Facts of the Case

The petitioner, M/S SAS Fininvest LLP, filed a writ petition challenging the assessment order dated 31st March 2021 passed under Section 143(3) of the Income Tax Act, 1961 along with the demand raised under Section 156 of the Act. The petitioner contended that the impugned assessment was passed without complying with mandatory procedural safeguards prescribed under the Faceless Assessment Scheme and CBDT instructions.

It was alleged that no valid show cause notice or draft assessment order was issued before making adverse additions, including disallowance of short-term capital loss amounting to ₹8.7 crore, leading to substantial tax demand and initiation of penalty proceedings under Section 270A(9).

Issues Involved

  1. Whether an assessment order passed without issuing a prior show cause notice and draft assessment order violates principles of natural justice?
  2. Whether the writ petition is maintainable despite the availability of an alternative appellate remedy?
  3. Whether compliance with the Faceless Assessment Scheme and CBDT Instructions is mandatory?

Petitioner’s Arguments

  • The impugned assessment order is jurisdictionally invalid due to violation of principles of natural justice.
  • Mandatory procedure under the Faceless Assessment Scheme was not followed.
  • No show cause notice or draft assessment order was issued prior to making additions.
  • Reliance was placed on CBDT Instruction No. 20/2015 dated 29.12.2015, mandating fair opportunity to the assessee.

Respondent’s Arguments

  • The writ petition is not maintainable as the petitioner has an alternative statutory remedy by way of appeal.

Court’s Findings / Order

  • The Delhi High Court held that the Faceless Assessment Scheme mandatorily requires issuance of a show cause notice and draft assessment order before finalizing the assessment.
  • Failure to follow these procedures constitutes a clear violation of natural justice.
  • The Court reiterated that when principles of natural justice are violated, availability of an alternative remedy does not bar a writ petition.

Final Order:

  • The assessment order dated 31.03.2021 and demand under Section 156 were set aside.
  • The matter was remanded back to the Assessing Officer with directions to:
    • Issue a proper show cause notice
    • Provide draft assessment order
    • Pass a reasoned order in accordance with law

Important Clarification by Court

  • Government authorities are bound by their own procedural rules and standards.
  • Non-compliance with mandatory procedure renders the action invalid in law.
  • Violation of natural justice makes writ jurisdiction directly invocable, bypassing alternate remedies.

Sections Involved

  • Section 143(3), Income Tax Act, 1961
  • Section 156, Income Tax Act, 1961
  • Section 270A(9), Income Tax Act, 1961
  • CBDT Instruction No. 20/2015
  • Faceless Assessment Scheme

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:2421-DB/MMH10082021CW50872021_071646.pdf

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