Mandatory issuance of a show cause notice and draft assessment order under Section 144B of the Income Tax Act is critical; failure to comply voids the assessment.

JUDGMENT

Manmohan, J. (Oral)--The petition has been heard by way of video conferencing.

2. Present writ petition has been filed challenging the Assessment Order dated 03rd April 2021 passed under Section 143(3) read with Section 143(3A) and 143(3B) of the Income Tax Act, 1961 [the Act] as well as the disputed demand raised under Section 156 of the Act, along with all consequent proceedings thereto.

3. Learned counsel for the Petitioner states that the Impugned assessment order passed is jurisdictionally flawed and bad in law since it is violative of the mandatory and binding natural justice requirements stipulated in faceless assessment scheme and relevant CBDT instructions.

4. He emphasises that no mandatory valid show cause notice as well as draft assessment order had been issued to the Petitioner before drawing an adverse inference against it and creating a tax demand of Rs.92,14,550/-.

5. He relies on para 4 of the Central Board of Direct Taxes instruction no. 20/2015, dated 29th December 2015 which inter alia provides for a fair opportunity to an Assessee to explain its case and mandates issuance of a show cause notice. The relevant portion of the said instructions no.20/2015 is reproduced hereinbelow:-

"4. The Board further desires that in all cases under scrutiny, where the Assessing Officer proposes to make additions or disallowances, the assessee would be given a fair opportunity to explain his position on the proposed additions/disallowances in accordance with the principle of natural justice. In this regard, the Assessing Officer shall issue an appropriate show-cause notice duly indicating the reasons for the proposed additions/disallowances along with necessary evidences/reasons forming the basis of the same. Before passing the final order against the proposed additions/disallowances, due consideration shall be given to the submissions made by the assessee in response to the show-cause notice. "

6. Per contra, Mr.Sunil Agarwal, senior standing counsel for the respondent states that principles of natural justice have been complied with in the present case as adequate notice for the tax demand of Rs.92,14,550/- had been given to the Petitioner, who had also responded to the same by way of an elaborate reply. In support of his submission, he relies upon the Constitution Bench judgment of the Supreme Court in Managing Director, ECIL, Hyderabad & Ors. Vs. B. Karunakar & Ors., (1993) 4 SCC 727. The relevant portion of the said judgment is reproduced hereinbelow:-

"30.[v] The next question to be answered is what is the effect on the order of punishment when the report of the enquiry officer is not furnished to the employee and what relief should be granted to him in such cases. The answer to this question has to be relative to the punishment awarded. When the employee is dismissed or removed from service and the inquiry is set aside because the report is not furnished to him, in some cases the non- furnishing of the report may have prejudiced him gravely while in other cases it may have made no difference to the ultimate punishment awarded to him. Hence to direct reinstatement of the employee with back-wages in all cases is to reduce the rules of justice to a mechanical ritual. The theory of reasonable opportunity and the principles of natural justice have been evolved to uphold the rule of law and to assist the individual to vindicate his just rights. They are not incantations to be invoked nor rites to be performed on all and sundry occasions. Whether in fact, prejudice has be