In Faceless Assessment, Income Tax Revision Cannot Be Decided Without Inquiry: Gauhati High Court

The Gauhati High Court has held that the revisional authority cannot dispose of revision proceedings in a mechanical manner under the Income Tax Act (Section 264), which allows a taxpayer to seek revision of an order through a faceless process without making, or causing, an enquiry.

This is especially so where the assessee claims difficulty in producing voluminous records and seeks verification at the place of business.

The court referred to an earlier Division Bench ruling that held that revision under the Income Tax Act (Section 264) is an alternative remedy to appeal.

Justice Nelson Sailo observed, “This Court, while agreeing with the said view of the Division Bench, finds it necessary to stress the fact that since the remedy provided under Section 264 of the Income Tax Act is an alternative remedy, it would be necessary for the revisional authority to not only call for the records of any proceeding under the Act where orders have been passed, but to also enquire or cause an enquiry and thereafter, pass any such order as found to be fit and proper which however should not be prejudicial to the assessee.”

The case arose from a writ petition filed by a proprietor of LZ Traders. The petitioner challenged an assessment order passed under the Income Tax Act (Sections 143(3) and 144(B)), which deal with regular assessment and faceless assessment.

The order had disallowed exemption under the Income Tax Act (Section 10(26)), which gives tax exemption to certain Scheduled Tribe individuals for income from specified areas.

It also added Rs. 29,00,85,052 as unexplained income under the Income Tax Act (Section 69A), which applies where money is not properly explained. The petitioner also challenged the revisional order under the Income Tax Act (Section 264) which had confirmed the assessment.

The petitioner is a resident of Lunglei in Mizoram. She belongs to a Scheduled Tribe.

She said her income was exempt under the Income Tax Act (Section 10(26)) because it was earned within Mizoram. When she filed her return, she showed no taxable income. The case was later picked up for faceless assessment under the Income Tax Act (Section 144(B)), where the process is carried out online.

The tax department then asked her to submit supporting documents. These included proof of exemption, her Scheduled Tribe certificate, details of her income, and bank statements. She replied that she belonged to a Scheduled Tribe and asked for more time to put together the records.

The court noted that the petitioner faced difficulty in uploading large volumes of documents in the faceless process. It held that if there were doubts, the authorities could have sought further material. They could also have verified records at the place of business instead of drawing adverse conclusions.

The court said the revision fell short of what has been prescribed under the Income Tax Act.

It added, “Coming back to the present case, the manner in which the application for revision has been considered by the revisional authority, in the considered view of this Court appears to be short of what has been prescribed by Section 264 of the Income Tax Act. Uploading of documents and conducting of the proceeding in a faceless manner without an enquiry or causing an enquiry in the considered view of this Court would amount to lack of humane approach as observed and held by the Apex Court in Pannalal Binjraj (Firm) vs. Union of India (supra).”

The court further held that before concluding that the assessee was not maintaining books of accounts or not conducting business from Mizoram, the authorities should have taken a humane and pragmatic view. It noted the distance involved and the difficulty in producing voluminous records.

The court held the revisional order to be unsustainable and set aside the order. The matter was remanded to the revisional authority for fresh consideration.

The court also said that if the petitioner cannot produce records due to their volume or logistical issues, she may seek verification at her place of business. The revisional authority has been directed to complete the exercise within two months.

For Petitioner: Advocate Vinay Kumar Shraff,

For Respondents: Zairemsangpuii, CGC (Respondent No. 1); S. Chetia, Standing Counsel, Income Tax (Respondent Nos. 2 to 5)