Assessment Order Upheld; Sequence of Notices Immaterial in Faceless Assessment under sections 142(1) and 143(2)

The sequence of notices under sections 142(1) and 143(2) is not material.

Issue: Whether an assessment order under Section 143(3) read with Section 144B of the Income-tax Act, 1961, is valid when a notice under Section 142(1) was issued after a notice under Section 143(2), and whether a draft assessment order is required in a faceless assessment that is not a best judgment assessment.

Facts:

The assessee challenged the assessment order, arguing that a notice under Section 142(1) could not have been issued after a notice under Section 143(2).
The assessment was completed under Section 143(3) read with Section 144B (faceless assessment).
The assessee complied with both notices.

Decision:

The court held that the sequence of notices does not matter, as the power to issue notices under Section 143(2) and Section 142(1) is for the purpose of making an assessment.
The court also held that since the assessee complied with both notices, the allegation of not having had a full opportunity was without basis.
The court further held that the procedure under Section 144B for faceless assessment was followed, and since it was not a best judgment assessment, there was no requirement to furnish a draft assessment order to the National e-Assessment Centre.

Key Takeaways:

Sequence of Notices: The sequence of notices under Section 143(2) and Section 142(1) does not invalidate an assessment order, as long as both notices are complied with.
Purpose of Notices: The purpose of both notices is to gather information and facilitate the assessment process.
Compliance with Notices: Compliance with both notices indicates that the assessee was given a fair opportunity to participate in the assessment process.
Faceless Assessment (Section 144B): The procedure under Section 144B for faceless assessment was followed.
Draft Assessment Order: A draft assessment order is not required in faceless assessments under Section 144B unless it is a best judgment assessment.
Substantive Compliance: Courts prioritize substantive compliance over procedural technicalities, especially in faceless assessments.
The court is taking a practical view of the assessment process, and not invalidating it due to minor procedural issues.

HIGH COURT OF ORISSA

Hexa Steel and Power (P.) Ltd.

National Faceless Assessment Centre

Arindam Sinha, Actg. J,
and M.S. Sahoo, J.

W.P.(C) No. 2632 of 2023

JANUARY 30, 2025

A. Patnaik, Adv. for the Petitioner. A. Kedia, Jr. Standing Counsel for the Respondent.

JUDGMENT

Arindam Sinha, ACJ.- Mr. Patnaik, learned advocate appears on behalf of petitioner-assessee and submits, under challenge is assessment order dated 28^th December, 2022 pertaining to assessment year 2021-22. He has two points of challenge. Firstly, draft assessment order, preparation of it mandated under section 144B in Income Tax Act, 1961, was not made available to his client and secondly, after issuance of notice under section 143(2) there could not have been issued notice under section 142(1).

2. His client had duly filed return under section 139. The return was allegedly picked up for scrutiny assessment. Notice under section 143(2) was issued. The provision allows for the prescribed income tax authority, in this case, the Assessing Officer (AO), if considers necessary to ensure that the assessee has not, inter alia, understated the income, to produce evidence in support of the return filed. His client complied. Subsequent thereto another notice was issued, this time under section 142(1) purporting to make inquiry. His client though again complied but inquiry could not have been resorted to following notice issued under section 143(2), on its return filed. Furthermore, in doing the assessment, section 144B was also resorted to. As such by notification dated 17^th February, 2021, substituted sub- paragraph (1) in paragraph 5 of the scheme of Faceless Assessment Scheme, 2019 required furnishing copy of draft assessment before the assessment was finalized. It cannot be disputed that draft assessment was not made available to his client. Mr. Patnaik submits still further, there has been violation of principles of natural justice inasmuch as sufficient opportunity was not given to his client. He seeks interference.

3. Mr. Kedia, learned advocate, Junior Standing Counsel appears on behalf of revenue and submits, there is no mandate under provisions in section 144B nor in the Faceless Assessment Scheme, 2019 nor amendments made thereto in substituting subparagraph (1) in paragraph 5 of the scheme requiring a draft assessment order to be sent to the assessee. In any event, the assessment was not on best judgment but based on the evidence relied upon by the AO. So far as issuing notice under section 142(1) subsequent to notice already issued under section 143(2) is concerned, revenue has filed affidavit stating that there is no sequential mandate and the provisions can be relied upon as and when occasion arises. No interference is warranted. He also refers to statements made in the counter to demonstrate, opportunities were duly provided to petitioner including video conferencing facility. Petitioner’s allegation of violation of principles of natural justice is baseless. The writ petition be dismissed.

4. First and foremost, it appears from impugned assessment order that the assessment was made invoking provision in section 143(3) read with section 144B on the assessee having complied with both notices, firstly issued under section 143(2) and then under section 142(1). We accept contention of revenue that the sequence does not matter inasmuch as power to issue notice provided for in section 143(2) and section 142(1) is for purpose of making the assessment. There is no dispute that petitioner’s return was picked up for scrutiny assessment. The assessment had to be done. Commencement of the exercise of assessment was by issuance of section 143(2) and then further enquiry felt necessary for purpose of the assessment and therefore second notice under section 142(1). Petitioner having complied with both notices, the allegation of not having had full opportunity, particularly in view of statements made in the counter, are without basis.

5. As aforesaid, facts in the case are that the return filed was picked up for scrutiny assessment. Procedure provided for in section 144B on faceless assessment was adopted. It not being a case of best judgment assessment there was no draft assessment order made and thus no question of furnishing it to the National e-Assessment Centre arose.

6. We have not been able to find any merit in the contentions raised on behalf of petitioner. As such the writ petition is dismissed on the interim order vacated. Mr. Patnaik submits, his client would want to prefer statutory appeal. In doing so it may seek exclusion of time taken for adjudication of the writ petition.