[Income Tax Act] Faceless Assessment Scheme does not take away right to personal hearing: Delhi High Court
January, 17th 2022
The requirement of giving an assessee under the Income Tax Act a reasonable opportunity of personal hearing is mandatory (if the assessee asks for it) and the provision of Faceless Assessment Scheme does not mean that no personal hearing can be granted, the Delhi High Court ruled on Friday [Bharat Aluminium Company Limited v Union of India and Ors].
A Division Bench of Justices Manmohan and Navin Chawla said that the Court failed to understand as to how grant of a personal would either frustrate or defect the concept and purpose of Faceless Assessment Scheme.
"This Court is of the opinion 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," the judgment said.
The Faceless Assessment Scheme was introduced by the Central government in 2020 by insertion of Section 144B via the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020.
The High Court held that the word “may” used in Section 144B(viii) of the Act should be read as “must” or “shall” and requirement of giving an assessee a reasonable opportunity of personal hearing is mandatory.
"This Court is of the opinion that 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," the High Court ruled.
The Bench was dealing with a petition filed by Bharat Aluminium Company Limited challenging the final assessment order and noted by the Income Tax Department under Section 143(3) of the Income Tax Act.
The petition argued that the order was passed without following the principle of natural justice and in violation of the scheme under Section 144B of the Act as even after the ‘nil’ variation proposed in the show cause notice, addition had been made to the assessed income.
It was alleged that the additions to the assessed income was made on the ‘false premise’ that the petitioner had not furnished relevant details in response to the statutory notice issued to them even though it was the respondents’ own portal which was facing technical glitches due to which the petitioner failed to upload the file.
The petitioner further argued that under Section 144B(1)(xvi) of the Income Tax Act, an opportunity has to be provided to the assessee in case any variation of the assessment is proposed which is prejudicial to his interest. However, in this case after proposing a ‘nil” variation, the respondents took a turnaround and issued the draft assessment order proposing variations for which no show cause notice was ever issued.
The Court said that it was unable to comprehend as to how despite ‘nil’ variation proposed in the show cause notice, additions had been made to the assessed income.
It further opined that an assessee has a vested right to personal hearing and the same has to be given, if an assessee asks for it.
“The argument of the respondent/Revenue that personal hearing would be allowed only in such cases which involve disputed questions of fact is untenable as cases involving issues of law would also require a personal hearing. This Court is of the view that the classification made by the respondents/Revenue by way of the Circular dated 23 November, 2020 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,” the Court made it clear.
If the argument of the respondent/ revenue is accepted, then the High Court while hearing an appeal under Section 260A (which only involves a substantial question of law) would not be obliged in law to grant a personal hearing to the counsel for the Revenue, the Court added.
”This Court is further of the view 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. After all confidence and faith of the public in the justness of the decision-making process which has serious civil consequences is very important and that too in an authority/forum that is the first point of contact between the assessee and the Income Tax Department. The identity of the assessing officer can be hidden/protected while granting personal hearing by either creating a blank screen or by decreasing the pixel/density/resolution,” the Bench said
The Court, therefore, set aside the assessment order issued by the IT Department and remanded the matter back to the Assessing Officer who was directed to issue a show cause notice and a draft assessment order after which a reasoned order can be passed.
Senior Advocate Arvind Datar along with advocate Gopal Mundhra appeared for the petitioner. The Central Government was represented by advocate Gigi C George while advocate Sanjay Kumar appeared for the Revenue department.
The validity of Faceless Assessment Scheme has been challenged before various High Courts.
The Kerala High Court had recently issued notice to the Central government on a plea challenging the constitutional validity of Section 144B. Such a petition is also pending before the Madras High Court.
The Bombay High Court is also seized of a similar case challenging sub-sections (6B), (6C) and (6D) of Section 250 of the Act which rolled out the Faceless Appeal Scheme.