Gujarat HC Rejects IT Assessment Order Citing Violations of Section 144B

In a legal development, the Income Tax Assessment Order, citing violations of Section 144B of the Income Tax Act was invalidated by the Gujarat High Court.

The applicant is an individual taxpayer primarily aimed for the following reliefs:

• (A) Requesting the issuance of a writ—be it certiorari, mandamus, or any suitable order—to nullify and invalidate the disputed Assessment order under Sections 147 and 144B of the Income Tax Act, 1961, along with the Demand Notice dated 30/03/2022.
• (B) Seeking interim relief throughout the proceedings, urging the Court to instruct the Respondent against enforcing compliance with the contested Assessment order under Sections 147 and 144B of the Income Tax Act, 1961, as well as the Demand Notice dated 30/03/2022.

The individual seeking the writ had asserted consistent filing of income tax returns and underwent income assessments by the Ahmedabad Income Tax Office.

As per the applicant, the income return for the A.Y. 2016-17 was submitted on 22.07.2016. Nonetheless, on 30.03.2021, they received a notice under Section 148 of the Income Tax Act.

On 06.07.2021, the applicant received documented reasons highlighting substantial transactions observed by the Income Tax Department, in which the assessee had engaged.

It was also noted that upon reviewing the available records, it became evident that the assessee had undertaken financial transactions surpassing taxable limits.

Reference was made to the Department’s search operation conducted under Section 132 of the Act on 11.04.2017, concerning the Navratna Group. During this search, an Excel file was discovered containing various details of KBG, including Unit No., unit area, land selling price, construction costs, and amounts received from purchasers, among other information.

The writ applicant lodged objections against the aforementioned recorded reasons, submitting them to the Department on 20.07.2021. However, the objections were dismissed by the competent authority, addressing the jurisdictional issue of the Assessing Officer (AO) in issuing notice under Section 148 of the Act.

Emphasis was placed on the entry under the writ applicant’s name in the list of various transactions/purchasers associated with M/s. Navratna Group.

It was concluded that as the assessee’s case hadn’t been selected for regular scrutiny for A.Y. 2016-17 and the Department aimed to authenticate the collected information and determine the evaded income, the directive was issued to provide documents and evidence supporting the transactions carried out during the assessment proceedings.

Hence, the notice under Section 142(1) of the Act was issued on the writ applicant dated 10.03.2022, asking him to provide the pertinent documents or accounts on or before 16.03.2022.

In reply to the notice dated 10.03.2022, the assessee responded by submitting their reply on 15.03.2022. Alongside this, the assessee provided the requested documents, including A.Y. 2016-17 computation details, various head statements, a copy of the purchase deed, A.Y. 2015-16 bank statements indicating payments made during transactions with Navratna Group between 08.08.2015 to 25.08.2015, the applicant’s ledger account showing fund transfers, and a confirmation receipt issued by Navratna Group.

Subsequently, the writ applicant received the final assessment order under Section 147 read with Section 144B of the Income Tax Act, along with a demand notice of Rs.28,09,842/- under Section 156 of the Act issued on 30.03.2022 by the respondent authorities. The writ applicant directly approached this Court in writ jurisdiction, seeking to annul the final order and the demand notice dated 30.03.2022 issued by the respondent Department.

Read Also: Delhi ITAT: Re-assessment Order Can’t Be Based on Inaccurate Details

Following the assertions in the writ petition, this Court, through an order dated 19.04.2022, issued a Notice to the respondent authorities and, by interim order, restrained them from enforcing compliance with the challenged assessment order under Section 147 read with Section 144B of the Act and the demand notice dated 30.03.2022 under Section 156 of the Act.

The core of the petitioner’s argument centred on the authorities’ failure to follow the mandatory procedures outlined in Section 144B of the Income Tax Act. The petitioner claimed that the absence of the draft assessment order, a prerequisite according to Section 144B(xxi), denied them the chance to contest, resulting in a significant demand.

The counsel for the writ applicant emphasized similar cases, drawing comparisons to demonstrate the consistent failure to adhere to Section 144B. Citing precedents like the Kottex Industries case and Sardar Co-op. Credit Society Ltd. case, the petitioner sought remedy based on established legal stances.

Acknowledging the lapse in serving the draft assessment order, as stated in the affidavit filed by the Income Tax Officer, the respondent authorities admitted the oversight. Upon reviewing the records and legal framework, the court concluded that the failure to comply made the final assessment order null and void, invoking Section 144B(9).

After hearing the advocates representing the parties and examining the records, the Court stated, “Undoubtedly, the issue of not furnishing the draft assessment order, which should have been provided alongside the show cause notice as per the procedure outlined in Section 144B(1), clause (xvi)(b) of the Income Tax Act, has been substantiated.”

“The adherence to mandatory procedures outlined in the aforementioned provision – the issuance of show cause notice, the draft assessment order, the final assessment order, and the resulting demand notice – is no longer a matter open to debate,” the Court emphasized.

The Court elaborated on Section 144B of the Act, outlining the framework for Faceless Assessment to be conducted under Sections 143(3) and 144, specifying the procedures for the Authority.

Additionally, the Court highlighted Sub-section (9) of Section 144B, stating that any assessment conducted under Section 143(3) or Section 144 shall be deemed invalid if not performed following the procedures outlined in Section 144B.

Relying on the precedent set in the case of Sardar Co-op. Credit Society Ltd. vs. Additional/Joint/Deputy/Assistant Commissioner of Income Tax (order dated 10.01.2022 in Special Civil Application No.7541 of 2021), the Court invalidated the contested final assessment order dated 30.03.2022 issued by the respondent authorities, declaring it null and void.

The Court further stated, “Consequently, the demand notice dated 30.03.2022 issued by the respondent authorities under Section 144 of the Act against the writ applicant is also invalidated. The case is referred back to the Assessing Officer from the stage of issuing the draft assessment order alongside the show cause notice.”

“The Assessing Officer is mandated to produce a draft assessment order and subsequently furnish it to the assessee, following the provisions specified in Section 144B of the Act,” the Court concluded, granting relief as per the writ petition.