Bombay High Court Holds Non-Compliant Faceless Assessment Under Section 144B as Non-Est

Background and Context

The Bombay High Court, in the case of Bekaert Mukand Wire Industries Pvt. Ltd. Vs Additional/Joint/Deputy/ACIT/ITO, examined the validity of an assessment order dated 19 April, 2021 that had been framed under the faceless assessment scheme. The assessee challenged the order primarily on the ground that the Assessing Officer had not adhered to the mandatory procedure laid down in Section 144B of the Income Tax Act 1961.

The case is significant because it interprets Section 144B(9) in the context of an eligible assessee, and reinforces that non-compliance with the statutory faceless assessment procedure renders the assessment itself non-existent in law.

Parties and Procedural Posture

  • Case Name: Bekaert Mukand Wire Industries Pvt. Ltd. Vs Additional/Joint/Deputy/ACIT/ITO
  • Court: Bombay High Court
  • Appeal Number: Writ Petition No. 2153 of 2021
  • Date of Judgment/Order: 17/09/2021

The assessee approached the High Court by way of a writ petition challenging:

  • The assessment order dated 19 April, 2021, and
  • The consequential demand notice and penalty notice, both issued on the same date.

The central contention was that the entire assessment exercise stood vitiated due to failure to comply with mandatory provisions of Section 144B, which governs the faceless assessment regime.

Status of the Assessee as “Eligible Assessee”

The Court first recorded that the assessee was admittedly an “eligible assessee”. This classification is critical, because it attracts certain additional mandatory procedural safeguards.

Statutory Definition of Eligible Assessee

The judgment refers to the definition in the statute itself:

  • Under Explanation (m) to Section 144B, the term “eligible assessee” is said to carry the same meaning as in Section 144C(15)(b).
  • Section 144C(15)(b) defines “eligible assessee” as:

“(b)‘eligible assessee’ means, –
(i) any person in whose case the variation referred to in sub-section (1) arises as a consequence of the order of the Transfer Pricing Officer passed under sub-section (3) of section 92CA; and
(ii) any non-resident not being a company, or any foreign company.”

Since the assessee clearly fell within this definition, the procedural protections available to an eligible assessee became directly applicable.

The key issue was:

Whether an assessment order passed in the case of an eligible assessee, without following the mandated steps under Section 144B(1)—especially clauses (xxvii) to (xxxii)—is valid in law, or whether such an order is non-est in view of Section 144B(9).

The assessee argued that non-observance of these procedures, specifically those dealing with reference to the Dispute Resolution Panel (Section 144C) and other faceless assessment steps, rendered the assessment invalid.

Mandatory Nature of Section 144B and Section 144C Procedures

Assessee’s Submissions

Counsel for the assessee, Mr.