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Kottex Industries Private Limited Vs National Faceless Assessment Centre (Gujarat High Court)
In Kottex Industries Private Limited vs. National Faceless Assessment Centre, the Gujarat High Court examined whether an income tax assessment order dated 26 September 2021 was valid under the provisions of the Income Tax Act, 1961. The petitioner challenged the order passed under Sections 147 and 144B, along with the corresponding demand notice under Section 156, arguing that the order violated the principles of natural justice and failed to adhere to the mandatory procedural requirements of the Faceless Assessment Scheme under Section 144B. The petitioner asserted that no draft assessment order was served, despite detailed responses and a request for a personal hearing being submitted. As a result, a tax demand of over ₹3.69 crore was raised without following due process.
The Court reviewed the sequence of notices and replies exchanged between the parties, noting that although the petitioner requested an adjournment and later submitted responses along with documentary evidence, the assessing authority proceeded to pass the final order without issuing the mandatory draft assessment order. The Court found that this was in direct violation of Section 144B(1)(xvi)(b), which requires a draft order to be served before finalisation. Furthermore, under Section 144B(9), any order not following prescribed procedure is rendered non-est (null and void). The Court referenced multiple precedents, including Atulbhai Kantilal Mehta and Agrawal JMC Joint Venture, where similar violations were found to invalidate assessment proceedings.
The Revenue argued that the petitioner had an alternative remedy through appellate channels under the Faceless Appeal Scheme. However, the Court held that violations of natural justice and statutory procedure justified invoking Article 226 jurisdiction, in line with the Whirlpool Corporation ruling. The Gujarat High Court set aside the impugned assessment and directed the Assessing Officer to restart proceedings by issuing a show-cause notice along with a draft assessment order, allowing a personal hearing as mandated under the Act. The revised process is to be completed within 12 weeks from the receipt of the court order.
In conclusion, the High Court reaffirmed that procedural safeguards under the Faceless Assessment Scheme must be strictly observed. Failure to issue a draft order before passing a final assessment, and ignoring the taxpayer’s replies and hearing requests, constitutes a breach of both the statutory framework and the principles of natural justice. The Court clarified that the ruling did not comment on the merits of the case but was limited to procedural lapses. The judgment strengthens the legal position that faceless assessments must not compromise taxpayer rights and procedural integrity.
FULL TEXT OF THE JUDGMENT/ORDER OF GUJARAT HIGH COURT
Heard learned Senior Advocate Mr. Tushar Hemani assisted by learned advocate Ms. Vaibhavi K. Parikh for the petitioner and learned advocate Mr. Nikunt Raval appearing for learned advocate Ms. Kalpana K. Raval for the respondent.
2. Rule returnable forthwith. Learned advocate Mr. Nikunt Raval waives service of notice of Rule on behalf of the respondent. Having regard to the controversy arising in this petition in narrow compass, with the consent of the learned advocates appearing for the respective parties, the same is taken up for final disposal today itself.
3. By this petition under Article 226 of the Constitution of India, petitioner has challenged the impugned assessment order dated 26th September, 2021 passed by the respondent under Section 147 read with Section 144B of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) as well as the demand notice issued under Section 156 of the Act for the Assessment Year 2014-15 on the ground that the same is passed in gross violation of principles of natural justice, since the draft assessment order in accordance with Section 144B of the Act was not served and the adjournment application and the reply furnished by the petitioner was overlooked by not providing any opportunity of personal hearing, resulting into demand of Rs.3,69,42,160/-.
3.1 The petitioner filed its return of income for the assessment year 2014-15 on 4th September, 2014 declaring total income of Rs.3,98,69,380/-. The assessment was initially framed under Section 143(3) of the Act. Thereafter, the case was reopened by issuance of notice dated 30th March, 2019 under Section 148 of the Act. The petitioner challenged the reopening by preferring Special Civil Application No.22654 of 2019 before this Court which came to be disposed of by order dated 6th August, 2021.
3.2 Notice dated 17th August, 2021 under Section 142(1) of the Act was issued by the respondent calling upon the petitioner to furnish various details and information. Thereafter, another notice dated 6th September, 2021 was issued under Section 142(1) of the Act, and finally, notice dated 18th September, 2021 under Section 142(1) of the Act was issued, with which the show-cause notice dated 5th November, 2019 was also attached calling upon the petitioner to furnish reply to the said show-cause notice dated 5th November, 2019.
3.3 The petitioner vide letter dated 21st September, 2021 prayed for adjournment for a week. Thereafter, the petitioner vide letter dated 23rd September, 2021 furnished detailed reply to the notice issued by the respondent followed by another letter dated 24th September, 2021 containing various documentary evidences including submissions in relation to share capital of Rs.2,64,97,200/- received by the petitioner from different parties during the year under consideration.
3.4 The respondent Assessing Officer, however, without issuing draft assessment order, as required under Section 144B of the Act, framed the assessment under Section 147 read with Section 144B vide impugned order dated 26th September, 2021 determining the total income of the petitioner at Rs.9,91,66,580/- and raised demand of Rs.3,69,42,160/-.
4. Learned Senior Advocate Mr. Tushar Hemani for the petitioner submitted that the impugned assessment order is passed in flagrant breach of principles of natural justice as well as the mandatory provision of Faceless Assessment as provided under Section 144B of the Act as draft assessment order was never served upon the petitioner as required under Section 144B(1)(xvi) of the Act.
4.1 It was submitted that though the petitioner made a request for adjournment vide letter dated 21st September, 2021 within the time limit granted by the respondent to file reply to the show-cause notice dated 18th September, 2021 alongwith the request for personal hearing, the respondent authority, without rejecting the same and without considering the further reply filed by the petitioner on 23rd September, 2021 and 24th September, 2021, passed the impugned order. It was submitted that the respondent ought to have considered the request for adjournment for one week and considered the reply dated 24th September, 2021 filed by the petitioner and personal hearing. It was submitted that the respondent Assessing Officer, without issuing draft assessment order, has passed the impugned assessment order in violation of principles of natural justice. It was submitted that personal hearing is necessary before passing any adverse order against a person.
4.2 In support of his submissions, learned Senior Advocate Mr. Hemani relied upon the decision of this Court in case of Atulbhai Kantilal Mehta Vs. The Additional/Joint/Deputy/Assistant Commissioner of Income Tax/Income-Tax Officer rendered in Special Civil Application No.13158 of 2021.
4.3 Learned Senior Advocate Mr. Hemani also referred to and relied upon the decision of this Court in case of Agrawal JMC Joint Venture Vs. Assistant/Joint/Deputy/Assistant Commissioner of Income Tax/Income Tax Officer rendered in Special Civil Application No.7477 of 2021.
5. On the other hand, learned advocate Mr. Nikunt Raval for the respondent raised a preliminary objection with regard to maintainability of the petition as the petitioner has an alternative efficacious remedy of preferring an appeal before the Commissioner of Income Tax (Appeals) and thereafter, Income Tax Appellate Tribunal under the Faceless Appeal Scheme-2020 before approaching to this Court.
5.1 It was submitted that the Apex Court in case of Commissioner of Income Tax and Others Vs. Chhabil Dass Agarwal, reported in 356 ITR 357 (SC), has held that the Court will have to take into consideration the legislative intent enunciated in the enactment. It was further held that it is not as if the alternative remedy is neither efficacious nor effective.
5.2 It was further submitted that the Revenue Unit has approved the draft assessment order on 25th September, 2021 and the final assessment order was framed on receipt of review report on 26th September, 2021. Reference was made to the order sheet to point out that sufficient time and opportunity were provided to the petitioner without any preconceived mind but the petitioner has not availed the opportunity to file the reply within the time provided by the Assessing Officer. It was submitted that proper procedure has been followed as laid down in the Act before passing the impugned order based upon the facts available on record in accordance with the applicable law in Faceless Assessment Scheme.
6. Considering the rival submissions made by both the sides the only question which is required to be considered is that, whether the respondent authorities have followed the due procedure of law as envisaged under Section 144B(1)(xvi) read with Section 144B(7)(vii) and (xii) of the Act or not, while passing the impugned assessment order dated 26th September, 2021.
7. The answer to the above question are not res integra inasmuch as the provision of Section 144B of the Act which provides for Faceless Assessment for the assessment under Section 143(3) and 144 to be carried out as per the procedure contained therein and Sub-section (9) of Section 144B provides that notwithstanding anything contained in any other provision of the Act, the assessment made under Section 143(3) or Section 144 of the Act, shall be non-est if such assessment is not made in accordance with the procedure laid down under Section 144B of the Act. The opportunity of hearing as envisaged under Section 144B of the Act is also therefore, required to be scrupulously adhered to as the principles of natural justice are unfailingly ingrained in the procedure prescribed for Faceless Assessment. Moreover, in the facts of the case, it is not in dispute that the draft assessment order is not forwarded to the petitioner, which is required to be sent along with the show-cause notice as per the procedure prescribed under Section 144B(1) (xvi)(b) of the Act. This Court in case of Atulbhai Kantilal Mehta (Supra) as well as in case of Agrawal JMC Joint Venture (Supra) has held that it is no more res integra that any order passed in violation of statutory procedure prescribed under Section 144B of the Act, makes the order vulnerable as the same is passed in violation of principles of natural justice.
8. Apart from this Court, the Bombay High Court in case of M/s. Parimal Enterprise Ltd. Vs. Addl. Commissioner of Income Tax, reported in (2021) 129 taxmann.com 18(Bombay) and the Delhi High Court in case of Sanjay Agrawal Vs. National Faceless Assessment Centre, Delhi, reported in (2021) 127 taxmann.com 637 (Delhi) have also taken the same view.
9. The contention raised on behalf of the Revenue with regard to alternative and efficacious remedy available to the petitioner and preferring an appeal before the Commissioner of Income Tax is concerned, as the impugned order is passed in violation of principles of natural justice and is contrary to the procedure prescribed for Faceless Assessment as per Section 144B of the Act, we are of the opinion that the same can be challenged by invoking the extraordinary jurisdiction under Article 226 of the Constitution of India as per the decision of the Apex Court in case of Whirlpool Corporation Vs. Registrar of Trade Marks, Mumbai & Others, reported in (1998) 8 SCC 1.
10. In the result, this petition succeeds and is accordingly allowed. The matter is remanded back to the Assessing Officer by quashing and setting the impugned assessment order dated 26th September, 2021 along with the demand notice issued under Section 156 of the Act. The Assessing Officer shall issue show-cause notice along with the draft assessment order by granting an opportunity of personal hearing to the petitioner as per the procedure prescribed under Section 144B of the Act. Such exercise shall be completed within 12 weeks from the date of receipt of copy of this order.
It is made clear that we have not gone into the merits of the case as the impugned assessment order is quashed and set aside only on the ground of not following the procedure prescribed as per Section 144B of the Act.
Rule is made absolute to the aforesaid extent. No order as to costs.
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