The High Court of Gujarat, quashed an income tax assessment order after finding that the Income Tax Department failed to follow the mandatory Standard Operating Procedure (SOP) in faceless proceedings for a non-responsive Permanent Account Number (PAN) holder

Hiraben Pragjibhai Tala, petitioner-assessee, held PAN ABJPT4267C and filed her income tax return for AY 2006-07 on 26.06.2006, declaring ₹1,13,020 as taxable income, ₹86,800 as agricultural income, a business loss of ₹1,22,707, and Long Term Capital Gain of ₹2,35,727. The assessment was completed under Section 143(3) on 08.12.2008, determining total income at ₹30,01,806.

She challenged the assessment before the Commissioner of Income Tax (Appeals)[CIT(A)], who confirmed the additions. On further appeal, the Income Tax Appellate Tribunal (ITAT) Rajkot partly allowed her case on 13.09.2019 and remanded it to the Assessing Officer for fresh adjudication.

She submitted her response, but due to the COVID-19 pandemic, proceedings were delayed. Later, the Faceless Assessing Officer issued a draft assessment order and demand notice dated 20.09.2021 without granting a hearing. This was challenged in Special Civil Application No. 18132 of 2021.

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The High Court quashed the order on 14.06.2022 for violating natural justice and directed fresh assessment within 12 weeks after giving a hearing. The petitioner claimed she received no notice thereafter. In December 2022, her husband visited the tax office and learned that a fresh order had already been passed on 11.10.2022, which is now under challenge in this writ petition.

Justice Bhargav D.Karia and Justice Pranav Trivedi considered the arguments and reviewed the documents on record. The main issue was whether the Income Tax Department followed the proper procedure for serving notice under Section 142(1) as per the Faceless Assessment Scheme under Section 144B.

The Court referred to the SOP issued by the Ministry of Finance. As per the SOP, if a taxpayer does not respond to a notice under Section 142(1), the department must send a physical letter by speed post to the latest known address and also send an SMS. These actions must be recorded in the system.

The bench found that this procedure was not followed. The department argued that the petitioner had earlier been unresponsive, so further communication was not required. The Court rejected this argument and held that the SOP made it mandatory to send physical communication if there was no response.

Since this step was missed, the Court quashed the assessment order dated 11.10.2022 and sent the matter back to the Faceless Assessment Authority for fresh action after following due procedure. The writ petition was allowed without any order on costs.

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