Read order: SAS Finvest LLP vs. National E-Assessment Centre

Pankaj Bajpai

New Delhi, August 16, 2021: The Delhi High Court has ruled that the Faceless Assessment Scheme of the Income Tax Department mandatorily provides for issuance of a prior show cause notice and draft assessment order before issuing the final assessment order.

While remanding the matter to the AO to issue fresh show cause notice and draft assessment, a Division Bench of Justice Manmohan and Justice Navin Chawla observed that there is a violation of principles of natural justice as well as mandatory procedure prescribed under the ‘Faceless Assessment Scheme’.

The observation came pursuant to a petition challenging an order passed under section 143(3) of the Income Tax Act and disputed demand raised u/s 156 of the Act, along with all consequent proceedings thereto.

The counsel for the petitioner contended that assessment order passed is jurisdictionally flawed and bad in law since it is violative of the mandatory and binding natural justice requirements stipulated in faceless assessment scheme and relevant CBDT instructions.

It was emphasized that no mandatory valid show cause notice as well as draft assessment order were issued before drawing an adverse inference against the petitioner-assessee qua stated addition of short-term capital loss of Rs 870,00,000 thus creating a colossal tax demand coupled with initiation of penalty u/s 270A (9) of the Act.

The Division Bench noted, “It is settled law that the Government is bound to follow the rules and standards they themselves had set on their pain of their action being invalidated.” 

Since in the present case no prior show cause notice as well as draft assessment order had been issued, there is a violation of principles of natural justice as well as mandatory procedure prescribed under the ‘Faceless Assessment Scheme’, added the Bench. 

The High Court said it is a well settled law that where there is violation of principles of natural justice, appeal is not an alternative effective remedy and a writ petition is maintainable. 

Therefore, the High Court set aside the assessment order passed u/s 143(3) the Act and disputed demand raised u/s 156 of the Act.

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