No Draft Assessment Order prepared as contemplated u/s 144 B of Income Tax Act and copy of draft Assessment Order not furnished: Kerala HC sets aside Assessment Order [Read Order]

The Kerala High Court has set aside the assessment order as no draft assessment order was prepared as mandated under Section 144B of the Income Tax Act, 1961, and a copy of the draft assessment order was not provided.

A petitioner involved in the money lending business through various proprietorship concerns, with a focus on lending against gold ornaments, has faced challenges in the assessment year 2021-22. The petitioner, operating under licenses issued under the Kerala Money Lenders Act, 1958, reported a significant loss of Rs.7,68,97,170/- due to fraudulent activities by certain staff members who manipulated entries related to gold loans. A police case has been registered in connection with this fraud, currently under investigation.

The petitioner’s case underwent assessment under the National Faceless Assessment system, initiated with a true copy of notice issued by the respondent. However, the petitioner raises serious concerns over the procedure followed during the assessment, claiming a violation of Section 144B of the Income Tax Act, 1961.Section 144B (1) (xvi) of the Act outlines a specific procedure for faceless assessments, requiring the National Faceless Assessment Centre to convey the income or loss determination proposal to the assessment unit. The assessment unit, in turn, should prepare a draft order or assign the proposal to a review unit for automated review.

The counsels for the petitioner Aswin Gopakumar, Anwin Gopakumar , Adithya Venugopalan , Nikitha susan paulson , Mahesh Chandran ,Goutham Krishna and Avinash Kurungot asserted that the prescribed procedure was not adhered to in their case, as a true copy of the demand notice bearing DIN notice issued by the respondent  was issued without the preparation of a draft assessment order. Moreover, the counsels for the petitioner argued that the violation of the statutory procedure also results in a breach of natural justice principles, as they were not provided with a draft assessment order, denying them the opportunity to respond or request a personal hearing in case of proposed variations prejudicial to the petitioner.

The single bench of Justice T.R.Ravi observed that respondents are granted permission to issue new assessment orders, provided they adhere strictly to the procedures outlined in Section 144B of the Income Tax Act, 1961.

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