HC Quashes Faceless Assessment Order for Completely Ignoring Taxpayer’s Reply.
Issue
Is a final assessment order passed under the faceless assessment scheme legally sustainable if the Assessing Officer completely fails to consider the taxpayer’s detailed reply to the show-cause notice, which was duly filed and available on record?
Facts
- The assessee’s income tax return for the Assessment Year 2023-24 was selected for scrutiny.
- After the initial exchange of notices and replies, the department issued a show-cause notice-cum-draft assessment order.
- In response, the assessee filed a comprehensive reply with supporting documents, addressing the points raised in the draft order.
- The Assessing Officer (AO) proceeded to pass the final assessment order under Section 143(3) read with Section 144B.
- This final order was passed without any consideration or even mention of the detailed reply that the assessee had filed.
Decision
- The High Court quashed and set aside the final assessment order.
- It held that the order was passed in clear violation of the principles of natural justice, as the Assessing Officer had a duty to consider the reply submitted by the assessee.
- The matter was remanded back to the Assessing Officer with a specific direction to pass a fresh order after properly considering the assessee’s submissions that were already on record.
Key Takeaways
- Ignoring a Reply is a Fatal Flaw: The failure of an adjudicating authority to consider a taxpayer’s reply is not a mere procedural irregularity; it is a fundamental breach of natural justice that vitiates the entire order.
- Duty to Consider is Absolute: An Assessing Officer’s duty is not just to receive a reply but to actively apply their mind to the contentions and evidence submitted by the assessee before arriving at a final decision.
- Faceless Assessment is Not an Exception to Natural Justice: The principles of natural justice, particularly the right to be heard (audi alteram partem), are as applicable to the faceless assessment regime as they are to traditional assessments. The automated process does not give authorities a license to ignore a taxpayer’s defense.
- Remand for a Fair Hearing: In such cases, the typical remedy is not to decide the tax dispute on merits but to remand the case back to the authority to correct the procedural error and pass a fresh order after giving a fair hearing.
HIGH COURT OF GUJARAT
Vijay Thakkar
v.
National Faceless Assessment Centre
BHARGAV D. KARIA and Pranav Trivedi, JJ.
R/SPECIAL CIVIL APPL. NO. 4462 of 2025
SEPTEMBER 30, 2025
Ketan H Shah and Aman K Shah for the Petitioner. Ms Maithili D Mehta, Sr. Standing Counsel for the Respondent.
JUDGMENT
Pranav Trivedi, J.- Heard Mr.Ketan Shah, learned counsel for the petitioner and Ms.Maithili Mehta, learned Senior Standing Counsel for the respondent.
2 Rule returnable forthwith. Ms.Maithili Mehta, learned Senior Standing Counsel, waives service of notice of rule on behalf of the respondent.
3 The present petition is preferred praying for the following reliefs:
| “a) | quash and set aside the impugned order dated 11.03.2025 at Annexure-D to this petition and remand and direct the Respondents to pass fresh necessary order u/s 143(3) after giving opportunity of hearing to the Petitioner assessee and after considering all the replies and evidences of the assessee. |
| (b) | pending the admission, hearing and final disposal of this petition, to stay the implementation and operation of the order dated 11.03.2025 and recovery of demand u/s 156 for the amount of Rs.3,87,96,693/- as per Annexure-D; |
| (c) | any other and further relief deemed just and proper be granted in the interest of justice; |
| (d) | to provide for the cost of this petition.” |
4 The brief facts leading to filing of this writ petition are as under:
4.1 The petitioner is an individual Company having income from business and profession as well as rental income. For the Assessment Year 2023-24, the petitioner filed original return of income on 30.12.2023 declaring total income of Rs.18,58,300/-.
4.2 The case of the petitioner was selected for scrutiny assessment and a notice came to be issued under Sec.144B of the Income-Tax Act, 1961 (hereinafter referred to as ‘the Act’ for short) on 27.06.2024 for completion of assessment in faceless assessment. Notice under Sec.143(2) was also issued on the same date.
4.3 It is the case of the petitioner that on 10.07.2024, notice was issued under Sec.142(1) requesting the assessee to provide details such as nature of business, Profit & Loss Account, Balance Sheet, details of bank accounts etc., as enumerated in the notice. In response to the same, the petitioner filed his reply on 06.10.2024 along with various documents. Thereafter, again a notice under Sec.142(1) was issued on 27.01.2025 calling upon the petitioner to explain the source of investment in purchase of immovable property as well as source of other investments.
4.4 Thereafter, a show-cause notice-cum-Draft Assessment Order dated 21.02.2025 was issued to the petitioner as to why the proposed variation of income should not be made and added to the income of the petitioner.
4.5 Reply to such notice was filed by the petitioner on 10.03.2025 along with ten enclosures. It is the case of the petitioner that in utter disregard of all the voluminous replies and evidences filed by the petitioner, the respondent passed the Assessment Order dated 11.03.2025 under Sec.143(3) read with Sec.144B of the Act.
4.6 It is the case of the petitioner that the impugned order categorically observed that no reply to the show-cause notice was given which was factually incorrect since the petitioner has asked adjournment on 28.02.2025 as well as given reply on 10.03.2025 along with ten enclosures.
4.7 It is the case of the petitioner that the impugned order is passed without considering and making factual incorrect statement with regard to reply dated 10.03.2025 and 11.03.2025.
5 In view of the facts mentioned hereinabove, learned advocate Mr.Ketan Shah for the petitioner made the following submissions:
5.1 That the impugned order dated 11.03.2025 suffers from illegality as it is passed in violation of principles of natural justice, insomuch as, the material evidence regarding the proposed evidences, more specifically the replies dated 10.03.2025 and 11.03.2025 were never considered by the respondent before passing the Assessment Order which caused grave prejudice to the petitioner- assessee.
5.2 That in view of the voluminous evidences filed by the assessee – petitioner with regard to each and every addition made in the order, the additions made ought to have been deleted, which is not so done by the Assessing Officer, which shows non-applicability of mind by the respondent – Assessing Officer. Thus, as the order is suffering from the vice of illegality, the same needs to be quashed.
5.3 It was further submitted that in view of settled legal proposition of law, a reasoned Assessment Order needs to be passed by the Assessing Officer only after due consideration of evidences and replies filed by the assessee and also giving the reasons for non acceptance of replies by the assessee. In the present case, since the Assessing Officer has failed in passing a reasoned Assessment Order as per settled legal proposition, the same is violative of principles of natural justice and hence is required to be quashed.
6 Per Contra, Ms. Maithili Mehta learned Senior Standing Counsel, relying on the affidavit-in-reply and in particular para 11 and 15 has conceded to the fact that the Assessing Officer being aware of the facts of the reply dated 10.03.2025, the same was not considered and other statutory formality for passing the Assessment Order in the subject case had been completed. For ready reference, para 15 of the reply given by the respondent is produced herein below:
“15. I state that in view of the mentioned above despite the then Assessing Officer being aware of the facts that the assessee had submitted a reply on 10.03.2025, the same was not considered and was delayed and the other statutory formalities for passing the assessment order in the subject case had been completed.”
7 In view of the fact that the learned Senior Standing Counsel for the department could not controvert that the reply even though very much available on record was not considered by the Assessing Officer, the present petition is required to be allowed and is hereby allowed. The impugned order dated 11.03.2025 is hereby quashed and set aside and the matter is remanded to the respondent to pass a fresh order after considering the replies dated 10.03.2025 and 11.03.2025.
8.1 Such exercise shall be completed within twelve (12) weeks from the date of receipt of a copy of this order.
9 The petition is accordingly disposed of. Notice is discharged.