M/S. HL MANDO ANAND INDIA PVT. LTD.,KANCHEEPURAM vs. DCIT, CORP. CIRCLE-1(4), CHENNAI

The CIT(A) also dismissed the contentions of the assessee on merits. The assessee is in appeal before the Tribunal against the order of the CIT(A).

The Ld. Authorized Representative (AR) of the assessee at the outset submitted that contention with regard to non issue of draft assessment order prior to final assessment order need to be examined. The Ld. AR in this regard drew our attention to the relevant provisions of section 144B of the Act: “(xvi) the National Faceless Assessment Centre shall examine the draft assessment order in accordance with the risk management strategy specified by the Board, including by way of an automated examination tool, whereupon it may decide to (a) finalise the assessment, in case no variation prejudicial to the interest of assessee is proposed, as per the draft assessment order and serve a copy of such order and notice for initiating penalty proceedings, if any, to the assessee, along with the demand notice, specifying the sum payable by, or refund of any amount due to, the assessee on the basis of such assessment; or (b) provide an opportunity to the assessee, in case any variation prejudicial to the interest of assessee is proposed, by serving a notice calling upon him to show cause as to why the proposed variation should not be made, or (c) assign the draft assessment order to a review unit in any one Regional Faceless Assessment Centre, through an automated allocation system, for conducting review of such order,

The Ld. AR further drew our attention to the notice u/s. 142(1) of the Act issued by the A.O on 10.05.2021 calling for the assessee to submit relevant documentary evidence in relation to section 35(2AB) of the Act. The Ld. AR also submitted that the A.O in the same notice has also asked the assessee to show cause as to why the deduction claimed under section 35(2AB) of the Act cannot be disallowed. The Ld. AR argued that first of all the notice u/s. 142(1) of the Act cannot be considered as show cause notice which is a mandate as per sub clause (xvi) and therefore, the A.O has not followed the procedure as laid down. The Ld. AR further argued that even assuming that the said notice is to be considered as a show cause notice the A.O ought to have passed a draft assessment order along with the show cause notice. The Ld. AR in this regard drew our attention to the decision of the M/s. HL Mando Anand India Pvt. Ltd.

This argument of the respondent/revenue is contrary to the statutory scheme, as provided in section 144B of the Act. The relevant portions of section 144B xvi (a) and (b) as well as Section 144B(9) of the Act are reproduced hereinbelow:-

In our opinion, learned counsel for the petitioner is correct in submitting that section 144B of the Act has been violated and the assessment proceeding has been completed in the present case in violation of the principles of natural justice.

Consequently, the impugned assessment order dated 22nd April, 2021 issued under section 144 read with section 144B of the Act for the assessment year 2018-2019 as well as demand notice issued under section 156 of the Act and notice for initiating penalty proceedings issued under section 270A and 271AAC(I) of the Act are set aside. However, the respondent/revenue is given liberty to pass a fresh assessment order in accordance with law. The petitioner is also given liberty to challenge any action of the respondent/revenue in accordance with law, in the event she is aggrieved by the same.

Accordingly, the present writ petition along with pending applications stands disposed of.”

The Ld. AR also drew our attention to the decision of the Hon'ble [2021] 132 taxmann.com 83 (Guj.), where it has been held that: “7.5 It is pertinent to note that this introduction of faceless assessment under section 144B has revolutionised the very regime of assessment in very many ways and at the same time, there are bound to be certain hiccups while implementing and creases also to be ironed out at the level of department. For the officials and assessee also, acceptance of change, its comprehension and implementation in true purport is a challenge as well.

6 Various issues arise in relation to the implementation of this provision, some due to limitation in comprehension, other for want of requisite training after its introduction and still others are begging the change of mindset.

7 This provision starts with non-obstant clause and it warrants service of notice to the assessee in case of scrutiny assessment under section 143(3) and 144(2) be replied to by the assessee in 15 days' time, after allocation through automated system to any Regional Faceless Centre.

8 For fulfilling the need of document etc. the request of an assessment unit from regional faceless centre also shall be through Faceless Assessment Centre. M/s. HL Mando Anand India Pvt. Ltd.

8.1 Once there is a need to make reference to verification unit or technical unit, it is necessarily to be done through NFAC only and in absence of any response of assessee, the NFAC would serve a notice under section 144 of the I.T. Act as to why the best judgement assessment be not finalised and still if nor responsive, the concerned unit which is allocated the assessment would need to prepare draft assessment order to be sent to NFAC and even when information called for, in clause (xii) have been received, the draft assessment order needs to be prepared with or without variations as ends also specifying penalty, if any.

9 The National Faceless Assessment Centre shall examine the draft assessment order in accordance with the risk management strategy specified by the Board, if there is variation prejudicial to the interest of the assessee, it can finalise the assessment and serve copy of the order and notice to the assessee for initiating penalty proceedings, or for refund of any amount. However, when there is question of any variation, which may prove to be prejudicial to the interest of assessee, it is obligated to provide an opportunity to the assessee by serving a notice and calling upon him to show cause as to why proposed variation be not made or it has the third option of sending it back to the Regional Faceless Assessment Centre for conducting review of such order,

10 It is quite clear from the very provision that the assessee is required to be provided an opportunity once there is a possibility of any variation which may turn prejudicial to the interest of the assessee. What is expected of the NFAC is to serve a notice calling upon the assessee to show cause as to why the proposed variation be not made. This has to be done by furnishing Draft Assessment Order along with show cause notice.”

The Ld. AR submitted that as per the provisions of Section 144B of the Act, the procedure to be followed is that the assessee in case of variation should be issued a show cause notice and the courts in the above case have held that a draft assessment order should be issued along with the show cause notice providing the opportunity to the assessee to contend the proposed disallowance/addition. The Ld. AR further submitted that non issue of draft notice cannot be considered as a venial breach since the assessee is denied the opportunity to justify the claim whereby there is a violation of natural justice. The Ld. AR also fairly submitted that the Hon'ble Juri ictional High Court in the case of Samuel vs. ACIT [WP No.25303 of 2021 dated 05.09.2023] has M/s. HL Mando Anand India Pvt. Ltd.

The Ld. Departmental Representative (DR), on the other hand, submitted that the plain language of section 144B of the Act provides only for issue of show cause notice and there is no requirement to pass a draft assessment order. The Ld. DR further submitted that in assessee's case the A.O has issued a show cause notice calling on the assessee to justify the deduction claimed u/s. 35(2AB) of the Act and that the assessee has responded to the said notice. The Ld. D.R therefore argued that there is no prejudice caused to the assessee and that passing of draft assessment order which is not mandated by the Act cannot invalidate the assessment itself. The Ld. D.R also submitted that the Hon'ble Juri ictional High Court has correctly taken a view that non issue of draft assessment order is only a procedural miss and has remitted the matter back to the A.O for issue of draft assessment order.

We have heard the parties, and perused the material available on record. The assessee's claim toward deduction u/s.35(2AB) has been disallowed by the AO and the CIT(A) has confirmed the same. The assessee raised a legal contention before the CIT(A) stating that the AO did not issue a show cause notice / draft assessment order before making the disallowance. The said legal contention is also rejected by the CIT(A) stating that the M/s. HL Mando Anand India Pvt. Ltd.

The procedure under Section 144B of the IT Act is structured. It contemplates different stages of assessment and eventualities where, returns are filed or where returns are not filed and replies filed or not filed. At each stage, the matter has to go to the Assessment Unit and the Draft Assessment Order has to be passed.

In this case, the Department has combined the Show Cause Notice as is contemplated under Section 144B(11) with the procedure under Section 144(1)(xiv) of the IT Act.

The proceedings cannot be short circuited particularly when the provisions are categorical notwithstanding the fact that the petitioner may have failed to reply to some of the notices that were issued under Section 142(1) of the IT Act or there was a failure on the part of the M/s. HL Mando Anand India Pvt. Ltd.

Considering the above, the impugned Assessment Order is set aside and the case is remitted back to the respondents to refer the matter to the Assessment Unit to pass a Draft Assessment Order within a period of three months from the date of receipt of a copy of this order.”

Considering the binding precedence of the juri ictional High Court, we remit the present case back to the AO to pass the draft assessment order within a period of three months giving opportunity to the assessee contend the impugned issue in the interest of natural justice and fair play. It is ordered accordingly.

In result the appeal of the assessee is allowed for statistical purposes.