Faceless Assessment Set Aside: Insufficient Time for Reply and Violation of Natural Justice

Faceless Assessment Set Aside: Insufficient Time for Reply and Violation of Natural Justice

Issue:

Whether a Faceless Assessment order raising a demand is valid if the assessee was granted insufficient time (one day) to upload voluminous evidence, contrary to the Standard Operating Procedure (SOP) which stipulates a seven-day response time, thereby constituting a flagrant violation of principles of natural justice.

Facts:

For the assessment year 2020-21, the assessee’s case was selected for reassessment under Section 147 of the Income-tax Act, 1961. During the course of these faceless assessment proceedings, the Faceless Assessment Unit instructed the assessee to upload certain evidence. However, the assessee was granted barely one day (show cause notice issued on March 7, 2025, with a due date of submission of reply on March 9, 2025) for compliance, which was considered insufficient for furnishing voluminous documents. Despite this, the assessment was framed, and a demand was raised.

Decision:

Yes, the court held that the issuance of a show cause notice on March 7, 2025, fixing the due date for submission of reply on March 9, 2025, was contrary to the Standard Operating Procedure which stipulates a response time of seven days. Therefore, there had been a flagrant violation of the principles of natural justice. Since inadequate time was granted to the assessee to furnish voluminous documents, the assessment order was set aside, and the matter was remitted for fresh adjudication.

Key Takeaways:

• Adherence to Standard Operating Procedures (SOPs): Tax authorities, even in a faceless environment, are bound by their own Standard Operating Procedures. Granting response times significantly shorter than the stipulated period in SOPs constitutes a procedural irregularity.
• Principles of Natural Justice: The cornerstone of any fair assessment process is the principle of natural justice, specifically the right to audi alteram partem (hear the other side) and the right to a reasonable opportunity of being heard. Granting only one day to furnish voluminous documents is a clear violation of this principle.
• Reasonable Opportunity: A “reasonable opportunity” means giving the assessee sufficient time to prepare and present their case, especially when voluminous documents or complex explanations are required. One day is almost never considered reasonable for such compliance.
• Consequence of Violation: A “flagrant violation” of natural justice renders the resulting assessment order liable to be set aside.
• Remand for Fresh Adjudication: When an assessment order is set aside due to procedural flaws and denial of natural justice, the matter is typically remanded back to the assessing authority for fresh adjudication, ensuring that the assessee is given a proper and fair opportunity to present their case.
• Faceless Assessment Challenges: This case highlights a common challenge in the faceless assessment regime where the efficiency goals must be balanced with the fundamental rights of assessees to a fair hearing.