Trendsutra Client Services Pvt. Ltd v. The Assistant Commissioner Of Income Tax

Jsn IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION WRIT PETITION NO.1083 OF 2021 Trendsutra Client Services Pvt. Ltd.having its registered office at Warehouse Nos.1and 2, K. Square Project, Village Kurund,Taluka Bhiwandi, NH-3, Thane - 101 Vs. 1. The Assistant Commissioner of Income Tax – Circle. …Petitioner 2. The National e-Assessment Centre, Delhi. 3. Union of India …Respondents Mr. Percy Pardiwala, Senior Advocate with Mr. Paras S. Savla andMr. Pratik Poddar for the Petitioner.Mr. Sham V. Walve with Pritish Chatterjee for Respondents. CORAM: K.R. SHRIRAM & R.I. CHAGLA, JJ. DATE : 14TH SEPTEMBER, 2021 O R D E R ( Per R. I. CHAGLA, J.) 1.By this Petition, Petitioner is seeking the quashing and setting aside impugned assessment order 18th April, 2021, whichpertains to the assessment year 2018-19 and which was passed byRespondent No.2 computing the total income of Petitioner atRs.62,18,03,460/- and issuing consequent demand notice ofRs.63,35,29,950/-. 2.Initially a notice dated 10th January 2020 was issuedby Respondent No.1 calling upon Petitioner to furnish certaininformation. Petitioner responded to the said notice dated 10thJanuary, 2020 by filing submissions on 16th January, 2020 and11th February, 2020. 3.Respondent No.1 addressed a communication dated15th October, 2020 to Petitioner by which Petitioner was informedthat its case (assessment proceedings) shall be completed underFaceless Assessment Scheme, 2019. Thereafter, a notice dated16.12.2020 under Section 142(1) of the Act was issued byRespondent No.2 seeking further details / information followed byreminders dated 29.12.2020, 4.2.2021 and 4.3.2021. Petitionerresponded vide its letters dated 28.12.2020, 5.1.2021, 18.2.2021and 13.3.2021. What is material to note is that by a notice dated9.4.2021 issued by Respondent No.2, which was under the facelessassessment scheme as per Section 144B of the Act, Petitioner wascalled upon to furnish further details for unsecured loans as well ascertain other particulars. Petitioner was given time upto 6.54 p.m.on 13 April 2021 to furnish the relevant information. This noticehas been digitally signed at 19:00:28 IST. The day was over by the time the notice was issued. 10th April 2021 was second Saturday,11th April 2021 was Sunday and 13th April 2021 was Gudi Padwa,a public holiday in Maharashtra and many parts of India. Soeffectively Petitioner had one working day to respond. 4.Notwithstanding this grossly inadequate time beinggranted, Petitioner filed its submissions dated 13th April, 2021submitting partial details / documents and requested further timeto provide balance details considering the short time given videnotice dated 9th April, 2021. Another reason for further time wasthe Covid-19 situation where strict lock down was in force.Petitioner filed additional submission dated 17th April, 2021 givingfurther details and explanation. 5.Respondent No.2 passed assessment order dated 18thApril, 2021 under Section 143(3) read with Section 144 of theIncome Tax Act, 1961 (“the Act”) without giving any furtheropportunity to the Petitioner and also ignoring the submissionsmade by Petitioner. Respondent No.2 also did not issue any showcause notice as mandated by Section 144B of the Act for facelessassessment. The draft assessment order was also not furnished to the Petitioner as per Section 144B of the Act. The impugnedassessment order contains additions and disallowances. Petitionerbeing aggrieved by the impugned assessment order dated 18thApril, 2021 has filed the present Petition. 5.Respondent No.2 passed assessment order dated 18thApril, 2021 under Section 143(3) read with Section 144 of theIncome Tax Act, 1961 (“the Act”) without giving any furtheropportunity to the Petitioner and also ignoring the submissionsmade by Petitioner. Respondent No.2 also did not issue any showcause notice as mandated by Section 144B of the Act for facelessassessment. The draft assessment order was also not furnished to the Petitioner as per Section 144B of the Act. The impugnedassessment order contains additions and disallowances. Petitionerbeing aggrieved by the impugned assessment order dated 18thApril, 2021 has filed the present Petition. 6.The Finance Act, 2018 introduced three new sub-section (3A) to (3C) in section 143 of the Act (governing theassessment process), to notify a new scheme of faceless andpaperless assessments. Faceless Assessment Scheme, 2019 (‘theScheme’) was introduced vide Notification No.S.).3264(3), dated12.09.19 issued by the CBDT under section 143(3A) and 143(3B)of the Act and amended by notification no.S.).2745(E), dated 13-08-20, and Faceless Assessment (First Amendment) Scheme 2021,vide notification no. S.O. 741 (E), dt.17.02.21. 7.The Faceless Assessment Scheme has now beenincorporated into the Act. Section 144B was inserted in the Actvide the Taxation and Other Laws (Relaxation and Amendment ofCertain Provisions) Act, 2020. Earlier, Section 144B was omitted bythe Direct Tax Laws (Amendment) Act, 1987, w.e.f. 1st April 1989. The Act vide section 143(3D) also specified a sunset date 31 March2021 for existing section 143(3A) and 143(3B). 8.A standing operating procedure was laid down byPrincipal Chief Commissioner of Income Tax, National e-assessment Centre with the prior approval of CBDT for assessmentunits under Faceless Assessment Scheme. 9.Mr. Pardiwala, learned Senior Advocate has taken usthrough Section 144B of the Act which provides for facelessassessment. He submitted that under Section 144B (1) (xvi), theNational Faceless Assessment Centre (“NaFAC”), upon receipt ofthe draft assessment order prepared by the assessment unit, shallexamine the draft assessment order and it may decide to providean opportunity to the assessee, in case of any variation prejudicialto the interest of assessee is proposed, by serving a notice callingupon him to show cause as to why the proposed variation shouldnot be made. Mr. Pardiwala further referred to Section 144B (1)(xxv)(b), which provides that where there are variations proposedin the revised draft assessment order, which are prejudicial to theinterest of the assessee in comparison to the draft assessment order or the final draft assessment order, the NaFAC shall provide anopportunity to the assessee, by serving a notice calling upon him toshow cause as to why the proposed variation should not be made. 10.Mr. Pardiwala has further relied upon Sub-section (9)of Section 144B which provides that notwithstanding anythingcontained in any other provision of this Act, assessment madeunder sub-section (3) of section 143 or under section 144 in thecases referred to in sub-section (2) shall be non est if suchassessment is not made in accordance with the procedure laiddown under this section. He submitted that the final assessmentorder dated 18th April, 2021 had been passed without servingupon Petitioner a show cause notice and draft assessment order aswell as not granting Petitioner a personal hearing as mandatedunder Section 144(B) of the Act for faceless assessment. Mr.Pardiwala has accordingly submitted that such non-conformitywith the provisions of Section 144 (B) of the Act would result inthe impugned assessment order dated 18th April, 2021 being nonest and requires to be set aside. 11.Mr. Walve, learned Counsel for Respondents, relyingupon an Affidavit in Reply dated 13th August, 2021 filed by oneD. Ghosh, DCIT, Circle – 1, Kalyan, submitted that inspite of ampleopportunities, Petitioner / Assessee is still claiming that reasonabletime has not been given. Petitioner had responded 10 times to thenotices issued by the department but four issues out of seven havenot been properly represented. It was presumed from thePetitioner’s reply dated 17th April, 2021, that Petitioner hadnothing more to explain. In the list of chronology of dates whichforms part of the said Affidavit in Reply, at serial number 18, thedate 22nd March, 2021 is mentioned and against which it is statedthat the DAO (Draft Assessment Order) submitted by previous AO(Assessment Officer) ReAc was duly approved by the Range Head.He submitted that in view of the opportunities given to theassessee, the Petition deserves to be dismissed. 12.Having considered the submissions, it is necessary tonote that the faceless assessment scheme, 2019 which wasmodified by notification No.60/2020 dated 13th August, 2020,prescribed in paragraph 5, the procedure for making assessment.For the first time, the principle of natural justice has been embodied in the piece of legislation itself. It would be relevant tonote that after 1st April, 2021, the assessments are to be completedas per provisions of Section 144B of the Act. The objectives of thefaceless assessment scheme provides for imparting greaterefficiency, transparency and accountability. However, one of thefeatures of the scheme is stated to be passing of objective, fair andjust orders. The above objectives are visible on the website of thedepartment itself. The benefit of the scheme is slated to include“improvement in quality of assessment”. The relevant provisions ofsection 144B are set out as under:- 144B : Faceless Assessment: (1) Notwithstanding anything to the contrarycontained in any other provisions of this Act, theassessment under sub-section (3) of section 143 orunder section 144, in the cases referred to in sub-section (2), shall be made in a faceless manner as perthe following procedure, namely:— (xvi) the National Faceless Assessment Centre shallexamine the draft assessment order in accordancewith the risk management strategy specified by theBoard, including by way of an automatedexamination tool, whereupon it may decide to – (a) finalise the assessment, in case no variationprejudicial to the interest of assessee is proposed, asper the draft assessment order and serve a copy ofsuch order and notice for initiating penaltyproceedings, if any, to the assessee, along with the demand notice, specifying the sum payable by, orrefund of any amount due to, the assessee on thebasis of such assessment; or (b) provide an opportunity to the assessee, in caseany variation prejudicial to the interest of assessee isproposed, by serving a notice calling upon him toshow cause as to why the proposed variation shouldnot be made; or (c) …. (xxv) (a) in case the variations proposed in therevised draft assessment order are not prejudicial tothe interest of the assessee in comparison to the draftassessment order or the final draft assessment order,and – (A) in case the revised draft assessment order is inrespect of an eligible assessee and there is anyvariation prejudicial to the interest of the assesseeproposed in draft assessment order or the final draftassessment order, forward the said revised draftassessment order to such assessee; (B) in any other case, finalise the assessment as perthe revised draft assessment order and serve a copy ofsuch order and notice for initiating penaltyproceedings, if any, to the assessee, along with thedemand notice, specifying the sum payable by, orrefund of any amount due to, the assessee on thebasis of such assessment. (A) in case the revised draft assessment order is inrespect of an eligible assessee and there is anyvariation prejudicial to the interest of the assesseeproposed in draft assessment order or the final draftassessment order, forward the said revised draftassessment order to such assessee; (B) in any other case, finalise the assessment as perthe revised draft assessment order and serve a copy ofsuch order and notice for initiating penaltyproceedings, if any, to the assessee, along with thedemand notice, specifying the sum payable by, orrefund of any amount due to, the assessee on thebasis of such assessment. (b) in case the variations proposed in the reviseddraft assessment order are prejudicial to the interestof the assessee in comparison to the draft assessmentorder or the final draft assessment order, provide anopportunity to the assessee, by serving a noticecalling upon him to show-cause as to why theproposed variation should not be made; (9) Notwithstanding anything contained in any otherprovision of this Act, assessment made under sub-section (3) of section 143 or under section 144 in thecases referred to in sub-section (2) (other than the cases transferred under sub-section (8)], on or afterthe 1st day of April, 2021, shall be non est if suchassessment is not made in accordance with theprocedure laid down under this section. To summarize, Section 144B provides for (a) issuance of ashow cause notice to the assessee, providing draft assessmentorder if any modification or variation prejudicial to interest of theassessee is proposed; (b) granting reasonable time to the assesseeto submit its reply; (c) extension of time to reply by the assessee;(d) consideration of reply filed by the assessee before passing theassessment order; and (e) granting of personal hearing if a requestis made in this regard and such request is the one prescribed. It hasbeen clearly held by this Court that the principles of natural justicecannot be violated and a show cause has to be issued beforepassing any order prejudicial to the assessee. 13.It is clear from reading of Section 144B that theassessee is required to be given an opportunity in case thevariation proposed in the draft assessment order upon itsexamination by NaFAC is prejudicial to the interest of assessee byhaving served upon him a show cause notice calling upon him toshow cause as to why the proposed variation should not be made. This would be equally applicable in case variation is proposed in arevised draft assessment order which is prejudicial to the interestof the assessee in comparison to the draft assessment order or thefinal draft assessment order. In that case too an opportunity shallbe provided to the assessee by serving a show cause notice callingupon him to show cause as to why the proposed variation shouldnot be made. It has been further provided in sub-section (9) ofSection 144B that in the event that the final assessment order isnot made in accordance with procedure laid down under Section144B for faceless assessment, the assessment order shall be nonest. Thus, Sub-section (a) of Section 144B makes it amply clearthat the Section 144B is a mandatory provision and non-compliance thereof would make the assessment order non-est. 14.In the present case the notice issued on 9th April,2021 under Section 142 sub-section (1) of the Act called uponPetitioner to submit by 6.54 p.m. on 13th April 2021 the accountsand documents specified in the annexure to the said notice.Petitioner had issued its response on 13th April, 2021 and in viewof the short time given for filing of the response as well asprevailing Covid-19 situation, Petitioner had been able to provide 14.In the present case the notice issued on 9th April,2021 under Section 142 sub-section (1) of the Act called uponPetitioner to submit by 6.54 p.m. on 13th April 2021 the accountsand documents specified in the annexure to the said notice.Petitioner had issued its response on 13th April, 2021 and in viewof the short time given for filing of the response as well asprevailing Covid-19 situation, Petitioner had been able to provide only partial details and requested for further time. Petitionerthereafter filed additional submissions dated 17th April, 2021giving details and explanation in relation to the points raised in thenotice dated 9th April, 2021. Respondent No.2, however, in haste ,passed the impugned assessment order dated 18th April, 2021,under Section 143 (3) read with Section 144B of the Act withoutgranting Petitioner the opportunities as provided in Section 144Bof the Act, 1961, viz., issuance of show cause notice mandatedunder the said section for faceless assessment as well as serving thedraft assessment order. 15.Although, the relevant paragraph 24 of the Petitionhas adverted to the fact that Section 144B of the Act had not beencomplied with by Respondent No.2 not issuing any show causenotice to Petitioner inspite of the impugned assessment ordercontaining additions / disallowances, the said Affidavit in Reply ofthe Respondents is silent in that respect. It only mentions thatPetitioner had been given ample opportunities to respond to thenotices issued and that Petitioner was unable to address four out ofseven issues properly. 16.We find from the impugned assessment order thatthere are variations from the return filed by Petitioner bycontaining additions / disallowances. The final assessment order isnot made in accordance with the procedure laid down underSection 144B (xvi)(b) of the Act as inspite of the variation beingprejudicial to the interest of assessee, no opportunity has beenprovided to the assessee by having him served with a show causenotice as well as draft assessment order calling upon him to showcause as to why the proposed variation should not be made. Thus,the impugned assessment order dated 18th April, 2021 is non estas the assessment is not made in accordance with procedure laiddown under Section 144B of the Act. Hence, we pass followingorder:- (a)The assessment order issued by Respondent No.2dated 18th April, 2021 along with consequentialdemand notice is quashed and set aside.dated 18th April, 2021 along with consequentialdemand notice is quashed and set aside. (b)The Respondents may take such denovo proceedingsas required in accordance with law.as required in accordance with law. (c)Writ Petition is accordingly disposed in the aboveterms. There shall be no order as to costs. ( R. I. CHAGLA J. ) (K.R. SHRIRAM, J.)