In Faceless assessment grant of opportunity of personal hearing not optional for AO

In Faceless assessment grant of opportunity of personal hearing is not optional at discretion of the Assessing Officer its waiver is an exception to be exercised by the assessee – Allahabad High Court

In a recent judgment, Hon’ble Allahabad High Court has held that in Faceless assessment grant of opportunity of personal hearing is not optional at discretion of the Assessing Officer, its waiver is an exception to be exercised by the assessee only.

AABCAUS Case Law Citation:
ABCAUS 3995 (2024) (05) HC

In the instant case, the Petitioner assessee had filed a Writ Petition before Hon’ble Allahabad High Court praying quashing of the impugned ex parte scrutiny assessment order passed by National Faceless Assessment Centre (NFAC) u/s 143(3) read with Section 144B of the Income Tax Act, 1961 (the Act) for the Assessment Year 2022-23.

The case of the Petitioner was that the impugned assessment order had been passed by the NFAC without considering that request for personal hearing.

The Revenue opposed the Writ on the ground of availability of statutory alternative remedy of appeal. However, the Petitioner met the opposition on the strength of his submission that ex parte assessment order has been passed practically without allowing for any opportunity of hearing to the petitioner less so reasonable opportunity of hearing. Neither the petitioner was given enough time to furnish its written reply to the shown-cause notice nor it was granted any real opportunity to be heard during assessment proceedings.

The Petitioner submitted that the first notice for assessment was issued to the petitioner through e-mail mode granting only a short time of four days for compliance. An adjournment application was moved on the very next date fixed for compliance . On that application, the Assessing Officer fixed the next/second and the final date of hearing on Sunday. It is in such circumstances that the Assessing Officer passed the impugned assessment order without allowing for any real opportunity of hearing to the petitioner to participate in the assessment proceedings.

In Faceless assessment grant of opportunity of personal hearing is not optional at discretion of AO

The Hon’ble High Court further observed that Section 144B of the Act [by virtue of sub-Section 6(vii) and (viii)] mandates opportunity of hearing to be given to the petitioner upon show-cause notice issued to show-cause why assessment may not be completed as proposed. Further, if at the time of submission of his reply to the show-cause notice, the assessee “requests” for opportunity of personal hearing, the same is necessary to be provided in terms of Section 144B(6)(viii). Reading of the two provisions does not suggest that grant of opportunity of personal hearing is optional at the discretion of the Assessing Officer. On the contrary in the context of rights in dispute before the Assessing Officer and under the Scheme of the Act, providing for opportunity of personal hearing appears to be the Rule and its waiver an exception to be exercised by the assessee. Wherever the assessee makes a specific request in terms of Section 144B(vii), that would be enforced on the Assessing Authority through National Faceless Assessment Centre in accordance with Section 144B(6)(viii). However, the provision cannot be read to mean that opportunity of personal hearing may be granted only where the assessee specifically requests for the same.

The Hon’ble High Court further observed that there is no warrant to interpret that the processual law prescribes that opportunity of personal hearing may not be granted by the Assessing Authority unless specifically requested for by the petitioner, in writing. To do that would be to give meaning to the word “request” used under Section 144B(6)(vii) and (viii), larger and much wider than intended by the legislature. Under the general Scheme of the Act, assessment orders are to be passed after giving opportunity to the assessee to present his case.

The stand of the Revenue was that the opportunity for personal hearing is not inherent in the right to participate in the assessment proceedings. The assessee may participate in the assessment proceedings by furnishing his written reply. If however he seeks to avail opportunity of personal hearing, he may necessarily make a specific request, in that regard.

By merely submitting written explanations, facts and law may not become clear, on their own

The Hon’ble High Court rejected the above contention of the Revenue and observed that such arguments is never acceptable. Assessment proceedings by very nature, often involve disputed question of facts and law. By merely submitting written explanations, facts and law may not become clear, on their own. Both with respect to computation of taxable receipts as also with respect to expenditure incurred and allowances and exemptions claimed, facts and explanations thereto are not only required to be pleaded and noted but are necessary to be discussed. It is not uncommon that in the course of a judicial or quasi judicial proceeding the written document may be read in more than one way. That is also true of all explanations and replies. Also, language and writing are a mode of communication. They vary from person to person. Often same or similar thoughts are expressed differently by different persons depending upon their own skill and preferred use of expressions and method of writing. Therefore, what may be intended to be communicated by an assessee by submitting his written reply, may be received differently by the Assessing Officer on a simple ex parte reading of the same.

The Hon’ble High Court opined that for the purpose of an effective discussion to arise and a reasoned conclusion to be drawn thereafter by the Assessing Officer, oral hearing remains an important and near about mandatory requirement to be fulfilled to ensure both, the requirement to pass a just and proper judicial or quasi judicial order and also to preserve the faith in the adjudicatory authorities.

If assessee is to be taxed at a rate or at income higher than he has returned, the reasons may not be drawn ex parte

he Hon’ble High Court stated that if the assessee is to be taxed at a rate or at income higher than he has returned, he deserves to know the reasons for the same. The reasons may not be drawn ex parte i.e. on the strength of an ex parte opinion of the Assessing Officer. Rather, there must be recorded reasons to deal with the explanation that the assessee may have furnished to the tentative opinion of the Assessing Officer. Only after such reasons are drawn and recorded in the assessment order, the assessee may have opportunity to know the mind of the Assessing Officer. He may then make an informed decision to either accept the reasoning and pay up the tax or approach the appeal forum.

The Hon’ble High Court further observed that in the absence of power of First Appellate Authority to remit the matter to the assessing authority to make a fresh assessment, in the case of an ex parte order wrongly drawn on ex parte basis, the appeal power would remain seriously restricted. The appeal authority would be forced to entertain the appeal on all merit issues and exercise the powers of the Assessing Officer. While it is not in doubt that the appeal authority has all powers of Assessing Officer, at the same time, it is not the Scheme of the Act to require the job of the Assessing Authority to be routinely performed by the First Appeal Authority. If the opportunity of personal hearing is to be declined by the Assessing Officer by way of a normal practice, we foresee such situations are bound to arise in the normal course of things. In any case, the assessee would have lost one opportunity and tier of appeal, for no fault on its part

AO to necessarily fix a date for personal hearing where explanation of assessee towards proposed variations is not acceptable.

The Hon’ble High Court opined that the word “request” used under Section 144B(6) (vii) and (viii) only imply, where an assessee may furnish his written reply to the show-cause notice but not opt to avail opportunity of personal hearing, it may not be mandatory for the Assessing Officer to grant such opportunity of personal hearing if he intends to accept the explanation furnished. He may pass appropriate ex parte order accepting the explanation furnished by the assessee. If however, on reading the explanation furnished, the Assessing Officer maintains his tentative opinion to pass the assessment order as proposed, that may be adverse to the assessee, he would necessarily fix a date for personal hearing and communicate the same to the assessee, through electronic mode (as provided under the Act). Thereafter, it would be for the assessee to avail that opportunity. If the assessee fails to avail that opportunity, the Assessing Officer may proceed in accordance with law

In the instant case, the Hon’ble High Court observed that the the Assessing Officer had entertained the adjournment application and fixed the very next date which was Sunday. Therefore, it was obligatory without fail for the Assessing Officer to have fixed another date before he may have proceeded to pass the final order.

Accordingly, the Hon’ble High Court set aside the assessment order. It was directed that the petitioner may treat that order as final show-cause notice and submit its reply thereto within a period of one week. Further, if the Assessing Officer is inclined to accept the explanation furnished by the assessee, in entirety, he may pass the consequential order without fixing any further date for hearing as the petitioner has not “requested” for the same. If however, he proposes to reject the explanation furnished by the petitioner, he would necessarily fix a date for hearing with at least 15 days prior notice. It may be communicated through prescribed mode.

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