Introduction

The Delhi High Court, in its judgment dated January 14, 2022, delivered a pivotal ruling in the case of Bharat Aluminium Company Ltd. v. Union Of India And Others. This case centers around the procedural conduct of the Income Tax Department under the Faceless Assessment Scheme, particularly examining the mandatory nature of personal hearings. Bharat Aluminium Company Ltd., the petitioner, challenged the final assessment order and notice issued by the Income Tax Department for the Assessment Year 2018-19, contending that the authority acted arbitrarily and violated principles of natural justice by not providing a personal hearing despite the petitioner’s request.

Summary of the Judgment

The Delhi High Court set aside the impugned final assessment order and notice issued by the Income Tax Department, directing the Assessing Officer to re-initiate the assessment process in compliance with legal mandates. The Court found that the department had bypassed essential procedural requirements under Section 144B of the Income Tax Act, 1961, particularly the necessity of issuing a Show Cause Notice and granting a personal hearing when requested by the assessee. The judgment underscored that the absence of these steps amounted to a violative stance against the principles of natural justice, thereby rendering the assessment order invalid.

Analysis

Precedents Cited

The judgment extensively referenced several key cases that shape the interpretation of Section 144B and the principles of natural justice in tax assessments:

• Rani Promoter Pvt. Ltd. v. Additional Commissioner of Income Tax [2021 (7) TMI 919] - Affirmed that the issuance of a Show Cause Notice is a mandatory requirement under Section 144B(1)(xvi) and that any assessment order passed without it is legally untenable.
• Toplight Corporate Management (P.) Ltd. v. National Faceless Assessment Centre Delhi [(2021) 128 taxmann.com 221 (Delhi)] - Reinforced the necessity of adhering to procedural requirements, emphasizing that omission of the Show Cause Notice invalidates the assessment process.
• Sanjay Aggarwal v. National Faceless Assessment Centre Delhi . [2021 (6) TMI 336] and Umkal Healthcare (P.) Ltd. v. NFAC [(2021) 131 taxmann.com 325 (Delhi)] - Highlighted the imperative of granting personal hearings upon request, linking it to the broader framework of natural justice.
• Piramal Enterprises Limited v. Additional/Joint/Deputy Assistant Commissioner of Income-tax/Income-tax Officer, 2021 SCC OnLine Bom 1534 - Emphasized that principles of natural justice are integral to Section 144B and that the absence of a personal hearing constitutes a violation of these principles.
• C.B. Gautam v. Union of India, (1993) 1 SCC 78 and Sahara India (Firm) v. Commissioner of Income-tax, Central-I, [2008] 169 Taxman 328 (SC) - Reinforced the necessity of providing an opportunity to be heard before making decisions that have civil consequences, even in the absence of explicit statutory requirements.

Legal Reasoning

The Court’s reasoning was anchored in the interpretation of Section 144B of the Income Tax Act, which governs the Faceless Assessment Scheme. The petitioner argued that the Assessing Officer failed to issue a Show Cause Notice as required under Section 144B(1)(xvi) and neglected to consider the petitioner’s reply submitted within the stipulated timeframe due to technical glitches. Furthermore, upon the petitioner’s request under Section 144B(7), which allows for a personal hearing, the Revenue did not grant such an opportunity.

The Court highlighted that the Faceless Assessment Scheme does not negate the requirement for personal hearings. It interpreted the discretionary "may" in Section 144B(7)(viii) as a mandatory obligation when the decision at hand has civil implications. By referencing the principle that whenever a statute does not explicitly exclude the application of natural justice, such principles must be inherently applied, the Court concluded that the denial of a personal hearing infringed upon the principles of natural justice.

Additionally, the Court dismissed the Revenue’s argument that granting personal hearings would undermine the Faceless Assessment Scheme. It reasoned that procedural fairness and the right to be heard are paramount and can coexist with the anonymity features of the faceless system.

Impact

This landmark judgment establishes a clear precedent that under the Faceless Assessment Scheme, the Income Tax Department must adhere to procedural fairness, including issuing Show Cause Notices and granting personal hearings upon request. This decision reinforces the sanctity of natural justice within the tax assessment process, ensuring that taxpayers are afforded adequate opportunities to present their cases. Future cases will likely reference this judgment to challenge any deviations from prescribed procedures under Section 144B, thereby promoting greater accountability and fairness in tax assessments.

Complex Concepts Simplified

Faceless Assessment Scheme (Section 144B)

The Faceless Assessment Scheme, introduced under Section 144B of the Income Tax Act, aims to eliminate human interface between the taxpayer and the Income Tax Department. Assessments are conducted electronically, ensuring transparency and reducing opportunities for corruption or bias.

Show Cause Notice

A Show Cause Notice is a formal communication from the tax authorities to the taxpayer, requesting them to explain certain discrepancies or to justify their tax filings. It is a preliminary step before any additions or penalties are imposed.

Principles of Natural Justice

These principles are fundamental to fair administrative and judicial proceedings. They generally encompass the right to a fair hearing (audi alteram partem) and the rule against bias (nemo judex in causa sua). In the context of tax assessments, it ensures that taxpayers have the opportunity to present their case before any adverse decisions are made.

Personal Hearing

A personal hearing refers to an opportunity for the taxpayer to orally present their case to the assessing authority. This can be done via video conferencing, especially under the Faceless Assessment Scheme, ensuring that the taxpayer's concerns are directly addressed.

Conclusion

The Delhi High Court's judgment in Bharat Aluminium Company Ltd. v. Union Of India And Others serves as a critical affirmation of the principles of natural justice within the framework of the Faceless Assessment Scheme. By mandating the issuance of Show Cause Notices and the provision of personal hearings upon request, the Court has reinforced the necessity for procedural fairness in tax assessments. This ruling not only ensures greater transparency and accountability within the Income Tax Department but also empowers taxpayers by safeguarding their rights to a fair hearing. Moving forward, this judgment is poised to influence future tax assessment procedures, ensuring that the spirit of justice prevails even within automated and faceless systems.