Non-Adherence of SCN under Section 144B invalidates Faceless Assessment

In Piramal Enterprises Limited v. Additional/Joint/Deputy/Assistant Commissioner of Income-tax/Income-tax Officer National e-Assessment Centre and Others [Writ Petition (L) No .11040 OF 2021 dated July 30, 2021], Piramal Enterprises Limited ("the Petitioner") has filed the current petition being aggrieved by the Draft Assessment Order dated April 22, 2021 under Faceless Assessment System/E- Assessment.

The Petitioner received a draft assessment order under section 144C(1) read with 143(3) of the Income Tax Act, 1961 ("the IT Act") disallowing sum of Rs.167.57 crore under section 14A of the IT Act,. The order rejected the submissions of the petitioner stating that burden to reconcile the data with the service tax returns was on the petitioner and holding that request for further time to be given for reconciliation is not justifiable.

The Revenue contended that there was a substantial difference between the value of gross receipts from services shown in service tax return received from Central Board of Excise and Customs ("CBEC") and values disclosed in income tax return which are significantly less in income tax return. While the Petitioner was asked to reconcile the difference between the two, it was expected that the Petitioner would reconcile figures with its own books of accounts, the Petitioner has failed to do the same.

The Hon'ble Bombay High Court after analyzing the provisions of Section 144B of the IT Act, observed, the "Legislature is not unwary of situations arising, requiring personal hearing and oral submissions and thus, has provided for the same under the faceless assessment scheme under section 144B. It emerges that where response is given by the assessee to show-cause notice, the process under sub-section (7) would follow."

Held that assessment made under Section 143(3) of the IT Act vide Order dated April 22, 2021 was non est u/s 144B(9) of the IT Act because it did not adhere with the procedure laid down under Section 144B(1) and under Section 144B(7)(vii) of the IT Act. Also added that the principle of natural justice firmly runs through the fabric of section 144B(1) of the IT Act.