In a recent ruling the Kerala High Court has held that non-serving of a copy of the draft assessment order to a person who is not an “eligible assessee” under Section 144B of the Income Tax Act, 1961, will not vitiate the assessment order.
Sujatha Revikumar, the respondent – writ petitioner is stated to be engaged in the business of money lending. During the assessment year 2021-2022, the petitioner had written off a sum of Rs.7,68,97,170/- on account of an alleged fraud committed by some staff, who had apparently made false entries regarding gold loans. The said aspect came to be noticed by the Income Tax Department and the case of the petitioner was selected for the purpose of a faceless assessment as evident from notice. The proceedings thereafter culminated in the passing of order, by which the loss that was determined by the petitioner for the said year was reduced for the purpose of income tax. Penalty proceedings were also separately initiated under Section 270A of the Income Tax Act, 1961 (‘the Act’ ) for the alleged under-reporting of income.
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In the writ petition preferred by the respondent impugning order of assessment, the respondent writ petitioner premised its challenge primarily on the contention that in terms of Section 144B(1)(xvi) of the Act, the assessee was required to be served with a copy of the draft assessment order on the basis of which the show cause notice contemplated under the said provision was issued to him. It was the case of the respondent – assessee that in as much as the draft assessment order had not been served on him along with the show cause notice, the entire proceedings for assessment initiated through notice, and which culminated in order, had to be seen as vitiated on account of a violation of the principles of natural justice.
The contention of the respondent – assessee found favour with the Single Judge, who placed reliance on the judgments
in National Faceless Assessment Centre and Others v. Automotive Manufacturers (P) Ltd. [2023] and Ellathkandi Khaleel Ahammed v. Union of India and Others [2022 ], to find that the non-furnishing of the draft assessment order to the respondent – assessee was a fatal mistake that went on to vitiate the assessment order ultimately passed against the assessee. The Single Judge therefore set aside the order after reserving liberty to the appellant herein to issue fresh assessment orders after complying with the procedures prescribed under Section 144B of the Act, as understood in the impugned judgment.
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Sri.P.G.Jayashankar Standing Counsel for the Income Tax Department submitted that the express provisions of Section 144B(1)(xvi) do not contemplate the service of a draft assessment order on an assessee against whom proceedings for assessment have been initiated in terms of Section 144B. He refers to Clause xxiii of Section 144B(1) as it then stood, to point out that the requirement of serving a draft assessment order or the final draft assessment order along with the show cause notice is prescribed only in relation to ‘eligible assessees’ as defined under the Act and since, in the instant case, the respondent – assessee was admittedly not an eligible assessee, a procedure of furnishing him with the draft assessment order was not required to be complied with.
While there is a requirement under Section 144B to issue a copy of the draft assessment order or the finalized draft assessment order along with the show cause notice proposing a variation, to an ‘eligible assessee’, the procedure prescribed in relation to an ordinary assessee as contemplated in Clause xvi of Section 144B(1) does not require the furnishing of a draft assessment order along with the show cause notice that is issued to such assessee.
In the case of an ordinary assessee, the draft assessment order has to be seen as merely an internal document that is sent from the assessment unit which has been assigned with the task of assessment and the National Faceless Assessment Centre concerned. Thus, we cannot sustain the impugned judgment of the Single Judge which takes a view contrary to the express provisions of the statute while finding that there was a violation of the principles of natural justice that vitiated the assessment completed against the respondent – assessee.
The court observed that the decisions relied upon in the impugned judgment also do not provide any clarity as regards whether or not the assessee in those cases was an ‘eligible assessee’ or otherwise. The division bench of Dr. Justice A.K. Jayasankaran Nambiar and Justice Easwaran S are inclined to presume that the assessees in those cases were eligible assessees, since the statutory provisions clearly bring out a distinction between the two. The court allowed the writ appeal by setting aside the impugned judgment of the Single Judge.
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