High Court of Delhi was dealing with the petition challenging the action of respondent in passing the impugned final assessment order dated 27 November, 2021 under Section 143(3) of the Income Tax Act, 1961 and the impugned notice under Section 156 of the Act for Assessment Year 2018-19.
Petitioner’s Contention:
Learned counsel for the petitioner submitted that the impugned orders have been passed arbitrarily, without following the principles of natural justice and in gross violation of the scheme of faceless assessment under Section 144B of the Act, inasmuch as even after the ‘Nil’ or ‘Null’ variation proposed in the show cause notice, additions had been made to the assessed income in the draft assessment order as well as in the impugned final assessment order.
He pointed out that the Court in multiple cases, has unequivocally held that issuance of Show Cause Notice, mentioning the proposed additions under Section 144B(xvi), is a mandatory requirement and any assessment order passed without issuance of such Show Cause Notice is bad in law. He even stated that the Show Cause Notice, referred to in the final Assessment Order, was never served upon the petitioner. He also stated that the petitioner had not been granted any opportunity of personal hearing, despite a specific request having been made under Section 144B(7) of the Act by the petitioner. He submitted that Section 144B(7)(vii), (viii) and (ix) provides opportunity of personal hearing through video conferencing where such option is exercised by the assessee.
Respondent’s Contention:
Learned Counsel for the respondent submitted that cases of violation of principle of natural justice can be summarized in two categories i.e. (i) denial of opportunity and (ii) insufficiency of opportunity. He stated that the cases falling under the first category, wherein no opportunity was provided to the person charged, cannot withstand the scrutiny of law and were required to be set aside. However, in cases where insufficiency of opportunity was complained of, the prejudice caused to the person deprived of sufficient opportunity had to be taken into account before any finding on legality of such proceedings was recorded. He further stated that personal hearing in assessment proceedings under the Act is an added opportunity in addition to the written replies submitted by assessee and hence denial thereof would fall under the second category of “insufficiency of opportunity”.
According to him, Section 144B of the Act, had brought about a new era of faceless assessment where Assessing Officers cannot be identified during the assessment proceedings. He submitted that grant of personal hearing in routine and mechanical manner or stereotyped manner would not only frustrate the entire concept of Faceless Assessment Scheme but would also defeat the very purpose for which this Scheme was brought about by the Legislature. He emphasised that under faceless assessment under Section 144B of the Act, the assessee does not have a vested right to personal hearing and the same could be granted depending upon the individual facts of each case and fulfilling of the conditions laid down in SOP.
HC’s Observations:
After hearing both the sides Court stated that Court is unable to comprehend as to 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.
The Court found that no opportunity of personal hearing was given despite a specific request made by the petitioner. Court stated that a faceless assessment scheme does not mean no personal hearing. It is not understood as to how grant of personal hearing would either frustrate the concept or defeat the very purpose of Faceless Assessment Scheme.
Court stated that the settled position in law is that where exercise of a power results in civil consequences to citizens, unless the statute specifically rules out the application of natural justice, the rules of natural justice would apply, including the right to personal hearing. Denial of such opportunity is not in consonance with the scheme of the Rule of Law governing our society. In fact, the opportunity to provide hearing before making any decision is considered to be a basic requirement in Court proceedings.
HC relied upon the case of Sahara India (Firm) vs. Commissioner of Income-tax, Central-I, where the Apex Court highlighted the necessity and importance of opportunity of pre-decisional hearing to an assesee and that too in the absence of any express provision.
Court stated that the non-obstante clause and the use of expression ‘shall be made’ in Section 144B(1) creates a mandatory obligation upon the respondent to follow the prescribed procedure. Court also stated that the use of the expression “may” in Section 144B (7)(viii) is not decisive. It is settled law that having regard to the context, the expression “may” used in a statute has varying significance. In some contexts, it is purely permissive, whereas in others, it may make it obligatory upon the person invested with the power to exercise it.
Court stated that 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. Court also stated that the word “may” in Section 144B(viii) should be read as “must” or “shall” and requirement of giving an assessee a reasonable opportunity of personal hearing is mandatory.
HC Held:
After evaluating submissions made by both the parties the Court held “that the classification made by the respondents by way of the Circular is not legally sustainable as the classification between fact and law is not founded on intelligible differentia and the said differentia has no rational relation to the object sought to be achieved by Section 144B of the Act. An assessee has a vested right to personal hearing and the same has to be given, if an assessee asks for it. The right to personal hearing cannot depend upon the facts of each case.”
Bench: Hon'ble Mr. Justice Manmohan And Hon'ble Mr. Justice Navin Chawla
Case Title: Bharat Aluminium Company Ltd. v. Union Of India & Ors.
Case Details: W.P.(C) 14528/2021 & CM APPL. 45702/2021
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