The Bombay High Court has quashed a draft assessment order and the consequential final assessment order involving additions of ₹226.13 crore, after finding that a technical glitch prevented the taxpayer from receiving a requested personal hearing through video conferencing.
A Division Bench of Justice B. P. Colabawalla and Justice Farhan P. Dubash held that, in the circumstances of the case, the denial of the hearing violated the principles of natural justice embedded in the faceless assessment procedure.
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The Court remanded the proceedings for fresh adjudication, directing the assessing authority to provide an effective hearing before passing any fresh draft assessment order. It expressly left the merits of the additions open.
The petitioner/assessee manufactures and trades metallic substrates used in automotive emission control systems for vehicles and engines.
The company filed its original income tax return on February 14, 2021, declaring a total income of ₹45,99,50,470. It subsequently filed a revised return on March 31, 2021, declaring a total income of ₹45,64,75,470.
Its case was selected for scrutiny under Section 143(3) of the Income Tax Act, 1961. A notice under Section 143(2) was issued on June 29, 2021, followed by a notice dated December 12, 2021, seeking accounts and documents.
In its reply dated March 24, 2022, the company stated that it had received the December notice only on March 18, 2022.
Further notices seeking documents and information were issued on July 20 and August 7, 2023. The company responded on July 28 and August 20, respectively. The judgment records that the company submitted all the documents sought by the Department through its August 20 reply.
On September 21, 2023, the Department issued a show cause notice requiring the company to respond within three days, by September 24. The notice also provided an option to request a personal hearing through video conferencing.
The company sought an adjournment on September 24. By a separate letter dated September 25, it specifically requested a video conferencing hearing on September 27, 2023.
However, the assessing authority passed the draft assessment order under Section 144C(1) on September 26, 2023, without granting the requested hearing. The order proposed additions aggregating to ₹2,26,13,34,635.
The company approached the High Court on October 26, 2023, and served the petition on the respondents the same day.
Four days later, on October 30, 2023, the assessing authority passed the final assessment order under Section 144C(3), read with Section 144B, confirming the additions. The High Court recorded that this order was also passed ex parte.
Appearing for the company, Advocate Bharat Raichandani argued that the assessment proceedings could not stand because the requested personal hearing had not been granted.
The Revenue did not dispute that the taxpayer had requested video conferencing. Its counsel, Advocate Akhileshwar Sharma, relied on an affidavit of the jurisdictional assessing officer acknowledging that technical glitches prevented the company from using the facility.
The affidavit was affirmed on January 19, 2024, by Alpana Dubey, Deputy Commissioner of Income Tax-12, Pune.
The Department requested that the matter be restored to the faceless assessing officer because the hearing request could not be entertained due to a technical glitch. It also stated that the taxpayer’s remaining submissions would be reconsidered in accordance with the principles of natural justice.
The Bench expressly appreciated the fair stand taken by the jurisdictional assessing officer.
The Court identified the central issue as whether the assessing authority could pass both the draft and final assessment orders without granting the requested personal hearing.
It found that the company’s grievance was justified and supported by the Department’s own admission. The company had specifically requested a video hearing and had been unable to avail itself of the facility through no fault of its own.
The Bench explained that Section 144B(6)(vii) and (viii) incorporates the principles of natural justice into the faceless assessment procedure and specifically contemplates a personal hearing through video conferencing when such a request is made.
In the facts of the case, the technical failure preventing access to that facility constituted a violation of those principles. Consequently, the draft assessment order and the final assessment order could not be sustained.
The High Court set aside the draft assessment order dated September 26, 2023, and the final assessment order dated October 30, 2023. It also quashed all consequential proceedings arising from the final order.
The assessment proceedings were remanded to the concerned assessing authority for fresh adjudication in accordance with law.
The Court directed the authority to provide the company with a reasonable and effective opportunity of hearing, including a personal hearing through video conferencing, before passing any fresh draft order.
The company must also be permitted to submit written arguments and any documents or material it considers necessary. The assessing authority must duly consider those submissions and materials before issuing a fresh draft order.
The High Court clarified that it had made no observations on the merits of the assessment. The assessing authority must reconsider the matter independently and in accordance with law.
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