You asked for time to reply to the draft order and were refused. Is the final order safe?
No. The scheme requires an opportunity to respond to the modifications proposed in the draft order. Refusing time and then finalising was held wrong, and the assessment and the penalty notice were set aside.
Decided by the High Court (Gujarat High Court — Justice N.V. Anjaria and Justice Bhargav D. Karia) on 2022-07-05, reported as [2022] 143 taxmann.com 308 (Gujarat); R/Special Civil Application No. 12864 of 2021; 2022 LiveLaw (Guj) 273; assessment year 2018-19. It bears on section 144B, section 143(3), section 143(2), section 142(1), section 68, section 274, section 270A of the Income Tax Act 1961, in Assessment & Scrutiny and Faceless Assessment & Appeals matters.
The most common faceless complaint is not that no chance was given but that the chance was too short or refused outright. This decision treats the refusal of time as the defect, which is a more precise ground than a general grievance.
Binding within that High Court's jurisdiction. Persuasive elsewhere.
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A Hindu Undivided Family filed its return for assessment year 2018-19 on 30 August 2018. A notice under s.143(2) followed on 22 September 2019 and the case went into faceless assessment, a notice under s.142(1) issued on 16 October 2020 calling for documents. The assessee sought an adjournment on 29 January 2021 and later replied, saying among other things that the Revenue had raised new grounds about an investment in mutual funds. On 16 May 2021 the Department passed a draft assessment order dealing with business income, interest income and additions under s.68 relating to a loan transaction. On 22 May 2021, by email, the assessee asked for fifteen days - to 6 June 2021 - to respond to the show cause notice issued with the draft order. The request was received but was never responded to and never decided. On 27 May 2021 the final assessment order was passed under s.143(3) read with s.144B, with a notice of demand and a penalty notice under s.274 read with s.270A of the same date. In its affidavit in reply the Department said the assessment had to be finalised by 30 June 2021 and that, given the paucity of time and other time-barring assessments, the Assessing Officer was not in a position to take note of the adjournment request.
The petition was allowed. Where the statute provides an opportunity to reply to the draft assessment order before it becomes a final order under s.143(3) read with s.144B, and that opportunity is not given, the breach is prejudicial to the assessee without anything further being required (para 5.1). The assessment order of 27 May 2021 and the penalty notice under s.274 read with s.270A were set aside, and the assessment proceedings remanded to the Assessing Officer to be taken up afresh from the stage of the draft assessment order, with an opportunity to file a reply, the whole exercise to be completed within twelve weeks of receipt of the order (paras 6, 6.1, 6.2). The Court made it clear that it quashed the order and notice only on the ground of breach of natural justice, without going into and without expressing any opinion on the merits of either side (para 6.3).
The opportunity to respond to a proposed modification was first found in clause 2(xvi)(b) of the notification of 13 August 2020, and had been translated into statutory form with effect from 1 April 2021, so at the date of the final order it was a statutory requirement, not a concession (paras 4, 5). Where a statute provides for an opportunity of hearing and that is breached, prejudice to the assessee follows without more; the Department did not contend otherwise (para 5.1). That alone clinched the relief. The Court added a second, weighty reason: the request for time was made on 22 May 2021, when the second wave of the Covid-19 pandemic was at its peak, a matter of which judicial notice could be taken, and in such hard times the Department was expected to be even more lenient (para 5.2). It rejected the Department's explanation that the assessing officer had no time because of other time-barring assessments, calling the stand 'thick skinned' and asking what prevented it from granting time to 6 June 2021 when the assessment need only have been completed by 30 June 2021 (paras 5.3-5.5). An assessee-congenial approach must show in the procedural machinery as well as in the application of the taxing statute (para 5.5).
When statute provides for opportunity of hearing and the same is not complied with and breached, it could be said to have operated prejudicial to the assessee, without anything requiring further.
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Handle my notice → Ask a CA on WhatsAppNo. The scheme requires an opportunity to respond to the modifications proposed in the draft order. Refusing time and then finalising was held wrong, and the assessment and the penalty notice were set aside. This was decided by the High Court (Gujarat High Court — Justice N.V. Anjaria and Justice Bhargav D. Karia) and bears on section 144B, section 143(3), section 143(2), section 142(1), section 68, section 274, section 270A of the Income Tax Act 1961. It is reported as [2022] 143 taxmann.com 308 (Gujarat); R/Special Civil Application No. 12864 of 2021; 2022 LiveLaw (Guj) 273; assessment year 2018-19. The most common faceless complaint is not that no chance was given but that the chance was too short or refused outright. This decision treats the refusal of time as the defect, which is a more precise ground than a general grievance. If it applies to you, the first step is this: Make every adjournment request on the portal with the reason stated — the reason is what the Court weighed.
A Hindu Undivided Family filed its return for assessment year 2018-19 on 30 August 2018. A notice under s.143(2) followed on 22 September 2019 and the case went into faceless assessment, a notice under s.142(1) issued on 16 October 2020 calling for documents. The assessee sought an adjournment on 29 January 2021 and later replied, saying among other things that the Revenue had raised new grounds about an investment in mutual funds. On 16 May 2021 the Department passed a draft assessment order dealing with business income, interest income and additions under s.68 relating to a loan transaction. On 22 May 2021, by email, the assessee asked for fifteen days - to 6 June 2021 - to respond to the show cause notice issued with the draft order. The request was received but was never responded to and never decided. On 27 May 2021 the final assessment order was passed under s.143(3) read with s.144B, with a notice of demand and a penalty notice under s.274 read with s.270A of the same date. In its affidavit in reply the Department said the assessment had to be finalised by 30 June 2021 and that, given the paucity of time and other time-barring assessments, the Assessing Officer was not in a position to take note of the adjournment request. The matter was decided on 2022-07-05 by the High Court (Gujarat High Court — Justice N.V. Anjaria and Justice Bhargav D. Karia). On those facts the High Court held as follows. The petition was allowed. Where the statute provides an opportunity to reply to the draft assessment order before it becomes a final order under s.143(3) read with s.144B, and that opportunity is not given, the breach is prejudicial to the assessee without anything further being required (para 5.1). The assessment order of 27 May 2021 and the penalty notice under s.274 read with s.270A were set aside, and the assessment proceedings remanded to the Assessing Officer to be taken up afresh from the stage of the draft assessment order, with an opportunity to file a reply, the whole exercise to be completed within twelve weeks of receipt of the order (paras 6, 6.1, 6.2). The Court made it clear that it quashed the order and notice only on the ground of breach of natural justice, without going into and without expressing any opinion on the merits of either side (para 6.3).
The opportunity to respond to a proposed modification was first found in clause 2(xvi)(b) of the notification of 13 August 2020, and had been translated into statutory form with effect from 1 April 2021, so at the date of the final order it was a statutory requirement, not a concession (paras 4, 5). Where a statute provides for an opportunity of hearing and that is breached, prejudice to the assessee follows without more; the Department did not contend otherwise (para 5.1). That alone clinched the relief. The Court added a second, weighty reason: the request for time was made on 22 May 2021, when the second wave of the Covid-19 pandemic was at its peak, a matter of which judicial notice could be taken, and in such hard times the Department was expected to be even more lenient (para 5.2). It rejected the Department's explanation that the assessing officer had no time because of other time-barring assessments, calling the stand 'thick skinned' and asking what prevented it from granting time to 6 June 2021 when the assessment need only have been completed by 30 June 2021 (paras 5.3-5.5). An assessee-congenial approach must show in the procedural machinery as well as in the application of the taxing statute (para 5.5). In the words reproduced by the source cited on this page: "When statute provides for opportunity of hearing and the same is not complied with and breached, it could be said to have operated prejudicial to the assessee, without anything requiring further." The decision followed or applied Followed by the Gujarat High Court in Gokul Refoils and Solvent Ltd. v. National E-Assessment Centre [2024] 161 taxmann.com 532 (Gujarat), R/Special Civil Application No. 7155 of 2021, 16 January 2024 (Bhargav D. Karia and Niral R. Mehta, JJ.), which set out this judgment in full, quashed the assessment order without going into the merits and remanded the matter to the Assessing Officer to be taken up afresh from the stage of the draft assessment order.
It was decided by the High Court on 2022-07-05 and is reported as [2022] 143 taxmann.com 308 (Gujarat); R/Special Civil Application No. 12864 of 2021; 2022 LiveLaw (Guj) 273; assessment year 2018-19. 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 143(2), section 142(1), section 68, section 274, section 270A, 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 petition was allowed. Where the statute provides an opportunity to reply to the draft assessment order before it becomes a final order under s.143(3) read with s.144B, and that opportunity is not given, the breach is prejudicial to the assessee without anything further being required (para 5.1). The assessment order of 27 May 2021 and the penalty notice under s.274 read with s.270A were set aside, and the assessment proceedings remanded to the Assessing Officer to be taken up afresh from the stage of the draft assessment order, with an opportunity to file a reply, the whole exercise to be completed within twelve weeks of receipt of the order (paras 6, 6.1, 6.2). The Court made it clear that it quashed the order and notice only on the ground of breach of natural justice, without going into and without expressing any opinion on the merits of either side (para 6.3). It arises in Assessment & Scrutiny and Faceless Assessment & Appeals matters, on section 144B, section 143(3), section 143(2), section 142(1), section 68, section 274, section 270A of the Income Tax Act 1961, and was decided by Gujarat High Court — Justice N.V. Anjaria and Justice Bhargav D. Karia. 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. Note the dates: request made, refusal, and final order. That sequence is the case. Ask for remand to the draft order stage rather than outright quashing; that is the relief actually granted here.
Still good law. Followed by the Gujarat High Court in Gokul Refoils and Solvent Ltd. v. National E-Assessment Centre [2024] 161 taxmann.com 532 (Gujarat), decided 16 January 2024 - after the Finance Act 2022 restructured s.144B - which quoted this judgment and granted the same relief, remanding the matter to be taken afresh from the stage of the draft assessment order. That decision concerned an order of 26 April 2021, so it does not settle how the remedy is framed for a post-amendment year. The ratio does not depend on s.144B(9): the order was quashed for breach of natural justice under Article 226, not declared non est under that sub-section, so the retrospective omission of s.144B(9) by the Finance Act 2022 does not displace it. On that omission, note that the position is not closed: the Allahabad High Court in Sapna Flour Mills Ltd. v. Union of India [2022] 145 taxmann.com 557 (Allahabad), 9 December 2022, held that s.144B is procedural and that no substantive right was conferred by sub-section (9), so the challenge to its omission could not be sustained; but in Sapna Flour Mills Ltd. v. Union of India [2023] 154 taxmann.com 275 / 295 Taxman 119 (SC), SLP (Civil) Diary No. 24418 of 2023, 11 September 2023, the Supreme Court disposed of the special leave petition because the matter had been remitted for a hearing on merits, expressly reserving liberty to revive it and raise the constitutional validity of s.144B(9) and the s.143(2) jurisdiction point if the assessee failed before the statutory authorities. That is not an affirmance of the Allahabad view. 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.
This is a case of a request for time to reply to the draft assessment order simply never being answered - not a reply uploaded and then ignored, and not a refusal on stated grounds. The Court decided it on the statutory breach first and the pandemic second, and expressly reserved the merits: the quashing was on natural justice alone. It is no longer a single-source entry: the Gujarat High Court followed it in Gokul Refoils and Solvent Ltd. v. National E-Assessment Centre [2024] 161 taxmann.com 532 (Gujarat), 16 January 2024, granting the same remand to the draft assessment order stage. Two cautions on the statute. Section 144B(9) was omitted retrospectively from 1 April 2021, but this decision never rested on it. And the Finance Act 2022 restructured s.144B from 1 April 2022, so for a later year the pre-final opportunity takes the form of a show cause notice setting out the proposed variation rather than a served draft order - the opportunity survives, the label has changed. The judgment does not record what became of the remanded assessment. The constitutional validity of the retrospective omission of s.144B(9) is not settled: the Supreme Court in Sapna Flour Mills disposed of the special leave petition with liberty to revive rather than deciding it. How a court would frame the remand for an assessment year governed by s.144B as it stands after 1 April 2022 has not been established from a decided case. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The petition was allowed. Where the statute provides an opportunity to reply to the draft assessment order before it becomes a final order under s.143(3) read with s.144B, and that opportunity is not given, the breach is prejudicial to the assessee without anything further being required (para 5.1). The assessment order of 27 May 2021 and the penalty notice under s.274 read with s.270A were set aside, and the assessment proceedings remanded to the Assessing Officer to be taken up afresh from the stage of the draft assessment order, with an opportunity to file a reply, the whole exercise to be completed within twelve weeks of receipt of the order (paras 6, 6.1, 6.2). The Court made it clear that it quashed the order and notice only on the ground of breach of natural justice, without going into and without expressing any opinion on the merits of either side (para 6.3).
Every entry in this library links to where it was found, so you can check it yourself rather than take our word for it.
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Is a notice under s.143(2) a jurisdictional precondition, or merely a procedural step the Assessing Officer can skip?
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