CORPUS CHRISTI EDUCATIONAL SOCIETY vs. THE ADDITIONAL/JOINT/DEPUTY ASSISTANT COMMISSIONER OF INCOME TAX OFFICER,
What did the High Court hold?
The High Court held that the impugned order of assessment was liable to be set aside as it clearly infringed upon the mandate of section 144B of the Income Tax Act, 1961. The court found that the assessment order had varied the return filed by the petitioner, and the statutory provisions of section 144B clearly require the furnishing of a draft assessment order and a show-cause notice to the assessee, eliciting their explanation, before making any prejudicial variation. The failure to adhere to this statutory requirement amounted to a clear infringement of the principles of natural justice. The court relied on decisions from the Delhi High Court in DJ Surfactants v. National E-Assessment Centre and RMSI Private Limited v. National E-Assessment Centre. Consequently, the assessment order and the consequential penalty notice were set aside. The court directed the competent respondents to serve the draft assessment order along with a show-cause notice to the petitioner expeditiously and complete the proceedings in accordance with law.
What were the facts?
The petitioner, Corpus Christi Educational Society, filed a writ petition challenging an order of assessment issued under section 143(3) of the Income Tax Act, 1961, and a consequential penalty notice under section 274 of the Act. The petitioner's primary contention was a violation of natural justice, specifically the failure to serve a show-cause notice and a draft assessment order as mandated by section 144B(1)(xvi)(b) of the Act. The petitioner had filed a return declaring 'Nil' income and claiming exemption under section 10 of the Act. However, the assessment order, dated April 8, 2021, varied the petitioner's return, demanding income tax of Rs. 2,73,46,529/-, citing the failure to file a physical audit report, which disentitled the assessee from claiming exemption under section 10(23C).
What were the issues?
1. Whether the order of assessment issued under section 143(3) of the Income Tax Act, 1961, is liable to be set aside for violating the principles of natural justice by failing to serve a show-cause notice and a draft assessment order, as contemplated under section 144B(1)(xvi)(b) of the Act, when a variation prejudicial to the assessee was made to the returned income? Assessee's Contentions: The petitioner argued that the assessment order was issued contrary to section 144B of the Act because a variation to the income returned by the petitioner was made without issuing the mandatory draft assessment order or show-cause notice. This infringed upon the principles of natural justice. Revenue's Contentions: The judgment does not record specific contentions from the revenue.
Which sections of the Income-tax Act were involved?
Section 143(3),Section 274,Section 144B,Section 10,Section 142,Section 10(23C)
AI-generated summary — verify with the full judgment below
Cause title — parties, addresses and appearances
JUDGMENT Petitioner impugns the order of assessment issued under section 143(3) of the Income Tax Act, 1961 (for short, 'the Act'). Consequential penalty notice issued under section 274 of the Act is also assailed in this writ petition.
The limited challenge raised in this writ petition, for invoking the juri iction under Article 226, is the alleged violation of the principles of natural justice. According to the petitioner, the order of assessment has been issued without serving the show-cause notice and the draft assessment order, as contemplated under section 144B(1)(xvi)(b) of the Act.
The e-Assessment Scheme was brought in by notification of 2019. The said scheme was subsequently renamed as 'Faceless Assessment Scheme'. With effect from 01.04.2021, the notification found its way into the statute book in the form of section 144B. The scheme of Faceless Assessment under the aforesaid section is that after reckoning the relevant material available on record, obtained pursuant to notices issued under the provisions, a draft assessment order is prepared, either accepting the income as per the return submitted by the assessee or by making a variation to the income so returned, and a copy of the draft assessment order is forwarded to the National Faceless Assessment Centre (for short, 'the Centre'). Thereafter the Centre will examine the draft assessment and finalise the same, in case no variation, prejudicial to the interests of the assessee is proposed. However, if any variation, prejudicial to the interests of the assessee is proposed, then notice shall be served upon the assessee calling upon him to show-cause as to why a variation should not be made.
The above scheme of statutory provision is incorporated with a purpose and is a facet of the principle of natural justice incorporated into the statute.
Learned counsel for the petitioner contends that, when respondents issued Ext.P11 order of assessment, they acted, contrary to section 144B, since, when a variation to the return of income submitted by the petitioner was carried out, the same was made without issuing the draft assessment order or show-cause notice.
A perusal of the documents produced by the petitioner including the return filed for the assessment year 2018-19 shows the petitioner had submitted a return with “Nil” income and claimed exemption pursuant to Ext.P2 order under section 10 of the Act. However, subsequently notices under section 142 of the Act were issued, for which the petitioner had filed a detailed reply, and it was thereafter that, the order under Section 143(3) was issued by the 1st respondent on 08.04.2021. A reading of the assessment order shows that, the assessing officer had varied the return filed by the petitioner and demanded an income tax of Rs.2,73,46,529/-, after noticing the failure of the assessee in filing an audit report physically. This disentitled the assessee from claiming exemption under section 10(23C) of the Act. It is clear that there is a variation from the return filed by the petitioner.
The provisions of section 144B, as mentioned earlier, requires the draft assessment order and the show-cause notice to be furnished to the assessee, eliciting his explanation. The impugned order of assessment has varied the alleged return filed by the petitioner. Since the mandate of the statue has been clearly infringed upon the assessment order falls foul of the principles of natural justice and hence is liable to be set aside. The decisions of the Delhi High Court in DJ Surfactants v. National E-Assessment Centre, Income Tax Department, New Delhi and Others [2021 (437) ITR 519 (Delhi)] and that in RMSI Private Limited v. National E-Assessment Centre, Delhi [(2021 (436) ITR 612 (Delhi)] in this context are relevant.
Accordingly, Ext.P11 order of assessment is set aside. Consequently, Ext.P14 penalty order shall also stand set aside. Having regard to the circumstances of the case, the competent among the respondents shall serve the draft assessment order along with a show- cause notice to the petitioner, as expeditiously as possible, in a time bound manner and complete the proceedings in accordance with law, without further delay. The writ petition is allowed as above. BECHU KURIAN THOMAS JUDGE vps
Appendix — schedule of exhibits
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