Faceless Assessment Scheme: After Madras, Kerala High Court notice to Centre in challenge to Sec144B Income Tax Act

The Kerala High Court on Wednesday issued notice to the Central government on a plea challenging the constitutional validity of the Faceless Assessment Procedure under Section 144B of the Income Tax Act. (Mohamed Bau Paramboor v Union of India & Ors.).Justice Bechu Kurian Thomas, while admitting the petition, issued notice to the respondents including the Central government and temporarily stayed the proceedings against the petitioner under said section. The Madras High Court had, in October, issued notice on a similar petition challenging the constitutional validity of the Faceless Assessment Scheme introduced in 2020 by insertion of Section 144B via the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020.The present petition was moved by Senior Advocate K Anand, instructed by advocate Vishnu S of M/s BS Krishnan Associates, and challenges Section 144B on the grounds that it is violative of principles of natural justice, arbitrary and it falls short of the standards of reasonableness under Article 14 of the Constitution of India..FactsThe petitioner, an assessee under the Income tax Act, was issued notice under 143(2) of the Act, purportedly for closer scrutiny of the returns filed by him for the year 2013-14.However, as per the petitioner, the notice issued to him was only uploaded to an online portal and he was not sent an e-mail or any real time alert. Further notices were also issued to him under the provisions of the Act, all in the same fashion.When the petitioner tried to submit replies to the notices, he hit snags on the website which led to him submitting a grievance in this regard, a copy of which was submitted to the Court.Subsequently, he was issued a show-cause notice which he responded to within the two-day time frame stipulated on the website, with a request that if any information is lacking, he be permitted to submit further details and heard personally by the jurisdictional assessing officer.However, it was submitted that without any response to these requests, an assessment order was passed without hearing the petitioner and penalty notices were issued to him."In short, there is gross violation of the principles of natural justice in as much as the final assessment order order was passed with undue haste, without considering the contentions of the petitioner and without granting an opportunity for being heard. The petitioner is mulcted with a huge liability in a mechanical manner and in total violation of the principles of natural justice," the plea said.The petitioner was, therefore, prompted to approach the High Court.The plea by the petitioner said that the denial of natural justice and other constitutional infirmities are inherent in Section 144B and the Faceless Assessment Scheme.He, therefore, challenged the constitutional validity of Section 144B on the following grounds:.Grounds.1. Violative of principles of natural justice, Article 14:As per the procedure laid down in section 144B, even in cases where the assessee is given opportunity to show-cause, they are not given an opportunity for being heard, unless they request it. Even when the assessee makes such a request, it is left to the arbitrary discretion of the Chief Commissioner or Director-General in charge of the Regional Faceless Assessment Unit. This procedure is in total violation of the principles of natural justice and in effect amounts to denial of a personal hearing to the petitioner, which is sacrosanct under Article 14 of the Constitution of India..2. Suffers from excessive delegation and arbitrariness:Section 144B(7)(vii) provides that where variation is proposed in an assessment order and an opportunity is provided to the assessee by a show-cause notice, the assessee may request for personal hearing. However, it also says that the Chief Commissioner or Director-General in charge of the Regional Faceless Assessment Unit may approve the request for personal hearing.Moreover, the time limit for providing replies, furnishing documents, evidence etc. may vary as per the discretion of the National Faceless Assessment Centre (NFAC) which makes the procedure patently arbitrary..3. Clause (xiv) of Section 144B is opaque, secretive and patently arbitrary:As per clause (xiv) of Section 144B the assessment unit has to prepare the ‘draft assessment order’ and forward a copy of the same to the NFAC. The NFAC, based on the ‘Risk Management Strategy’ specified by the Central Board of Direct Taxes, including by the way of an ‘automated examination tool’ may decide upon the course of action. The Risk-Management Strategy is not in the public domain and is an opaque and arbitrary concept. The purported use of the ‘automated examination tool’ whose algorithm is not determined makes the situation worse. .On these, among other grounds, the petitioner sought a declaration that that section 144B of the Income Tax and the faceless Assessment Scheme is ultra vires the Constitution and hence void.The Court issued notice and temporarily stayed all proceedings pursuant to the assessment order issued to the petitioner.The Bombay High Court is also seized of a similar case challenging sub-sections (6B), (6C) and (6D) of Section 250 of the Act which rolled out the Faceless Appeal Scheme.[Read Order]