Faceless Assessment: Order Quashed for Non-Compliance with High Court Directions on Cross-Examination

Issue: Whether an assessment order passed in a faceless assessment regime, in “utter disregard” of explicit High Court directions to provide relied-upon documents, grant opportunity for cross-examination, and provide a fresh hearing, should be quashed solely on the ground of non-compliance with these directions, without delving into the merits of the assessment.

Facts:

For Assessment Year 2022-23, the assessee filed its return of income, which was selected for scrutiny.
The Assessing Officer (AO) issued a show cause notice in the form of a draft assessment order.
The assessee filed objections against this draft assessment order.
The High Court, by an earlier order, had specifically directed the AO to:
1. Provide the assessee all relied-upon documents (like replies received pursuant to notices and summons issued under Section 133(6) and other relevant documents of parties who did not reply to summons).
2. Provide an opportunity of cross-examination, if requested.
3. After giving an opportunity of hearing to the assessee, pass a fresh de novo assessment order in accordance with law.
However, the AO, in “utter disregard” of these High Court directions, passed an assessment order without providing an opportunity for cross-examination to the assessee.

Decision: The court held that the assessment order was required to be quashed and set aside solely on the ground of not complying with the directions issued by the High Court, without further going into the merits of the matter. Therefore, the matter was remanded to the Assessing Officer to comply with the directions issued by the High Court scrupulously and in letter and spirit.

Key Takeaways:

Mandatory Compliance with Court Orders: Disobedience of judicial directions, especially those concerning fundamental principles of natural justice like the right to cross-examination and opportunity of hearing, is a serious procedural irregularity.
Consequences of Non-Compliance: An assessment order passed in defiance of clear High Court directives is liable to be quashed ab initio, irrespective of the merits of the additions or disallowances made in the order.
Right to Cross-Examination: In an adversarial system, when adverse information (like third-party statements or non-replies to summons) is used against an assessee, the right to cross-examine the source of such information is a crucial aspect of natural justice.
Faceless Assessment and Natural Justice: While faceless assessment aims for efficiency, it cannot sacrifice fundamental principles of natural justice. The technology and processes must accommodate these rights.
Remand for Due Process: Instead of dismissing the case on merits, the court remanded the matter back to the AO, instructing them to strictly follow the previously issued directions, ensuring that the assessment is completed in accordance with law and principles of natural justice.
Disregard of Directions: The use of strong language like “utter disregard” highlights the court’s displeasure with the AO’s failure to follow its binding instructions.

HIGH COURT OF GUJARAT

Maa Padmavati Exports

Assessment Unit, Income-tax Department

BHARGAV D. KARIA and P. M. Raval, JJ.

R/SPECIAL CIVIL APPLICATION NO. 14049 of 2024

MAY 6, 2025

Jaimin A Gandhi for the Petitioner. Varun K.Patel for the Respondent.

ORDER

Bhargav D. Karia, J. – By this petition under Article 227 of the Constitution of India, the petitioner has prayed for the following reliefs.

“(A) The Hon’ble Court may be pleased to quash and set aside the assessment order dated 26.8.2024 (Annexure A) passed by the Respondent and the consequent demand as well as penalty notice.

(B) The Hon’ble Court may direct that in the remand proceedings, the assessment in the case of the petitioner may be conducted by a different assessing officer.

(C) The Hon’ble Court may restrain the Respondent from initiating any coercive action against the petitioner during the pendency of this petition.”

2. Brief facts of the case are that pursuant to the order passed by this Court, the matter was reconsidered in impugned assessment order dated 26.8.2024 passed by respondent No. 1 – Assessment Unit which is faceless entity.

3. The petitioner filed the return of income tax for the Assessment Year 2022-2023. Thereafter, the respondent Assessment Unit passed assessment order dated 20.3.2024 in violation of the principles of natural justice. The petitioner, therefore, challenged the said assessment order dated 20.3.2024 before this Court by filing Special Civil Application No.6918 of 2024.

4. By order dated 6.5.2024, this Court allowed the petition with the following observations and directions.

“[11] In view of the above facts emerging from the record, we are of the opinion that there is a clear variance between the show cause notice in form of a draft assessment order and the impugned assessment order passed by the Assessing Officer contrary to the scheme of the faceless assessment under Section 144B of the Act.

[12] It is not in dispute that the Assessing Officer did not supply copy of reply received pertaining to the pursuant to the notice issued under Section 133(6) of the Act. After issuance of the show cause notice in the form of draft assessment order, no any opportunity of crossexamination of the parties whose reply is considered to make addition under Section 68 of the Act was granted to the petitioner. This Court, in the case of Dineshkumar Chhaganbhai Nandani (supra) and in the case of Darshan Enterprise (supra) and in the case of Prakashchandra Chhotalal Shah (supra), in similar facts, after referring to the relevant provisions under Section 144B of the Act, allowed the petitions quashing and setting aside the assessment order and remitting the matter back to the Assessing Officer for de novo consideration.

[13] Considering the facts of the case, we are left with no other option but to quash and set aside the impugned assessment order and remit the entire matter to the Assessing Officer for de novo consideration and to pass a fresh assessment order after providing all the relied upon documents like the reply received pursuant to the notice and summons issued under Section 133(6) of the Act as well as the other relevant documents of the parties who did not reply to the summons providing opportunity of crossexamination, if requested, and after giving an opportunity of hearing to the petitioner, fresh de novo assessment order may be passed in accordance with law. Such exercise shall be completed within 12 weeks from the date of receipt of the copy of this order.”

5. The respondent Assessment Unit in utter disregard to the directions issued by this Court passed the impugned assessment order without providing an opportunity of cross examination to the petitioner by observing as under. :

“Secondly, regarding assessee’s claim for cross examination is refuted through various judicial rulings mentioned below-

(i) The right of cross examination is not an absolute right. (Nath International Sales v. UOI, AIR 1992 (Del) 295). The Hon’ble Supreme Court has also held that the right of hearing does not necessarily include right of cross examination. The right of cross examination must depend upon the circumstances of each case and also on the statute concerned (State of J&K v. Bakshi Gulam Mohammad AIR 1967 SC 122).

(ii) The question whether the assessee is entitled to cross examination is a question which may largely depends on the facts and circumstances of the case ( Shyamlal Biri Merchant v. UOI (1993) 68 ELT 548, 551(All.))

(iii) In the present case no such circumstances are warranted as discussed above. In this case the addition is not made merely on the basis of any statement of any person but addition is being made on the basis of independent enquiry carried out during assessment proceedings.

(iv) 36(Raj.) has held that “there is no provision for permitting the cross examination of the persons whose statements were recorded during survey.” (e) In CIT v. Metal Products of India (1984) 150 ITR 714 (P&H), it was held that the AO may gather information in any manner he likes, behind the back of the assessee and utilize the same against the assessee, even if it does not, in all respects satisfy the requirements of the Indian Evidence Act. What is necessary is that he should have material upon which to base the assessment; “material” as distinguished from “evidence” which includes direct and circumstantial evidence.”

6. It seems that the respondent Assessment Unit was annoyed by the directions issued by this Court and therefore, have tried to justify for refuting the claim of cross examination by the petitioner relying upon the decisions which are extracted as quoted above in the assessment order.

7. We are therefore of the opinion that only on this ground alone of not complying the directions issued by this Court, assessment order is required to be quashed and set aside without further going into the merits of the matter considering the request made by learned Senior Standing Counsel Mr.Varun Patel to remand the matter to the respondent to comply with the directions issued by this Court in order dated 6.5.2024.

8. Therefore, without going further into the merits of the case, the petition is disposed of. The impugned order dated 26.8.2024 (Annexure A) is hereby quashed and set aside. The matter is remanded to the respondent Assessing Officer to comply with the directions issued by this Court vide order dated 6.5.2024 in Special Civil Application No.6918 of 2024/Maa Padmavati Exports v. Income-tax Officer (Gujarat) scrupulously and in letter and spirit within a period of 12 weeks from the date of receipt of the copy of this order failing which this Court will be constrained to initiate the appropriate proceedings under the provisions of Contempt of Courts Act 1971.