of this order. 5. Adverting to paragraph 9 of the aforementioned earlierproceedings, learned Revenue Counsel submits that instructions withspecificity on the same are awaited but the main matter can bedisposed of leaving those two aspects open. The reasons are, a) thewrit petitioner assessee has asked for a personal hearing vide30.06.2021 objections b) this personal hearing is not a matter ofright but it is the discretion of the Chief Commissioner or theDirector General in charge of the Regional Faceless Penalty Centreand c) the impugned order does not say anything about whether therequest for personal hearing was acceded to or not. 6. The simple point now is writ petitioner's request forpersonal hearing will be considered in accordance with the saidscheme more particularly paragraphs 5, 11(3) and 12(ix) thereat.Therefore, the following order is passed: a) the impugned order order dated 17.01.2022bearingNo.DIN-ITBA/PNL/F/271(1)(c)/2021-22/1038807997(1) made by the first respondent is set asidesolely on the ground that a decision regarding the writpetitioner/assessee's request for personal hearing hasnot been decided one way or the other in accordancewith the said scheme; b) though obvious, it is made clear that thisCourt has not expressed any view or opinion on themerits of the matter and all questions are left open; c) the first respondent shall now proceed from thestage of objections dated 30.06.2021, decide on therequest for personal hearing and complete the penaltyproceedings inter alia under Section 271(1)(c) of ITAct and pass orders afresh as expeditiously as thehttps://hcservices.ecourts.gov.in/hcservices/business of the first respondent would permit and in any event within 12 weeks from today i.e., on or before28.04.2022; d) The two quires raised in paragraph 9 of theproceedings dated 31.01.2022 are left open and decisionregarding the personal hearing will be taken inaccordance with standards, procedures and processes ifany. 7. Captioned writ petition is disposed of in the aforesaidmanner. Consequently captioned WMP is disposed of as closed. Thereshall be no order as to costs. Sd/- Assistant Registrar (CS-I) vsm / /2022Sub Assistant Registrar(CS) any event within 12 weeks from today i.e., on or before28.04.2022; d) The two quires raised in paragraph 9 of theproceedings dated 31.01.2022 are left open and decisionregarding the personal hearing will be taken inaccordance with standards, procedures and processes ifany. 7. Captioned writ petition is disposed of in the aforesaidmanner. Consequently captioned WMP is disposed of as closed. Thereshall be no order as to costs. Sd/- Assistant Registrar (CS-I) vsm / /2022Sub Assistant Registrar(CS) Note :In view of the present lock down owing to COVID-19 pandemic,a web copy of the order may be utilized for official purposes, but,ensuring that the copy of the order that is presented is the correctcopy, shall be the responsibility of the advocate / litigantconcerned. To 1.The Chief Commissioner of Income Tax, National Faceless Assessment Centre, Ministry of Finance, Income Tax Department, 2[nd] Floor, Jawaharlar Nehru Stadium, New Delhi – 110 003. 2.The Deputy Commissioner of Income Tax, Corporate Circle, Madurai. +1 CC to M/s.N.DILIPKUMAR, Advocate ( SR-4369[F] dated 04/02/2022 ) +1 CC to M/s.A.SIVAJI, Advocate ( SR-4498[F] dated 07/02/2022 )W.P(MD)No.1631 of 2022and W.M.P.(MD)No.1425 of 202203.02.2022 RD(15.02.2022) 12P 5C https://hcservices.ecourts.gov.in/hcservices/