Facts of the Case

The present writ petition was filed challenging the assessment order dated 22 April 2021 passed by the National Faceless Assessment Centre under Section 144 read with Section 144B of the Income Tax Act, 1961 for the Assessment Year 2018–19.

The petitioner contended that although a notice under Section 142(1) was issued and duly responded to with all relevant details, the respondent proceeded to pass the final assessment order without issuing a mandatory draft assessment order or show cause notice.

Additionally, the petitioner sought quashing of the consequential demand notice and penalty notices arising from the impugned assessment order.

Issues Involved

  1. Whether passing an assessment order without issuing a draft assessment order or show cause notice violates Section 144B of the Income Tax Act, 1961.
  2. Whether such assessment proceedings are contrary to principles of natural justice.
  3. Whether the impugned assessment order is liable to be declared void (non est) under Section 144B(9).

Petitioner’s Arguments

  • The petitioner argued that the statutory mandate under Section 144B was not followed.
  • Despite submitting replies to notices under Section 142(1), no draft assessment order or show cause notice was issued before finalizing the assessment.
  • This omission amounts to a violation of principles of natural justice.
  • Reliance was placed on the precedent of Smart Vishwas Society vs National Faceless Assessment Centre Delhi, where similar proceedings were quashed.

Respondent’s Arguments

  • The Revenue contended that multiple opportunities had been granted to the petitioner to present her case.
  • It was argued that even though no formal draft assessment order or show cause notice was issued, sufficient opportunity had been provided during the proceedings.

Court’s Findings / Order

  • The Delhi High Court held that the respondent’s argument was contrary to the statutory scheme of Section 144B.
  • The Court emphasized that issuance of a draft assessment order or show cause notice is mandatory where variations prejudicial to the assessee are proposed.
  • Non-compliance with Section 144B renders the assessment invalid and non est under Section 144B(9).
  • The Court further held that such action violates the principles of natural justice.

Final Order

  • The impugned assessment order dated 22 April 2021 was set aside.
  • Demand notice under Section 156 and penalty notices under Sections 270A and 271AAC were also quashed.
  • Liberty was granted to the Revenue to pass a fresh assessment order in accordance with law.

Important Clarification

  • The Court clarified that compliance with Section 144B procedure is not optional.
  • Any assessment made without following the prescribed faceless assessment procedure shall be treated as void ab initio.
  • Grant of multiple opportunities cannot substitute the statutory requirement of issuing a draft assessment order/show cause notice.

Sections Involved

  • Section 144 – Best Judgment Assessment
  • Section 144B – Faceless Assessment Procedure
  • Section 142(1) – Inquiry before Assessment
  • Section 156 – Notice of Demand
  • Section 270A – Penalty for Underreporting of Income
  • Section 271AAC – Penalty in Respect of Certain Income

 Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2021:DHC:2001-DB/MMH08072021CW62332021_173828.pdf


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