The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has rejected a legal challenge to the jurisdiction of the National Faceless Assessment Centre (NaFAC) to conduct reassessment proceedings under Section 147 of the Income-tax Act, 1961, before the issuance of CBDT Notification No. 18/2022 dated March 29, 2022.
The bench of Satbeer Singh Godara (Judicial Member) and Naveen Chandra (Accountant Member) granted relief to the taxpayer on the merits by holding that, since the assessment had been completed ex parte and the taxpayer had explained his inability to participate in the proceedings, the matter concerning cash payments and rental income should be reconsidered after providing reasonable opportunities of hearing.
The case arose after the assessee, an individual, did not file his return of income for AY 2017-18 under Section 139(1) of the Act.
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The jurisdictional Assessing Officer (JAO) received information through the Annual Information Return (AIR) indicating that the taxpayer had made cash payments of ₹9,31,600 towards goods and services and had received rental income of ₹69,30,841.
After following the prescribed procedure and obtaining the requisite approval, the JAO issued a notice under Section 148 on March 30, 2021. Although the assessee did not file an ITR in response to the Section 148 notice, he subsequently filed his return for AY 2017-18 under Section 139(4) read with Section 119(2)(b) on April 15, 2021, declaring income of ₹4,36,510.
The return was not taken into account while completing the reassessment.
During the assessment proceedings, the JAO issued a notice under Section 142(1) on November 15, 2021, along with a detailed show-cause notice. Further notices were issued by the National Faceless Assessment Centre on November 23, 2021 and February 3, 2022.
As there was no response, the NFAC issued a show-cause notice under Section 144 on February 7, 2022, followed by another show-cause notice on March 13, 2022, communicating the proposed variations.
Ultimately, the assessment was completed on March 21, 2022 under Sections 147 read with 144 and 144B, determining total income at ₹57,83,189 and raising a tax demand of ₹41,27,616. The CIT(A)/NFAC subsequently upheld the assessment.
Before the ITAT, the assessee principally challenged the legality of the reassessment on the ground that the NFAC lacked jurisdiction to conduct a reassessment under Section 147 through the faceless mechanism at the relevant point of time.
The argument centred around Section 151A of the Income-tax Act and CBDT Notification No. 18/2022 dated March 29, 2022.
According to the assessee, although Section 151A had been introduced with effect from November 1, 2020, the statutory faceless scheme contemplated under the provision became legally operational only upon issuance of the notification dated March 29, 2022.
The assessee therefore contended that the reassessment proceedings conducted by the NFAC between 2021 and March 21, 2022 were undertaken without authority of law.
The assessee pointed out that the chronology showed that the Section 148 notice was issued by the jurisdictional ACIT on March 30, 2021, while subsequent notices under Section 142(1), show-cause notices and the final reassessment order were issued or handled by the National Faceless Assessment Centre.
The chronology recorded in the Tribunal’s order was:
| Date | Proceeding | Authority |
| March 30, 2021 | Notice under Section 148 | ACIT, Circle 58(1), Delhi |
| November 15, 2021 | Notice under Section 142(1) | ACIT, Circle 58(1), Delhi |
| December 23, 2021 | Notice under Section 142(1) | NFAC, Delhi |
| February 3, 2022 | Notice under Section 142(1) | NFAC, Delhi |
| February 7, 2022 | Show-cause notice | NFAC, Delhi |
| March 13, 2022 | Show-cause notice | NFAC, Delhi |
| March 21, 2022 | Assessment under Sections 147/144/144B | NFAC, Delhi |
The assessee argued that the entire faceless reassessment process therefore preceded the March 29, 2022 notification and was consequently invalid.
The department opposed the jurisdictional challenge and argued that the NFAC had validly exercised its authority.
The Department relied upon the evolution of the faceless assessment framework, including the E-Assessment Scheme, 2019, Notification No. 60/2020 dated August 13, 2020, and the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, through which Section 144B was introduced with effect from April 1, 2021.
The Department further relied upon CBDT orders issued under Section 119 dated September 6, 2021 and September 22, 2021, under which assessments were directed to be conducted under the faceless mechanism.
The Revenue also pointed out that the Finance Act, 2022 subsequently amended Section 144B to expressly cover assessments, reassessments and recomputations under Sections 143(3), 144 and 147 with effect from April 1, 2022.
The Tribunal undertook an extensive examination of the development of the faceless assessment regime.
It noted that the faceless assessment framework was initially introduced through the E-Assessment Scheme, 2019 on September 12, 2019. The framework was subsequently referred to as the Faceless Assessment Scheme, 2019 through Notification No. 60/2020 dated August 13, 2020.
Initially, the scheme covered assessments under Section 143(3). It was subsequently expanded to cover Section 144 assessments.
Section 144B was then introduced with effect from April 1, 2021 through the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020. The Tribunal noted that the Finance Act, 2022 subsequently expanded Section 144B to expressly include assessments, reassessments and recomputations under Sections 143(3), 144 and 147 with effect from April 1, 2022.
A significant factor in the Tribunal’s reasoning was the CBDT’s order dated September 22, 2021 issued under Section 119.
The Tribunal noted that the CBDT had specifically directed that assessment orders were to be passed by the National Faceless Assessment Centre under Section 144B, subject to specified exceptions.
Importantly, the September 22, 2021 order expressly dealt with reassessment proceedings under Section 147. One of the exceptions concerned certain reassessments for which the limitation period expired on September 30, 2021 and which were pending with the jurisdictional Assessing Officer as on September 11, 2021, or thereafter could not be completed under Section 144B because of technical or procedural constraints.
The Tribunal found that the present case did not fall within that exception because the limitation for completion of the assessment was March 31, 2022.
Accordingly, the Tribunal considered the CBDT’s September 22, 2021 directions as an important part of the legal framework governing the reassessment at the relevant time.
The assessee had relied upon several ITAT decisions which had taken the view that NFAC could not assume jurisdiction under Section 151A before the issuance of Notification No. 18/2022 dated March 29, 2022.
These included decisions in Nabiul Industrial Metals Pvt. Ltd., Md Mahimud SK, Kashyap Construction & Developers, John Chhetri, Suresh Chand, Atar Singh and Vinay Kumar.
The Tribunal, however, distinguished those decisions from the present case.
It observed that the earlier cases relied upon by the assessee were dealing with assessments made under Section 151A, whereas the present reassessment was framed under Section 147 read with Sections 144 and 144B.
The Tribunal further noted that the NFAC had not invoked Section 151A for conducting the reassessment in the present case. According to the Bench, the coordinate Benches had also not been presented with the complete framework of the Faceless Assessment Scheme, including the CBDT orders dated September 6 and September 22, 2021.
The Tribunal additionally noted that the newly introduced Section 147A through the Finance Act, 2026 had not been before those earlier Benches.
The Tribunal also considered the significance of Section 147A, introduced through the Finance Act, 2026.
The provision, as reproduced in the order, clarifies that for the purposes of Sections 148 and 148A, the expression “Assessing Officer” means an Assessing Officer other than the National Faceless Assessment Centre or an assessment unit referred to in Section 144B(3).
The Tribunal noted that the legislative amendment had retrospective effect from April 1, 2021 and was intended to legally validate reassessment notices issued by jurisdictional Assessing Officers rather than solely through the faceless mechanism.
After considering Section 144B, the CBDT’s Section 119 orders, the Delhi High Court’s ruling in T.K.S. Builders (P.) Ltd. and the Finance Act, 2026 amendment, the Tribunal rejected the assessee’s jurisdictional challenge.
The Bench held that a harmonious reading of the statutory provisions and CBDT directions empowered the NaFAC to conduct assessment and reassessment proceedings under Section 147 in a faceless manner.
The Tribunal specifically observed that the first notice under the reassessment process had been issued by the JAO and that NaFAC subsequently followed the procedure prescribed under Section 144B.
It also found that the case did not fall within the relevant exception contained in the CBDT’s September 22, 2021 order because the applicable limitation period extended up to March 31, 2022.
The Tribunal consequently held that the NaFAC had validly assumed jurisdiction and had full authority in law to conduct the proceedings.
Grounds challenging the jurisdiction and legality of the assessment were therefore dismissed.
Although the Tribunal rejected the jurisdictional challenge, it did not allow the ex parte assessment to stand on merits without further consideration.
The assessee’s counsel had explained that the assessee had been suffering from mental illness since 2011 and had been undergoing medical treatment, affecting his ability to understand and participate in the proceedings.
The Tribunal took note of these circumstances and invoked the principle of natural justice.
It held that the CIT(A) should provide the assessee a reasonable opportunity to represent his case. The Tribunal therefore set aside the issues concerning the alleged cash payments towards goods and services and rental income to the file of the CIT(A) for fresh adjudication.
The CIT(A) was specifically directed to provide three effective opportunities to the assessee, while the assessee was directed to avail those opportunities and submit the necessary documents and evidence.
In the final result, the Delhi ITAT partly allowed the appeal for statistical purposes.
Thus, the Tribunal did not quash the reassessment on the ground that NaFAC lacked jurisdiction. Instead, it upheld the validity of the faceless reassessment proceedings while remitting the substantive issues concerning the alleged cash payments and rental receipts for fresh adjudication after granting the assessee adequate opportunity of hearing.
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