Faceless assessment order passed with unnotified income additions violates natural justice and warrants quashing.

By | August 3, 2026
0 Comment

Faceless assessment order passed with unnotified income additions violates natural justice and warrants quashing.

Issue

Whether a final faceless assessment order passed under Section 144 read with Section 144B—making an enhanced addition significantly higher than proposed in the initial show-cause notice without offering a further opportunity of hearing—violates principles of natural justice and is liable to be quashed.

Facts

  • Impugned Action: The assessee-society filed a writ petition challenging the final assessment order passed under Section 144 read with Section 144B, along with a Section 156 demand notice and Section 270A penalty show-cause notice.

  • Proposed Addition: An initial show-cause notice dated 05-03-2022 proposed an addition of ₹2.69 crores to the total income of the assessee.

  • Subsequent Enhancement: In its response to the initial notice, the assessee submitted its balance sheet and Profit & Loss Account.

  • Unnotified Final Order: On 28-09-2022, the Assessing Officer passed the final assessment order making an enhanced addition of approximately ₹9.81 crores based on the financial statements, without issuing a fresh show-cause notice or granting an opportunity to explain the proposed enhancement.

Decision

  • Violation of Natural Justice: Passing a final assessment order with an enhanced addition without giving the assessee an opportunity to explain why the higher sum should not be added violates principles of natural justice and cannot stand.

  • Order Quashed & Converted: The final assessment order, demand notice, and penalty notices were quashed and set aside, with the impugned order directed to be treated as a draft show-cause notice.

  • Liberty to Respond: The assessee was granted liberty to file its response along with supporting documents against the proposed ₹9.81 crore addition.

  • Remand for De Novo Order: The Assessing Officer was directed to afford a personal hearing to the assessee and pass a fresh assessment order after considering the reply.

Key Takeaways

  • Mandatory Opportunity for Enhancements: Under the faceless assessment scheme (Section 144B), the Revenue cannot make additions higher than those proposed in the show-cause notice without serving a fresh notice specifying the enhanced amount.

  • Natural Justice is Inviolable: Failure to afford an opportunity of hearing prior to enhancing income renders the assessment order jurisdictionally defective.

  • Remedial Conversion of Orders: When an assessment is set aside solely for procedural violation of natural justice, courts typically convert the defective order into a show-cause notice to restart proceedings from the stage of the breach.

HIGH COURT OF BOMBAY
KEM Hospital and Seth G. S. Medical College Employees’ Co-op Credit Society Ltd.
v.
National Faceless Assessment Centre, Delhi (NFAC)
B. P. COLABAWALLA and FIRDOSH P. POONIWALLA, JJ.
WRIT PETITION NO. 686 OF 2023
JULY  7, 2026
Kumar U. Kale, Adv. for the Petitioner. Ms. Swapna Gokhale, Adv. for the Respondent.
ORDER
1. Rule. Respondents waive service. With the consent of the parties, Rule made returnable forthwith and heard finally.
2. The above Writ Petition is filed to challenge the impugned final Assessment Order dated 28th September 2022 passed under Section 144 read with Section 144B of the Income Tax Act, 1961 (for short “I. T. Act, 1961”) and the impugned Notice of Demand of the same date issued under Section 156 of the I. T. Act. Further, a Show Cause Notice dated 28th September 2022 for initiating penalty proceedings under Section 270A of the I. T. Act also assailed.
3. The short ground on which the challenge is laid before us is that though the Show Cause Notice issued to the Petitioner dated 5th March 2022 sought to make an addition to the Petitioner’s income to the tune of Rs. 2,69,05,368/-, a final Assessment Order makes an addition to the income of Rs. 9,81,95,173/-. This addition has been made without giving any opportunity to the Petitioner to show cause as to why this addition should not be made and has been picked up only from balance-sheet and Profit and Loss Account of the Petitioner society which was submitted in reply to the Show Cause Notice issued to the Petitioner.
4. Having heard the learned counsel appearing on behalf of the Petitioner, as well as the learned counsel appearing on behalf of the Revenue, and after perusing the record before us, we indeed find that the grievance made by the Petitioner is well-founded. After the Show Cause Notice that was issued on 5th March 2022, and the response given thereto by the Petitioner on 3rd August 2022, the impugned Assessment Order has been passed making the addition of approximately Rs.9.81 Crores. No opportunity whatsoever was given to the Petitioner to explain as to why the addition of Rs.9.81 Crores ought not be made to its total income. Once these are the facts, we find that the final Assessment Order dated 28th September 2022 cannot be allowed to stand.
5. In view of the foregoing discussion, the following order is passed:-
(a) The final Assessment Order dated 28th September 2022 is hereby quashed and set aside. The said order will now be treated as a Show Cause Notice to the Petitioner.
(b) The Petitioner shall file his response to the aforementioned Show Cause Notice within a period of 15 days from the date when the Income Tax Department opens the portal to enable the Petitioner to file his response/reply. The portal shall be opened by the Income Tax Department within a period of one week from today.
(c) It is needless to clarify that this response/reply shall contain all necessary documents to substantiate the claim of the Petitioner as to why the aforesaid sum of Rs.9.81 Crores ought not be added to the income of the Petitioner. If the Petitioner wants a personal hearing, he shall make that request to the Assessing Officer who shall then accord a personal hearing to the Petitioner.
(d) Once the response/reply along with necessary documents is filed, and a personal hearing is given [if asked for], the Assessing Officer shall pass the Assessment Order within a period of eight weeks from the date of receiving the response/reply of the Petitioner, or after the conclusion of the hearing, whichever is later.
6. Rule is accordingly made absolute and the Writ Petition is also disposed of in terms thereof. However, there shall be no order as to costs.
7. This order will be digitally signed by the Private Secretary/Personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order.