Faceless Assessment Scheme: Kerala High Court Issues Notice To Centre On Plea Challenging Constitutionality Of S.144B Of IT Act

The Kerala High Court has admitted a batch of writ petitions challenging the constitutional validity of the Faceless Assessment Procedure under Section 144B of the Income Tax Act.

Justice Bechu Kurian Thomas issued notice to the Central government in the matter and temporarily stayed all further proceedings pursuant to the assessments made against the petitioners.

The Faceless Assessment Scheme was introduced in 2020 by insertion of Section 144B via the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020.

The petition was filed through Senior Advocate K Anand and Advocate Vishnu S alleging that the procedure provided under Section 144B was patently arbitrary and violative of Article 14 of the Constitution of India. They added that it was arbitrary for infringing upon the right of personal hearing, making the assessment procedure violative of principles of natural justice.

It was further contended that the settled position of law was that whenever an order having a civil consequence was passed against any person, they ought to be given an opportunity of being heard. On this ground, the petitioners contended that the assessments made against them were invalid as they were not given an opportunity for being heard.

Brief Facts:

The petitioner being an assessee under the Income Tax Act was issued notice under 143(2) allegedly to examine the returns he filed for the year 2013-14.

Nevertheless, according to the petitioner, the notice issued to him was only uploaded on an online portal and was not sent an e-mail or any real-time alert. Further notices were also issued to him under the provisions of the Act but in similar modes. When the petitioner tried to submit replies to the notices, he hit snags on the website which led to him submitting a grievance in this regard, a copy of which was submitted to the Court.

Consequently, he was served with a show-cause notice to which he responded within two days as stipulated on the website, with a request that if any information is lacking, he may be allowed to submit further details and heard personally by the jurisdictional assessing officer.

However, without any response to these requests, an assessment order was passed without hearing the petitioner and penalty notices were issued to him. Accordingly, the petitioner approached the High Court. 

Grounds

The petitioner challenged the constitutional validity of Section 144B on the following grounds:

1. Violative of principles of natural justice & Article 14:

As per the procedure laid down in section 144B, even in cases where the assessee is given the opportunity to show cause, they are not given an opportunity for being heard, unless they request it. Even when the assessee makes such a request, it is left to the arbitrary discretion of the Chief Commissioner or Director-General in charge of the Regional Faceless Assessment Unit. This procedure is in total violation of the principles of natural justice and in effect amounts to a denial of a personal hearing to the petitioner, which is sacrosanct under Article 14 of the Constitution of India.

2. Suffers from excessive delegation and arbitrariness:

Section 144B(7)(vii) provides that where variation is proposed in an assessment order and an opportunity is provided to the assessee by a show-cause notice, the assessee may request for a personal hearing. However, it also says that the Chief Commissioner or Director-General in charge of the Regional Faceless Assessment Unit may approve the request for a personal hearing.

Moreover, the time limit for providing replies, furnishing documents, evidence etc. may vary as per the discretion of the National Faceless Assessment Centre (NFAC) which makes the procedure patently arbitrary.

3. Section 144B(xiv) opaque & secretive:

As per Section 144B (xiv) the assessment unit has to prepare the 'draft assessment order' and forward a copy of the same to the NFAC. The NFAC, based on the 'Risk Management Strategy' specified by the Central Board of Direct Taxes, including by the way of an 'automated examination tool' may decide upon the course of action. The Risk-Management Strategy is not in the public domain and is an opaque and arbitrary concept. The purported use of the 'automated examination tool' whose algorithm is not determined makes the situation worse.

On these, among other grounds, the petitioner sought a declaration that that section 144B of the Income Tax and the faceless Assessment Scheme is ultra vires the Constitution and hence void.

The Court issued notice and temporarily stayed all proceedings pursuant to the assessment order issued to the petitioner.

Recently, the Bombay High Court had also adjudicated upon a similar case challenging sub-sections (6B), (6C) and (6D) of Section 250 of the Act which rolled out the Faceless Appeal Scheme.

Case Title: Mohamed Babu Paramboor v Union of India & Ors.

Click Here To Read/Download The Order