CDG Petchem Limited Vs ITO (ITAT Hyderabad)
The Income Tax Appellate Tribunal, Hyderabad Bench, set aside a faceless assessment completed without issuing a draft assessment order and providing an opportunity to respond to proposed adverse variations. The Tribunal held that the omission violated the mandatory procedure under section 144B, as applicable to the assessment, and the principles of natural justice.
The matter was restored to the Assessing Officer with directions to issue a show-cause notice along with the draft assessment order, consider the assessee’s objections and pass a reasoned order. The Tribunal also condoned a 165-day delay in filing the appeal after accepting the explanation concerning a change in the authorised representative.
Background of the Case
The assessee, CDG Petchem Limited, challenged the CIT(A), National Faceless Appeal Centre, Delhi’s order dated 27 March 2025 concerning assessment year 2018-19.
Its case had been selected for complete scrutiny under the E-assessment Scheme, 2019. The Assessing Officer issued a notice under section 143(2) on 28 September 2019.
After considering the assessee’s submissions, the officer completed the assessment on 5 April 2021 under section 143(3), read with sections 143(3A) and 143(3B).
The assessment included a ₹42,000 disallowance under section 40(a)(ia) and separate additions of ₹17,25,013 and ₹24,144 towards unexplained expenditure.
The assessee appealed before the CIT(A), which partly allowed its appeal. The remaining disputes were carried to the Tribunal.
Condonation of 165-Day Delay
The appeal before the Tribunal was delayed by 165 days. The assessee filed a condonation petition supported by an affidavit.
Its representative explained that there had been a change in the authorised representative handling the company’s proceedings. Consequently, the CIT(A)’s order did not come to the assessee’s knowledge in time.
The Revenue opposed condonation, arguing that sufficient cause had not been established.
The Tribunal accepted the explanation as bona fide. It found nothing suggesting deliberate delay or an attempt to secure an advantage. While recognising that an appellant must exercise reasonable diligence, it held that the explanation had to be evaluated in its factual context.
Finding sufficient cause, the Tribunal condoned the delay and admitted the appeal.
Challenge to the Assessment Procedure
On the substantive appeal, the assessee first challenged the validity of the assessment order.
Its representative argued that the procedure prescribed under section 144B required communication of the proposed variations through a draft assessment order and an opportunity to respond before finalisation.
However, the Assessing Officer had passed the final order without issuing any draft assessment order.
The assessee therefore sought to have the assessment quashed for failure to follow the mandatory faceless assessment procedure. The Departmental Representative relied on the orders of the lower authorities.
Procedure Applicable to the Order
The Bench, comprising Vice-President Vijay Pal Rao and Accountant Member Madhusudan Sawdia, noted that the final assessment order was passed on 5 April 2021, after section 144B became applicable from 1 April 2021.
Accordingly, the Tribunal held that the assessment had to comply with the procedure prescribed under that provision.
It examined whether an assessment containing variations prejudicial to the assessee could stand when the officer had not first issued a draft order and afforded an opportunity to object.
Reliance on Javin Construction
The Tribunal relied on the Delhi High Court’s decision in Javin Construction Private Limited v. National Faceless Assessment Centre, 448 ITR 354.
As discussed in the Tribunal’s order, that judgment examined section 144B(1)(xvi)(b) and recognised the mandatory requirement of a prior show-cause notice and draft assessment order where prejudicial variations were proposed.
Failure to follow that procedure constituted a breach of both the statutory requirements and natural justice. The High Court had consequently set aside the assessment and directed fresh proceedings after issuance of the draft order.
Earlier Submissions Did Not Cure the Omission
In the present case, it was undisputed that no draft assessment order had been issued. The final order nevertheless contained additions and disallowances adverse to the assessee.
The Tribunal explained that an opportunity to furnish submissions during assessment proceedings does not dispense with the separate requirement to communicate proposed adverse variations and allow a response.
The assessee had therefore been denied the prescribed opportunity before finalisation.
Decision and Conclusion
The Tribunal set aside the assessment order and the consequential CIT(A) order. It directed the Assessing Officer to issue a show-cause notice with the draft assessment order, provide a reasonable opportunity to submit objections and thereafter pass a reasoned assessment order in accordance with law.
The assessee was directed to cooperate.
The appeal was allowed for statistical purposes. Since a fresh assessment was ordered, the Tribunal did not decide the merits of the additions and disallowances. All substantive issues were left open, rather than finally resolved in the assessee’s favour.
Cases Discussed
- Javin Construction Private Limited Vs National Faceless Assessment Centre, 448 ITR 354 (Delhi High Court) — Followed; prior show-cause notice and draft assessment order mandatory where prejudicial variations proposed under section 144B(1)(xvi)(b).
FULL TEXT OF THE JUDGMENT/ORDER OF ITAT HYDERABAD
This appeal is filed by M/s. CDG Petchem Limited (“the assessee”), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC) Delhi (“Ld. CIT(A)”) dated 27.03.2025 for the A.Y. 2018-19.
2. At the outset, we observe that there is a delay of 165 days in filing the present appeal before this Tribunal. The assessee has filed a petition for condonation of delay along with an affidavit explaining the reasons for the delay. The Learned Authorized Representative (“Ld. AR”) submitted that, during the relevant period, there was a change in the authorized representative attending to the proceedings of the assessee. Consequently, the order passed by the Ld. CIT(A) did not come to the knowledge of the assessee in time, resulting in the delay in filing the appeal. It was submitted that the delay was neither deliberate nor intentional. Accordingly, the Ld. AR prayed that the delay be condoned and the appeal be admitted for adjudication on merits.
3. Per contra, the Learned Departmental Representative (“Ld. DR”) opposed the condonation of delay, contending that the assessee had not demonstrated sufficient cause for filing the appeal beyond the prescribed period.
4. We have heard the rival submissions and perused the material available on record. The explanation furnished by the assessee indicates that the delay arose because of a change in the authorized representative attending to its proceedings and the consequent lack of timely knowledge of the order passed by the Ld. CIT(A). In the circumstances, we find the explanation to be bona fide. There is nothing on record to suggest that the assessee deliberately delayed filing the appeal or sought to derive any advantage thereby. While an appellant is expected to exercise reasonable diligence, the explanation for the delay must be considered in the light of the circumstances of the case. Having regard to the reasons stated in the affidavit, we are satisfied that the assessee was prevented by sufficient cause from filing the appeal within the prescribed period. Accordingly, we condone the delay of 165 days and admit the appeal for adjudication on merits.
5. The assessee has raised the following grounds of appeal:
1. The Learned Assessing officer completed the Assessment under section 143(3) of the Act without complying with procedure laid down under Faceless Assessment Scheme as notified by the board from time to time. The Learned CIT(A) erred to comment or dispose the said issue.
2. Whether on the facts and circumstances of the case, the order of the learned CIT(A) was perverse in concurring with addition made the Assessing Officer under section 69A of the Act without appreciating the fact that the appellant has provided with evidences as required under the statute to the satisfaction of the Assessing authorities.
3. Whether on the facts and circumstances of the case, the order of the learned CIT(A) was perverse in remanding back the matter to the file of the Assessing officer for verification of addition made under section 40(a)(ia) of the Act without appreciating the fact that the appellant has submitted documentary evidences in the form of challans and working.
4. Any other ground (if any) will be raised at the time of hearing.
6. The brief facts of the case are that the assessee is a company whose case was selected for complete scrutiny under the E-assessment Scheme, 2019 for the Assessment Year 2018-19. Accordingly, the Assessing Officer (“AO”) issued a notice under section 143(2) of the Income-tax Act, 1961 (“the Act”) dated 28.09.2019. After considering the submissions of the assessee, the AO completed the assessment under section 143(3) read with sections 143(3A) and 143(3B) of the Act, vide order dated 05.04.2021, making a disallowance of Rs. 42,000/- under section 40(a)(ia) of the Act and separate additions of Rs. 17,25,013/- and Rs. 24,144/- on account of unexplained expenditure.
7. Aggrieved by the assessment order, the assessee preferred an appeal before the Ld. CIT(A), who partly allowed the appeal of the assessee.
8. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before this Tribunal. At the outset, the Ld. AR submitted that, under ground no. 1, the assessee has challenged the validity of the assessment order. It was submitted that the procedure prescribed under section 144B of the Act required the issuance of a draft assessment order and an opportunity to respond to the proposed variations before passing the final assessment order. However, in the present case, the AO passed the final assessment order without issuing any draft assessment order to the assessee. Accordingly, the Ld. AR contended that the assessment order was passed in violation of the mandatory procedure prescribed under the faceless assessment provisions and was liable to be quashed.
9. Per contra, the Ld. DR relied upon the orders of the lower authorities.
10. We have heard the rival submissions and perused the material available on record. The issue arising for our consideration is whether the final assessment order dated 05.04.2021 can be sustained when it was passed without first issuing a draft assessment order and affording the assessee an opportunity to respond to the proposed variations prejudicial to its interests. Since the final assessment order was passed after 01.04.2021, the assessment was required to be completed in accordance with the procedure prescribed under section 144B of the Act. In this regard, we observe that an identical issue was considered by the Hon’ble Delhi High Court in the case of Javin Construction Private Limited Vs. National Faceless Assessment Centre, 448 ITR 354. In para nos. 2 to 6 of the said order, the Hon’ble High Court has held as under:
2. Learned counsel for the Petitioner states that the impugned assessment order has been passed without issuing a show-cause notice and draft assessment order which is mandated under section 144B(1)(xvi)(b) of the Act. He states that the Respondent’s action is violative of the principles of natural justice and the provisions of the section 144B.
3. Issue Notice. Mr. Udit Sharma, Advocate appearing on behalf of Ms. Vibhooti Malhotra accepts notice for the respondents. He prays for an adjournment on the ground that Ms. Vibhooti Malhotra, Senior Standing Counsel, who is to appear in this case, is in some personal difficulty. However, since this Court has disposed of number of matters on the same issue, the request for adjournment is declined. However, the respondent is given liberty to seek variation/modification of the order in the event facts have been suppressed from this Court or misstated in the petition.
4. This Court is of the view that section 144B(1)(xvi)(b) mandatorily provides for issuance of a prior show cause notice and draft assessment order before issuing the final assessment order. The relevant portions of section 144B(1)(xvi)(b) as well as section 144B(9) of the Act are reproduced hereinbelow:-
“144B. Faceless assessment –
(1)** ** **
(xvi) the National Faceless Assessment Centre shall examine the draft assessment order in accordance with the risk management strategy specified by the Board, including by way of an automated examination tool, whereupon it may decide to-
** ** **
(b) provide an opportunity to the assessee, in case any variation prejudicial to the interest of assessee is proposed, by serving a notice calling upon him to show cause as to why the proposed variation should not be made; or
** ** **
(9) Notwithstanding anything contained in any other provision of this Act, assessment made under sub-section (3) of section 143 or under section 144 in the cases referred to in sub-section (2) [other than the cases transferred under sub-section (8)], on or after the 1st day of April, 2021, shall be non est if such assessment is not made in accordance with the procedure laid down under this section.”
5. Since in the present case no prior show cause notice as well as draft assessment order have been issued, there is a violation of principles of natural justice as well as mandatory procedure prescribed under “Faceless Assessment Scheme”.
6. Keeping in view the aforesaid, the impugned assessment order, notice of demand, show cause notice for imposition of penalty under section 274 read with section 271AAC(1) and penalty under section 274 read with section 270A of the Act, dated 22nd April 2021, are set aside and the matter is remanded back to the Assessing Officer, who shall issue a draft assessment order and thereafter pass a reasoned order in accordance with law.
11. On perusal of the above, we find that the Hon’ble High Court has considered the requirement under section 144B(1)(xvi)(b) of the Act and held that the provision mandatorily required the issuance of a prior show-cause notice and draft assessment order before passing the final assessment order involving variations prejudicial to the interests of the assessee. The Hon’ble High Court held that failure to comply with this requirement constituted a violation of the principles of natural justice as well as the mandatory procedure prescribed for faceless assessment. Accordingly, the assessment order was set aside and the matter was remanded to the AO with a direction to issue a draft assessment order and thereafter pass a reasoned order in accordance with law.
12. In the present case, there is no dispute that the AO did not issue any draft assessment order to the assessee before passing the final assessment order. Further, the final assessment order contains additions and disallowances prejudicial to the interests of the assessee. Thus, the assessee was deprived of the opportunity prescribed under section 144B(1)(xvi)(b) of the Act to respond to the proposed adverse variations before finalization of the assessment. The opportunity to furnish submissions during the assessment proceedings does not dispense with the requirement to communicate the proposed variations and afford an opportunity to respond thereto. Respectfully following the order of the Hon’ble Delhi High Court in the case of Javin Construction Private Limited Vs. National Faceless Assessment Centre (supra), we hold that the assessment order was passed in violation of the principles of natural justice and the mandatory procedure prescribed under the faceless assessment provisions. Accordingly, we set aside the impugned assessment order and the consequential order of the Ld. CIT(A), and restore the matter to the file of the AO with a direction to issue a show-cause notice along with the draft assessment order, afford the assessee a reasonable opportunity to submit its objections, and thereafter pass a reasoned assessment order in accordance with law. The assessee shall cooperate with the AO in the proceedings.
13. Since the assessment itself has been set aside for fresh adjudication, the remaining grounds concerning the additions and disallowances do not require adjudication at this stage. All issues on merits are left open.
14. In the result, the appeal of the assessee is allowed for statistical purposes.
Order pronounced in the Open Court on 16th October, 2026.
