NFAC Show-Cause Notice Before 29 March 2022 Invalid: ITAT Cuttack

Lingaraj Debta Vs ITO (ITAT Cuttack)

Summary: The Income Tax Appellate Tribunal, Cuttack Bench allowed the assessee’s appeal for AY 2013-14 and quashed the reassessment after holding that the National Faceless Assessment Centre (NFAC) lacked jurisdiction when it issued the show-cause notice dated 24.03.2022. The appeal arose from the order of the NFAC, Delhi/CIT(A) dated 25.09.2025. The assessee submitted that NFAC’s jurisdiction to frame faceless reassessment was notified only from 29.03.2022 through Notification No. 18/2022/F. No. 370142/16/2022-TPL(Part) under Section 151A of the Income-tax Act, 1961. Therefore, according to the assessee, the show-cause notice issued by NFAC on 24.03.2022 was without jurisdiction and the consequential assessment could not survive. The assessee relied upon the coordinate bench decisions in Trinity Enclave Pvt. Ltd. v. ITO and Nabiul Industrial Metal Pvt. Ltd. v. ITO. The Revenue supported the order of the CIT(A). The Tribunal held that the issue was squarely covered by these coordinate bench decisions. It observed that NFAC obtained jurisdiction under the notification relating to Section 151A only from 29.03.2022. Consequently, the show-cause notice dated 24.03.2022 was held invalid and quashed. The consequential assessment order was also quashed and the assessee’s appeal was allowed.

Cases Discussed

• Trinity Enclave Pvt. Ltd. v. ITO, ITA No. 1728/Kol/2025 — followed on the issue that NFAC did not have jurisdiction prior to 29.03.2022 to issue the relevant notice under the faceless reassessment framework.
• Nabiul Industrial Metal Pvt. Ltd. v. ITO, ITA No. 1328/Kol/2024, order dated 15.10.2024 — relied upon as a coordinate bench decision on the same jurisdictional issue.
• MD Mahimud SK v. ITO, ITA Nos. 2230 & 2229/KOL/2024, order dated 04.03.2025 — discussed in the extracted portion of the decision in Trinity Enclave Pvt. Ltd.

FULL TEXT OF THE JUDGMENT/ORDER OF ITAT CUTTACK

1. This is an appeal filed by the assessee against the order of the NFAC, Delhi [hereinafter referred to as the ‘CIT(A)’] in appeal no.NFAC/2012-13/10166764 dated 25.09.2025.

2. Shri Sunil Surana, AR, represented on behalf of the assessee and Shri Vijay Singh, Sr. DR represented on behalf of the revenue.

3. It was submitted by ld. AR that the show-cause notice has been issued for the assessment year 2013-14 on 24.03.2022 by the NFAC, the ld. AR placed a copy of the same before us which reads as under:

GOVERNMENT OF INDIA
MINISTRY OF FINANCE
INCOME TAX DEPARTMENT
National Faceless Assessment Centre
Delhi

To,

LINGARAJ DEBTA
NEAR TOLL GATE NEAR TOLL GATE
,BARGARH BARGAR
BARGARH 768028 ,Orissa
India

Show cause Notice as to why the proposed variation should not be made

Ms/ Mr/ M/s,

1. We appreciate the anxiety and uncertainty that is facing all of us in the times of Covid-19. This communication is to assist you in ending one uncertainty, which is pending e-Assessment in your case for the Assessment Year 2013-14.

2. The variations as per the draft assessment order may be seen which are proposed to be made in your case:-

ASSESSMENT ORDER

The assessee has not filed his Return of Income for the A.Y. 2013-14. Subsequently, notice u/s 148 was issued on 30.03.2021 to the assessee after duly recording the reasons and obtaining approval from higher authorities. In response, return of income u/s 148 was filed by the assessee on 29.04.2021 declaring total income at Rs.4,53,780/-. Notice u/s 143(2) of the Act was issued through ITBA on 28.06.2021.

2. Thereafter, notice u/s 142(1) along with questionnaire was issued to the assessee through ITBA on 17.12.2021 on specified issues requiring the assessee to furnish certain details/clarification. In response, the assessee has submitted his incomplete reply through ITBA portal on 10.01.2022 along with documentary evidences. Once again Notice u/s 142(1) of the I.T. Act, 1961 was issued on 28.12.2021. The assessee has submitted his incomplete response through ITBA portal on 10.01.2022 along with documentary evidences, the same is reproduced as under:-

“That the assessee has not any registered business in his name and he earns some income from retail business dealing in gunny bags and seasonal goods & misc.receipts, he has shown the income as per provision of u/s 44AD of the Income Tax Act.(Estimated Income Scheme). The gross receipts for the A.Y. 2013-14 was Rs. 55,85,837/- and shown business profit for Rs. 4,46,900/- and other income of Rs. 19,959/- totaling to Rs. 4,66,859/-. Further, at para 9 of the submission it can be seen from the bank A/c. statement that other credits entries were receipts form sundry debtors against business transaction are has been deposited to Bank.”

3. As per the information extracted from AIMS module of ITBA for non-filer monitoring system in high risk category (P-Z), during the F.Y. 2012-13 the assessee had carried out several cash deposit transaction (in excess of Rs. 50,000/- each) in his Syndicate Bank, Baggarh Branch aggregate of which comes to Rs. 69,15,000/- during the year under consideration. Assessee submitted the bank account statement of Syndicate Bank for F. Y. 2012-13. Perusal of bank statement reveals that total cash credit during F. Y. 2012-13 was Rs. 97,45,300/-, out of which cash deposit was Rs. 69,15,000/-. Assessee submitted that he has not any registered business in his name and he earns some income from retail business dealing in gunny bags and seasonal goods & misc. receipts. Submission made by the assessee are considered but not found satisfactory in wake of following observations:-

• • Assessee deposited large amount of cash on a single day like Rs. 8,00,000 on 07.11.2012, Rs. 7,00,000/- and Rs. 9,00,000/- on 08.11.2012. Similarly, huge cash deposit of Rs. 9,00,000/- on 22.11.2012 and Rs. 6,00,000/- on 06.12.2012.
  • Cash deposit followed by immediate transfer to other parties on the same day.
  • Cash withdrawal followed by large RTGS credits in the bank account like Rs. 3,50,000/- on 01.06.2012 and Rs. 5,50,000/- on 30.08.2012.
  • Assessee didn’t submit the details of parties from whom purchased was made by him.

4. A show cause notice along with draft assessment order was issued to the assessee on 16.03.2022. In absence of any relevant documentary evidence in support of his claim and observation made, the total cash credit of Rs.97,45,300/- remain unexplained.

5. By virtue of section 69A of the Act, the assessee is found the owner of money which is not recorded in books of account and the assessee offers no explanation about the nature of source of acquisition of cash. Hence, an amount of Rs. 97,45,300/- is treated as unexplained income of the assessee for the F.Y. 2012-13 relevant to A.Y.2013-14.

6. In view of the above, an income of Rs. 97,45,300/- is added back to the total income of the assessee u/s 69A of the Act. Penalty proceedings are being initiated separately u/s 271(1)(c) of the Act for concealment of the particulars of income.

(Addition of Rs. 97,45,300/-)

In view of the discussion above, income of the assessee is recomputed as under:-

You are hereby show cause why Rs. 97,45,300/- shall not be added back to your total income..

You are hereby given an opportunity to show cause why proposed variation should not be made and the assessment should not be completed accordingly.

3. Kindly submit your response through your registered e-filing account at www.incometax.gov.in by 23:59 hours of 29/03/2022, whereby you may either:-

a. accept the proposed variation; or

b. file your written reply objecting to the proposed variation; or

c. If required, after filing written reply you may request for personal hearing so as to make oral submissions or present your case. The request can only be made by clicking the Seek Video Conferencing button available against the SCN, in the view notices of this proceeding in the e-proceedings tab on efiling portal. The request can be made only before expiry of compliance date & time. On approval of request, personal hearing shall be conducted exclusively through video conference.

4. In case no response is received by the given time and date, the assessment shall be finalized as per the draft assessment order.

Yours faithfully,

Additional / Joint / Deputy / Assistant Commissioner of Income Tax/
Income-tax Officer,
National Faceless Assessment Centre,
Delhi

4. It was the submission that jurisdiction for the NFAC to frame faceless assessment was notified from 29.03.2022 vide notification no. 18/2022/F. No. 370142/16/2022-TPL(Part). It was the submission that as the NFAC did not have the jurisdiction, hence the assessment order is liable to be quashed. He placed reliance on the decision of Coordinate Bench of this Tribunal in the case of Trinity Enclave Pvt. Ltd. in ITA No.1728/Kol/2025 wherein in paras 8 to 10, the Coordinate Bench of this Tribunal has held as follows:

“8. The second limb of the arguments at the time of hearing by the counsel of the assessee was that notice was issued on 15.03.2022 by the National Faceless Assessment Centre, Delhi to show cause as to why proposed addition should not be made. However, we note that the National Faceless Assessment Centre was not having jurisdiction prior to 29.03.2022 to issue any notice as the provisions of section 151A of the Act were notified vide Notification No. 18/2022 on the e-assessment of income escaping assessment scheme-2022. Therefore, the assessment framed finally by the AO dated 30.03.2022 is also invalid and cannot be sustained. For the sake of ready reference the show cause notice is extracted below:

“1. We appreciate the anxiety and uncertainty that is facing all of communication is to assist you for the Assessment Year 2017-18 assist you in ending one uncertainty, which is which is pending e-Assessment in your case for the Assessment Year 2017-18.

2. The variations as per the draft assessment order may be seen which are proposed to be made in your case.

Draft Assessment Order

Assessee company has filed its return of income for the A.Y 2017-18 on 28.03.2018 vide acknowledgement number 526544381280318 declaring income of Rs. 17,640/-. Some credible information was received from DDIT(Inv.), Unit 1(3), Kolkata vide letter dated 07.09.2018. From the perusal of the same it was noticed that the assessee company has made cash deposit of Rs. 12,20,000/- in its bank account during the demonetization period.

2. On examination of ITR and Balance Sheet of the assessee company it is found that there is no rationale behind such transactions which is actual infusion of assessee’s own money, generated through unaccounted source of income.

2.1 Accordingly, the case was reopened u/s 147 and notice u/s 148 r.w.s. 147 of the Act, issued to the assessee vide DIN No. ITBA/AST/S/148/2020-21/1032095516(1) dated 31.03.2021 and served upon the assessee. In response to notice u/s 148, the assessee has not filed his return of income. Thereafter, vide letter F.No. ITBA/AST/F/142(1)/2021-22/1037086528(1) dated 20.11.2021, notice u/s 142(1) fixing the proceedings for 06.12.2021, the assessee was again requested to furnish certain general information of company, details of bank accounts, cash book etc

9. The case of the assessee finds supports of the decision of coordinate Bench in the case of. MD Mahimud SK Vs. ITO, in ITA Nos. 2230 & 2229/KOL/2024 vide order dated 04.03.2025, the operative part of the same is extracted below:-

10. After hearing the rival contentions and perusing the materials available on record, we find that the notice to the assessee was issued u/s 148 of the Act on 31.03.2021, through e-mail after the case was reopened u/s 147 of the Act. Notice u/s 143(2) read with section 147 of the Act was issued on 29.06.2021 and thereafter , the proceedings would taken over by National Faceless Centre, Delhi and notice u/s 142(1) dated 09.02.2022, was issued and thereafter show cause was issued to assessee by the NFAC on 17.03.2022. Finally, the assessment was framed u/s 147 read with section 144B of the Act vide order dated 23.03.2022.

11. We have perused the section of Section 151A of the Act, which deals with the faceless assessment of income escaping assessment and was brought on the statute book by taxation and other law (realization and amendment of certain provisions) Act, 2020, with effect from 01.11.2020 which was notified on 29.03.2022 vide notification no.18/2022/F. No. 370142/16/2022-TPL(Part)]. Therefore, the assessment proceedings were taken by the National Faceless Assessment Centre, Delhi by issuing notice u/s 142(1) dated 09.02.2022 and thereafter the assessment was framed accordingly after issuing show cause notice which in our opinion is without jurisdiction. The provisionw of Section 151A of the Act were brought on the statute book with effect from 01.11.2020. However, the same were made effective and applicable with effect from 29.03.2022 vide notification no. when the CBDT notified the new scheme for assessment of income escaping assessment scheme, 2022. In our considered view the assessment framed is without jurisdiction and cannot be sustained. The case of the assessee find force from the decision of Nabiul Industrial Metal Pvt. Ltd., Paschim Medinipur VS. I.T.O., in ITA no. 1328/KOL/2024 for A.Y. 2017-18, the order dated 15.10.2024, wherein a similar issue has been decided in favor of the assessee. For the sake of ready reference, the notice issued u/s 142(1) dated 09.02.2022 and show cause notice dated 17.03.2022, are extracted below:-

GOVERNMENT OF INDIA
MINISTRY OF FINANCE
INCOME TAX DEPARTMENT
National Faceless Assessment Centre
Delhi

To,

MD MAHIMUD SK
S/O ABDUL RAJJAK VILL-KISMAT NARAYANPUR,PO-
SRIRAMPUR SD-ENGLISHBAZAR
MALDA 732215, West Bengal

Notice under sub-section (1) of Section 142 of the Income Tax Act, 1961

Dear Taxpayer,

Kindly refer to ongoing assessment proceedings in your case for A.Y. 2015-16 under Faceless Assessment Scheme, 2019.

2. We appreciate the anxiety and uncertainty that is facing all of us in the times of Covid-19. This communication is to assist you in ending one uncertainty, which is pending e-Assessment in your case for the Assessment Year 2015-16.

3. You are requested and required to kindly furnish or cause to be furnished on or before 12/02/2022 by 04:47 PM, the accounts and documents specified in the Annexure to this notice.

4. The accounts or documents, as mentioned above, are required to be submitted online electronically in ‘E-proceedings’ facility through your account in e-Filing website (www.incometaxindiaefiling.gov.in)

Yours faithfully,
Additional / Joint / Deputy / Assistant Commissioner of Income Tax,
National Faceless Assessment Centre,
Delhi

GOVERNMENT OF INDIA
MINISTRY OF FINANCE
INCOME TAX DEPARTMENT
National Faceless Assessment Centre
Delhi

To,

MD MAHIMUD SK
S/O ABDUL RAJJAK VILL-KISMAT
NARAYANPUR ,PO-SRIRAMPUR SD-
ENGLISHBAZAR
MALDA 732216 ,West Bengal
India

Show cause Notice as to why the proposed variation should not be made

Ms/ Mr/ M/s,

1. We appreciate the anxiety and uncertainty that is facing all of us in the times of Covid-19. This communication is to assist you in ending one uncertainty, which is pending e-Assessment in your case for the Assessment Year 2015-16.

2. The variations as per the draft assessment order may be seen which are proposed to be made in your case:-

Credible information had been received for the FY 2014-15 relevant to AY 2015-16, that the assessee had aggregated credit turnover is Rs. 16.99 lacs and debit turnover is 16.99 lacs during the period 01.04.2014 to 31.03.2015 in the bank accounted maintained in Bank of Baroda bearing a/c no. 39920100006975. Prima facie there was reason to believe that the assessee had total credit/deposit in bank account during the FY 2014-15 relevant to AY 2015-16 is Rs. 38,65,557/-, which has escaped assessment within the meaning of section 147 of the Act. Assessment proceedings u/s 147 were initiated after recording reasons and seeking prior approval of Pr. Commissioner of Income-tax. Accordingly, statutory notice U/s 148 of the Act was issued & sent to the assessee by DIN & Document No. ITBA/AST/S/148/2020-21/1032066973(1) dated 31.03.2021 through E-mail requiring the assessee to file his Income Tax Return for the A.Y 2015-16 within 30 days of service of the said notice. In compliance of notice u/s 148, the assessee filed her return of income vide acknowledgement No. 345878730280421 dated 28.04.2021 declaring an income of Rs. 2,25,800/-. During the year under consideration the assessee earned income under the Head Income from Business and Income from other Sources. Statutory notices u/s 143(2), 142(1) alongwith questionnaire were issued to assessee.

2. During the course of assessment proceedings it has been noticed that assessee had deposited cash in Bank of Baroda bearing a/c no. 39920100006975 and in State Bank of India bearing A/c No. 31561107456. In response to notice u/s 143(2) dated 29.06.2021, assessee submitted his reply dated 11.08.2021 stating that he has filed his return of Income for the AY 2015-16 showing a turnover of Rs. 25,46,080/- and Net Profit u/s 44AD of Rs. 2,25,780/- besides this assessee receives S/B interest of Rs. 3,280/- during the A.Y. 2015-16. He is doing mainly labour Contract business on the different part of the country and sometimes in local basis. He receives cash from different contractee and paid to the daily workers on cash basis. Whenever, he does not receive any contract he deposited the cash in the bank accounts and later on he again withdraws cash from Bank and pay the daily workers if he receive any contract work. Notice u/s 142(1) dated 29.12.2021 was issued to the assessee to furnish detailed computation of income, brief note indicating the nature of business/professional activities carried out by him and explain the source of cash deposit in the above said accounts. In response to notice u/s 142(1) dated 29.12.2021, assessee did not submit his reply. After that, again a notice u/s 142(1) dated 09.02.2022 was issued to furnish detailed computation of income, copy of cash flow statement, details of contract made with documentary evidence and details of payment to the labour with documentary evidence. But, assessee again did not submit his reply.

3. A final show cause notice u/s 144 of the I.T Act, 1961 was issued to the assessee on 23.02.2022 for the sake of natural justice and providing one more and last opportunity to explain requesting him to furnish the requisite details on or before 25.02.2022. The assessee again failed to furnish any reply.

4. It is a part of record that during the course of assessment proceedings sufficient opportunity and reasonable time was granted to the assessee but he did not bother to comply with the notices and to provide the vital information /documents so as to enable the assessing officer to complete the assessment. Needless to mention here that when a statutory notice has been issued, it is the duty of the assessee to respond and to furnish the required information. Further, while scrutinizing the case it would be of great importance to have an idea about assessee’s intention behind the non co-operation. The immediate idea that can be formed is that the assessee might have taken it beneficial to evade the proceedings rather than to co-operate in furnishing the information to avoid further investigation in the matter. Therefore, in the absence of relevant reply from the assessee, the matter is being decided as per the record available.

5. After pursing the reply of the assessee and the return of the income filed u/s 148 that the assessee is driving income from the business and income from other sources. After considering the reply of the assessee, the reply is not found tenable because the assessee has not produced proper books of account coupled with non-production of documentary evidence of contract business. Hence, cash deposited in Bank of Baroda bearing a/c no. 39920100006975 amounting to Rs. 16,96,682/- and in State Bank of India bearing A/c No. 31561107456 amounting to Rs. 4,09,500/- totaling to Rs. 21,06,182/- is treated as unexplained credit entries in book of the assessee and accordingly, addition of Rs. 21,06,182/- is proposed to be added back to the income of the assessee u/s 69A r.w.s. 115BBE of the Income Tax Act, 1961 Penalty proceedings u/s 271(1)(c) of the Income tax act, 1961 for inaccurate particulars of the income are initiated separately.

Issue Penalty notice u/s 271(1)(c) and 271(1)(b) of the Income Tax Act, 1961.

Assessed Issue requisite documents to the assessee.

This order is being passed u/s 147/143(3) r.w.s. 144B of the I.T. Act, 1961.

You are hereby given an opportunity to show cause why proposed variation should not be made and the assessment should not be completed accordingly.

3. Kindly submit your response through your registered e-filing account at www.incometax.gov.in by 23:59 hours of 21/03/2022, whereby you may either:-

a. accept the proposed variation; or

b. file your written reply objecting to the proposed variation; or

c. If required, after filing written reply you may request for personal hearing so as to make oral submissions or present your case. The request can only be made by clicking the Seek Video Conferencing button available against the SCN, in the view notices of this proceeding in the e-proceedings tab on efiling portal. The request can be made only before expiry of compliance date & time. On approval of request, personal hearing shall be conducted exclusively through video conference.

4. In case no response is received by the given time and date, the assessment shall be finalized as per the draft assessment order.

Yours faithfully,

Additional / Joint / Deputy / Assistant Commissioner of Income Tax/
Income-tax Officer,
National Faceless Assessment Centre,
Delhi

10. Even on this account, the order passed by NFAC is invalid and cannot be sustained.”

5. The ld. AR also relied on the decision of Coordinate Bench of this Tribunal in the case of Nabiul Industrial Metal Pvt. Ltd. vs. ITO in ITA No.1328/Kol/2024.

6. In reply, the ld. Sr. DR vehemently supported the order of the ld. CIT(A).

7. We have heard the rival submissions. The issue is squarely covered by the decisions of Coordinate Bench of this Tribunal in the case of Trinity Enclave Pvt. Ltd. vs. ITO and Nabiul Industrial Metal Pvt. Ltd. referred to supra. As it is noticed the NFAC got jurisdiction by Notification with respect to section 151A of the Act only from 29.03.2022, the show-cause notice issued on 24.03.2022 is held as invalid and the same stands quashed. Consequently, the consequent assessment order also stands quashed.

8. In the result, the appeal of the assessee is allowed.

Kolkata, the 18th May, 2026.