Faceless Assessment Scheme Does Not Mean No Personal Hearing, Mandatory Requirement U/S 144B Of Income Tax Act: Delhi High Court
The Delhi High Court has made it clear that the Central government's recent 'faceless assessment scheme', launched with an aim to eliminate the human interface between the taxpayer and the income tax department, does not mean that the assess shall not be given a personal hearing.The division bench comprising of Justices Manmohan and Navin Chawla observed,"a quasi judicial body...
The Delhi High Court has made it clear that the Central government's recent 'faceless assessment scheme', launched with an aim to eliminate the human interface between the taxpayer and the income tax department, does not mean that the assess shall not be given a personal hearing.
The division bench comprising of Justices Manmohan and Navin Chawla observed,
"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. After all confidence and faith of the public in the justness of the decision making process which has serious civil consequences is very important and that too in an authority/forum that is the first point of contact between the assessee and the Income Tax Department."
It added 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.
Reliance was placed on Piramal Enterprises Limited vs. Additional/Joint/Deputy Assistant Commissioner of Income-tax/Income-tax Officer & Ors. where it was held that Section 144B of the Income Tax Act incorporates the provision of 'hearing' and it is imperative to observe principles of natural justice as stipulated.
Furthermore, it was held that the expression "may" used in Section 144B(7)(viii) is construed to mean a command, making the requirement of giving an assessee a reasonable opportunity of personal hearing mandatory.
Bcakground
The petitioner (Bharat Aluminium Company Ltd.) had challenged the impugned final assessment order dated 27 November 2021, under Section 143 (3) of the Income Tax Act, 1961 and impugned notice dated 27 November 2021, under Section 156, for the Assessment Year 2018-2019.
The counsel for the Petitioner, Senior Advocate Arvind Datar argued that there had been violation of principals of natural justice and mandatory procedure as show cause notice was issued proposing 'Null' or 'Nil' variation. The same was confirmed by the petitioner. However, later, it was alleged that the respondent took a complete turnaround and issued the draft assessment order proposing variations for which no Show Cause Notice was ever issued to the petitioner.
Furthermore, he argued that no opportunity for personal hearing was provided to the petitioner even after requesting under Section 144B(7).
Conversely, counsel for the respondents argued that there was no violation of principles of natural justice as none of the two categories under the natural justice principle were fulfilled. The petitioners were not (i) 'denied opportunity' and nor was there an (ii) 'insufficiency of opportunity'.
He claimed that the petitioners were allowed written replies, and personal hearing is just a discretionary opportunity, in addition to the written replies. Furthermore, granting of personal hearing would frustrate the concept of 'faceless assessment'.
Court's observations:
The Court was surprised to note that 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.
Additionally, while the show cause notice assessed a total loss of Rs.1,76,94,91,428/-, the impugned final assessment order and notice makes a demand of Rs.1,69,77,44,240/-!
Furthermore, it was observed by the Court that not serving Show Cause notice was violative of Section 144B(1)(xvi).
"Where an action entails civil consequences, like in the present matter, 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 Court said.
Reliance was placed on Raghunath Thakur vs. State of Bihar & Ors., to state that the opportunity to provide hearing before making any decision is considered to be a basic requirement in Court proceedings.
Pre-decisional hearing is necessary to assess a situation, especially in the absence of an express provision which rules it out. Besides, since the assessee has a vested right to personal hearing, the same has to be given if the assessee asks for it.
Accordingly, the Court set aside the impugned order and notice and remanded the matter back to the Assessing Officer.
Case Title: Bharat Aluminium Company Ltd. v. Union of India & Ors., WP (C ) 14528/2021
Citation: 2022 LiveLaw (Del) 20