Delhi High Court: The Division Bench of Manmohan and Navin Chawla, JJ., while focusing on the principles of natural justice and right to personal hearing observed that,
Faceless Assessment Scheme does not mean no personal hearing.
An assessee has a vested right to personal hearing and the same has to be given, if an assessee asks for it.
Instant petition challenged respondent 3’s action in passing the impugned final assessment order under Section 143(3) of the Income Tax Act, 1961 and the impugned notice under Section 156 of the Act for Assessment Year 2018-19.
High Court’s Reasoning
This is unable to comprehend as to how despite ‘nil’ or ‘null’ variation proposed in the show cause notice, the impugned final assessment order and notice makes a demand of Rs 1,69,77,44,240.
High Court expressed that this Court is unable to comprehend as to how despite ‘Nil’ or ‘Null’ variation proposed in the show cause notice, additions had been made to the assessed income in the draft assessment order and the final assessment order. It was noted that while the show cause notice assessed a total loss of Rs 1,76,94,91,428, the impugned final assessment order and notice made a demand of Rs 1,69,77,44,240 as if the petitioner made a super profit!
Further, as mandatorily required by Section 144B(1)(xvi) of the Income Tax Act, no show cause notice was served upon the petitioner.
Petitioner’s response was not considered, and the draft assessment order was issued and the reason for not considering the same response was a technical glitch in the online facility.
Faceless Assessment Scheme does not mean no personal hearing. Not understood as to how grant of personal hearing would either frustrate the concept or defeat the very purpose of Faceless Assessment Scheme.
Bench found that no opportunity of personal hearing was given to the petitioner even after a specific request was made.
High Court opined that a faceless assessment scheme does not mean no personal hearing.
Supreme Court’s decision in Piramal Enterprises Ltd. v. Additional/Joint/Deputy Asst. Commr. Of Income Tax, 2021 SCC OnLine Bom 1534 was referred to wherein Section 144B of the Income Tax Act was interpreted.
It is settled law that where exercise of a power results in civil consequences to citizens unless the statute specifically rules out the application of natural justice, the rules of natural justice would apply.
High Court elaborated that where an action entails civil consequences, observance of natural justice would be warranted and unless the law specifically excludes the application of natural justice, it should be taken as implanted into the scheme.
The opportunity to provide a hearing before making any decision is considered to be a basic requirement in Court proceedings.
In the Supreme Court decision of C.B. Gautam v. Union of India, (1993) 1 SCC 78, Court invoked the same principle and held that even though it was not statutorily required, yet the authority was liable to give notice to the affected parties while purchasing their properties under Section 269-UD of the Act, namely, the compulsory purchase of the property. It was observed that though the time frame within which an order for compulsory purchase has to be made is fairly tight, yet urgency is not such that it would preclude a reasonable opportunity of being heard
Subsequently, in Sahara India (Firm) v. Commissioner of Income-tax, Central-I, [2008] 169 Taxman 328 (SC), the Supreme Court highlighted the necessity and importance of the opportunity of a pre-decisional hearing to an assesee and that too in the absence of any express provision. Infact, the requirement of following principles of natural justice was read into Section 142(2A) of the Income Tax Act following the earlier decisions of the Supreme Court in Swadeshi Cotton Mills v. Union of India, (1981) 1 SCC 664 and C.B. Gautam v. Union of India, (1993) 1 SCC 78.
Use of the expression “may” in Section 144B (7)(VIII) is not decisive where a discretion is conferred upon a quasi-judicial authority whose decision has civil consequences. The word “may” which denotes discretion should be construed to mean a command. Consequently, this Court is of the view that requirement of giving an assessee a reasonable opportunity of personal hearing is mandatory.
Stating that the non-obstante clause and the use of the expression ‘shall be made’ in Section 144B (1) creates a mandatory obligation upon the respondent/Revenue to follow the prescribed procedure, Court expressed that, the use of the expression “may” in Section 144B (7)(viii) is not decisive.
The word “may” is capable of meaning “must” or “shall” in the light of the context.
Court added that, a quasi-judicial body must normally grant a personal hearing as no assessee or litigant should get a feeling that he never got an opportunity or was deprived of an opportunity to clarify the doubts of the assessing officer/decision-maker.
The Bench suggested that, The identity of the assessing officer can be hidden/protected while granting personal hearing by either creating a blank screen or by decreasing the pixel/density/resolution.
Hence, the word “may” in Section 144B(viii) should be read as “must” or “shall” and the requirement of giving an assessee a reasonable opportunity of personal hearing is mandatory.
Conclusion
The impugned final assessment order and impugned notice issued by respondent 3 have been set aside and the matter remanded back to the Assessing Officer [Bharat Aluminium Company Ltd. v. Union of India, 2022 SCC OnLine Del 105, decided on 14-1-2022]
Advocates before the Court:
For the Petitioner: Mr Arvind Datar, Senior Advocate with Mr Gopal Mundhra, Advocate.
For the Respondents: Mr Gigi C. George, Advocate for UOI.
Mr Sanjay Kumar, Advocate for Revenue.