The Department says it issued a draft assessment order, but nothing appeared on the portal. Who has to prove service?
The Department does. Where the Revenue claimed a draft assessment order had been placed and served but nothing was traceable on the portal, the Gujarat High Court quashed the assessment. Every step of s.144B has to be treated with the same seriousness, because s.144B(9), as it then stood and before its retrospective omission, made a non-compliant assessment non est.
Decided by the High Court (Sonia Gokani J and Rajendra M. Sareen J) on 2021-10-05, reported as R/Special Civil Application No. 7662 of 2021 (Gujarat High Court). It bears on section 144B, section 143(3), section 142(1), section 156 of the Income Tax Act 1961, in Faceless Assessment & Appeals and Assessment & Scrutiny matters.
Most faceless disputes turn on a factual question - was the draft order actually served - and this judgment shows how that question is decided. If the Department asserts service, the assessee's answer is the portal record, and an assertion that cannot be matched by the portal will not carry the day.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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For assessment year 2018-19 the petitioner filed a return on 20 October 2018 showing a loss of about Rs. 16.34 crore. The case was picked up for scrutiny, notice under s.143(2) issuing on 22 September 2019, and the petitioner responded on several dates between October 2019 and March 2021. On 13 October 2020 the case was transferred from the Assessing Officer to the Regional E-Assessment Unit, and on 15 October 2020 the assessee was informed of the transfer of the proceedings to the National Faceless Assessment Centre; a notice under s.142(1) followed on 3 February 2021. The Revenue's position was that a draft assessment order had been placed on 8 April 2021 and served on 12 April 2021. The final assessment order was passed on 20 April 2021 making additions of about Rs. 21.78 crore. The petitioner's case was that no draft assessment order with a show cause notice ever reached it or appeared on the web portal.
The assessment order dated 20 April 2021, the notice of demand and all proceedings taken pursuant to it were quashed (para 18) and the petition was allowed (para 20). The Revenue was left free to proceed afresh under s.144B, serving the prior notice cum draft assessment order and allowing the assessee to respond and to seek a personal hearing.
The Court treated the procedure in s.144B as mandatory in each of its steps. Sub-section (9) of s.144B provided that an assessment would be non est if the provision was not followed procedurally on or after 1 April 2021, which showed a clear legislative intent that every step and stage of the procedural requirement had to be regarded with matching seriousness (para 7.12). Service of a draft assessment order is a statutory requirement, particularly where the order to be made is likely to be prejudicial to the assessee, and had the NFAC served the draft assessment order its presence on the web portal would invariably have been there (para 17). Since it was not, the order passed without following the mandate of s.144B deserved to be quashed and set aside (para 18).
Sub-section (9) of section 144B clearly provides that the assessment would be non-est if the said provision is not followed procedurally on or after 01.04.2021.
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Handle my notice → Ask a CA on WhatsAppThe Department does. Where the Revenue claimed a draft assessment order had been placed and served but nothing was traceable on the portal, the Gujarat High Court quashed the assessment. Every step of s.144B has to be treated with the same seriousness, because s.144B(9), as it then stood and before its retrospective omission, made a non-compliant assessment non est. This was decided by the High Court (Sonia Gokani J and Rajendra M. Sareen J) and bears on section 144B, section 143(3), section 142(1), section 156 of the Income Tax Act 1961. It is reported as R/Special Civil Application No. 7662 of 2021 (Gujarat High Court). Most faceless disputes turn on a factual question - was the draft order actually served - and this judgment shows how that question is decided. If the Department asserts service, the assessee's answer is the portal record, and an assertion that cannot be matched by the portal will not carry the day. If it applies to you, the first step is this: Take a dated screenshot of the e-proceedings tab and the notices list on the day you discover the final order, before anything is uploaded later.
For assessment year 2018-19 the petitioner filed a return on 20 October 2018 showing a loss of about Rs. 16.34 crore. The case was picked up for scrutiny, notice under s.143(2) issuing on 22 September 2019, and the petitioner responded on several dates between October 2019 and March 2021. On 13 October 2020 the case was transferred from the Assessing Officer to the Regional E-Assessment Unit, and on 15 October 2020 the assessee was informed of the transfer of the proceedings to the National Faceless Assessment Centre; a notice under s.142(1) followed on 3 February 2021. The Revenue's position was that a draft assessment order had been placed on 8 April 2021 and served on 12 April 2021. The final assessment order was passed on 20 April 2021 making additions of about Rs. 21.78 crore. The petitioner's case was that no draft assessment order with a show cause notice ever reached it or appeared on the web portal. The matter was decided on 2021-10-05 by the High Court (Sonia Gokani J and Rajendra M. Sareen J). On those facts the High Court held as follows. The assessment order dated 20 April 2021, the notice of demand and all proceedings taken pursuant to it were quashed (para 18) and the petition was allowed (para 20). The Revenue was left free to proceed afresh under s.144B, serving the prior notice cum draft assessment order and allowing the assessee to respond and to seek a personal hearing.
The Court treated the procedure in s.144B as mandatory in each of its steps. Sub-section (9) of s.144B provided that an assessment would be non est if the provision was not followed procedurally on or after 1 April 2021, which showed a clear legislative intent that every step and stage of the procedural requirement had to be regarded with matching seriousness (para 7.12). Service of a draft assessment order is a statutory requirement, particularly where the order to be made is likely to be prejudicial to the assessee, and had the NFAC served the draft assessment order its presence on the web portal would invariably have been there (para 17). Since it was not, the order passed without following the mandate of s.144B deserved to be quashed and set aside (para 18). In the words reproduced by the source cited on this page: "Sub-section (9) of section 144B clearly provides that the assessment would be non-est if the said provision is not followed procedurally on or after 01.04.2021."
It was decided by the High Court on 2021-10-05 and is reported as R/Special Civil Application No. 7662 of 2021 (Gujarat High Court). Binding within that High Court's jurisdiction. Persuasive elsewhere. A High Court decision binds the assessing officer, the Commissioner (Appeals) and the Income Tax Appellate Tribunal within that state, and is persuasive elsewhere. If your assessment is in a different jurisdiction, check whether your own High Court has taken the same view before relying on it. On section 144B, section 143(3), section 142(1), section 156, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. The assessment order dated 20 April 2021, the notice of demand and all proceedings taken pursuant to it were quashed (para 18) and the petition was allowed (para 20). The Revenue was left free to proceed afresh under s.144B, serving the prior notice cum draft assessment order and allowing the assessee to respond and to seek a personal hearing. It arises in Faceless Assessment & Appeals and Assessment & Scrutiny matters, on section 144B, section 143(3), section 142(1), section 156 of the Income Tax Act 1961, and was decided by Sonia Gokani J and Rajendra M. Sareen J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Ask for the draft assessment order and the date it was placed on the portal in writing, and record the non-response. Plead the point as a failure of a mandatory statutory step, not as a general grievance about fairness. Remember the limits of this win - the Court gave the Department liberty to start again under s.144B with a proper notice cum draft order and an opportunity for personal hearing (para 19).
Superseded by amendment. No search was made for later decisions doubting this judgment. One caution for readers, and it is a serious one: s.144B(9), on which paragraph 7.12 turns, was omitted by the Finance Act, 2022 with RETROSPECTIVE effect from 1 April 2021 - the annotation to s.144B on incometaxindia.gov.in reads "Omitted by the Finance Act, 2022, w.r.e.f. 1-4-2021". The omission therefore reaches back over the very assessment quashed in this case, which was made on 20 April 2021, and it was enacted to undo this line of High Court authority; the Revenue has since relied on it to contest judgments in this line. Put plainly: the sub-section the Court applied has been removed from the statute for the very period it was applied to, so the conclusion that a non-compliant assessment is automatically non est cannot simply be transplanted to a current matter, and paragraph 7.12 should not be cited for automatic nullity without saying so. This judgment was not itself set aside and remains a decision of the Gujarat High Court. What survives independently of sub-section (9) is paragraph 17 - the holding that service of a draft assessment order is a statutory requirement, that its absence from the web portal is evidence it was not served, and that a bare assertion of service by the Department will not be accepted without proof. That is the part of this judgment to rely on. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The assessment order dated 20 April 2021, the notice of demand and all proceedings taken pursuant to it were quashed (para 18) and the petition was allowed (para 20). The Revenue was left free to proceed afresh under s.144B, serving the prior notice cum draft assessment order and allowing the assessee to respond and to seek a personal hearing.
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