Income Tax Act | Gujarat High Court Invalidates Income Tax Assessment Order Due To Violations Of Section 144B

The petitioner, an individual assessee, primarily sought the following reliefs:

(A) Petitioning for the issuance of a writ of certiorari and/or a writ of mandamus and/or any other appropriate writ, direction, or order to annul and set aside the contested Assessment order under Section 147 in conjunction with Section 144B of the Income Tax Act, 1961, as well as the Demand Notice under Section 156 dated 30/03/2022.

(B) Seeking interim relief during the pendency, hearing, and disposal of this petition, requesting the Court to direct the Respondent to refrain from compelling compliance with the challenged Assessment order under Section 147 read with Section 144B of the Income Tax Act, 1961, and the Demand Notice under Section 156 dated 30/03/2022.

The writ applicant had claimed to be paying regular income tax returns and was subjected to such assessments of income by the Income Tax Office at Ahmedabad.

According to the writ applicant, the return of income for the A.Y. 2016-17 was filed on 22.07.2016; however, on 30.03.2021, the writ applicant had received a notice under Section 148 of the Income Tax Act.

On 06.07.2021, the writ applicant was served with a copy of reasons recorded, thereby pointing out the significant transactions noticed by the Income Tax Department entered into by the assessee.

It was further mentioned that on perusal of the details available on record, the assessee had undertaken financial transactions much beyond the taxable limits.

Reference was made to the search action undertaken by the Department under Section 132 of the Act on 11.04.2017, in the case of Navratna Group. During the course of the search, an excel file was unearthed containing various details of KBG, such as Unit No., area of Unit, selling price of land, construction cost, amount received from the purchaser, etc.

The writ applicant had submitted objections against the aforesaid reasons recorded. These objections were tendered before the Department on 20.07.2021. The competent authority rejected the objections while responding to the issue of lack of jurisdiction of the Assessing Officer in issuing notice under Section 148 of the Act.

Reliance was placed on the entry in the name of the writ applicant reflected in the list of various issues/purchasers who had entered into transactions with M/s. Navratna Group.

It was held that since the assessee's case was not selected in regular scrutiny for A.Y. 2016-17 and since the Department intended to verify the genuineness of information collected and to arrive at the income escaped, it was further directed to furnish the documents and other evidence in support of the transactions entered into by him during the course of assessment proceedings.

Thus, the notice under Section 142(1) of the Act was issued upon the writ applicant on 10.03.2022, requesting him to furnish the relevant documents or accounts on or before 16.03.2022.

In response to the notice dated 10.03.2022, the assessee explained by submitting its reply on 15.03.2022. Along with the said communication, the assessee furnished the relevant documents as desired by the Department, which mainly included the details of computation, statements under various heads for A.Y. 2016-17, a copy of the purchase deed, a copy of the bank statement for A.Y. 2015-16 highlighting the payment made with regard to the transactions entered with Navratna Group between the period from 08.08.2015 to 25.08.2015, the ledger account maintained by the applicant reflecting funds transferred, confirmation receipt issued by Navratna Group.

The writ applicant then received the final assessment order under Section 147 read with Section 144B of the Income Tax Act, whereby the demand notice of Rs.28,09,842/- under Section 156 of the Act was issued on 30.03.2022 by the respondent authorities. The writ applicant thus directly approached this Court in writ jurisdiction praying for quashing and setting aside the aforesaid final order as well as the demand notice dated 30.03.2022 raised by the respondent Department.

Considering the averments made in the writ petition, this Court, by order dated 19.04.2022, had issued Notice upon the respondent authorities and by ad interim order had restricted the respondent authorities from enforcing the compliance of the impugned assessment order under Section 147 read with Section 144B of the Act and the demand notice dated 30.03.20922 under Section 156 of the Act.

The crux of the petitioner's argument revolved around the failure of the authorities to adhere to the mandatory procedures laid down in Section 144B of the Income Tax Act. The petitioner asserted that the draft assessment order, a prerequisite under Section 144B(xxi), had not been provided, depriving them of the opportunity to contest and resulting in a substantial demand.

The writ applicant's counsel highlighted similar cases, drawing parallels to showcase the consistent non-compliance with Section 144B. Referring to the Kottex Industries case and Sardar Co-op. Credit Society Ltd. case, the petitioner sought relief based on established legal positions.

The respondent authorities acknowledged the lapse in serving the draft assessment order, as indicated in the affidavit filed by the Income Tax Officer. The court, after examining the records and the legal framework, concluded that the non-compliance rendered the final assessment order non-est, invoking Section 144B(9).

Having heard the advocates appearing for the respective parties and having perused the record, the Court opined, "indisputably, the aspect of non-service of draft assessment order, which was otherwise required to be sent along with show cause notice as per the procedure prescribed under Section 144B(1), clause (xvi)(b) of the Income Tax Act has been confirmed."

"The compliance of mandatory procedure as envisaged in the aforesaid provision ie. of issuance of show cause notice, the draft assessment order, the final assessment order and the consequential demand notice is no more res integra," the Court added.

The Court expounded on Section 144B of the Act, which provides for Faceless Assessment for determination to be carried out under Sections 143(3) and 144 envisages the procedure to be followed by the Authority.

The Court further expounded on Sub-section (9) of Section 144B which provides that notwithstanding anything contained in any order provision of the Act, assessment made under Section 144(3) or Section 144 of the Act, shall be treated non-est, if such assessment is not made in accordance with the procedure laid down under Section 144B of the Act.

The Court placed reliance on the case of Sardar Co-op. Credit Society Ltd. Vs. Additional / Joint / Deputy / Assistant Commissioner of Income Tax (order dated 10.01.2022 passed in Special Civil Application No.7541 of 2021) and declared the impugned final assessment order dated 30.03.2022 issued by the respondent authorities as non-est and is quashed and set aside.

The Court said, "Consequently, the demand notice dated 30.03.2022 issued by the respondent authorities under Section 144 of the Act against the writ applicant is also quashed and set aside. The matter is remanded back to the Assessing Officer from the stage of issuance of draft assessment order along with show cause notice.”

“The Assessing Officer is expected to pass a draft assessment order and thereafter send the same to the assessee in accordance with the provisions of Section 144B of the Act," the Court added while allowing the writ petition.

Case No.: R/SPECIAL CIVIL APPLICATION NO. 7613 of 2022

Case Title: DHVANIL HEMENDRA RESHAMWALA Versus INCOME TAX OFFICER, WARD 1(3)(1)

LL Citation: 2024 LiveLaw (Guj) 2

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