Seva Sahakari Samiti Maryadit Siriyagarh Vs ITO (ITAT Raipur)
Section 144A: Adverse Directions Without Hearing Assessee Invalidate Assessment, Rules ITAT
Summary: The Raipur Bench of the Income Tax Appellate Tribunal (ITAT) has quashed an assessment framed pursuant to directions issued under Section 144A, holding that the assessee was not heard before prejudicial directions were given.
In Seva Sahakari Samiti Maryadit Siriyagarh v. ITO, Ward-Janjgir Champa, ITA No. 358/RPR/2026, pronounced on 4 November 2026, the Tribunal held that the directions violated the express statutory safeguard requiring a prior hearing.
The decision concerned Assessment Year 2017-18 and directions treating demonetisation-period cash deposits of ₹14,55,307 as undisclosed income, along with estimation of business profits.
Background: Assessment Followed Additional Commissioner’s Directions
The assessee challenged the order of the CIT(A)/National Faceless Appeal Centre dated 16 February 2026.
Its principal legal objection was that the assessment had been completed after obtaining directions from the Additional Commissioner of Income Tax, Range-2, Bilaspur, without providing an opportunity of hearing before those directions were issued.
The assessee maintained that the directions were prejudicial because they determined adverse tax consequences rather than merely guiding further investigation.
It therefore sought annulment of the assessment on this ground alone.
Directions Required Addition of Cash Deposits
The assessment order reproduced directions concerning cash deposits of ₹1,00,342, ₹13,02,405 and ₹52,560, aggregating to ₹14,55,307, during demonetisation.
The directions concluded that the source remained unexplained and that the amount represented undisclosed income liable to addition under Section 69A.
They also required completion of assessment under Section 144 on the available material and contemplated initiation of penalty proceedings.
Further directions concerned examination of other bank accounts and income, including interest. Business income was to be estimated by applying a 5% net profit rate to disclosed turnover.
These directions formed the basis of the assessee’s complaint that adverse conclusions had been reached without hearing it.
Section 144A Expressly Requires Prior Hearing
The Tribunal examined Section 144A and its proviso.
The provision empowers the Joint Commissioner to call for and examine records of a pending assessment and issue directions for guidance of the Assessing Officer. Such directions are binding on the officer.
However, the proviso expressly prohibits issuance of directions prejudicial to the assessee without first giving an opportunity of hearing.
The Explanation separately states that directions concerning the lines of investigation connected with the assessment are not deemed prejudicial.
The statutory distinction is therefore important: guidance on what to investigate differs from a direction reaching an adverse conclusion against the taxpayer.
Tribunal Found Hearing Requirement Breached
The assessee argued that the required hearing had to be afforded by the authority issuing the directions before the adverse directions were finalised.
The Departmental Representative relied on the orders of the lower authorities.
The Tribunal found that no such opportunity had been provided. It consequently held that the proviso to Section 144A had been violated.
The directions did not merely ask the Assessing Officer to verify the deposits. They concluded that the money was undisclosed income and prescribed its adverse treatment.
Accordingly, the statutory safeguard could not be bypassed.
Natural Justice Was Built into the Provision
The Tribunal emphasised audi alteram partem, the principle requiring that an affected person be heard before an adverse decision.
It referred to Maneka Gandhi v. Union of India and State of Orissa v. Dr. (Miss) Binapani Dei, discussing fairness and the need to observe natural justice where decisions affect rights.
It also referred to authorities concerning adverse observations made without hearing the affected person.
In the tax context, the Tribunal discussed CIT v. Amitabh Bachchan and CIT v. Electro House, stressing the importance of an opportunity to answer issues on which adverse conclusions are drawn.
Here, the hearing requirement arose not only from general fairness but also from the express language of Section 144A.
Invalid Directions Vitiated Consequential Assessment
The Tribunal held that the directions were bad in law and invalid because the issuing authority had failed to comply with the mandatory hearing requirement.
Since the assessment was framed pursuant to those invalid directions, the Tribunal held that it also became a nullity.
It therefore quashed the assessment as null and void and allowed the assessee’s appeal.
The remaining grounds became academic. The Tribunal did not separately decide whether the deposits were adequately explained or whether the profit estimate was otherwise justified.
Significance of the Ruling
The order highlights the distinction between investigative guidance and prejudicial assessment directions under Section 144A.
Where the superior authority directs an addition or determines adverse treatment, the statutory opportunity to respond assumes importance. The binding nature of those directions makes the prior hearing safeguard material to the assessment process.
On the facts, failure to provide that hearing invalidated both the directions and the assessment founded upon them.
Cases Discussed
1. Maneka Gandhi Vs Union of India (Supreme Court); AIR 1978 SC 597; (1978) 1 SCC 248; 25/01/1978. The Tribunal referred to this constitutional decision on fairness, reasonableness and due process, emphasizing that proceedings affecting rights must satisfy the principles of natural justice.
2. State of Orissa Vs Dr. (Miss) Binapani Dei (Supreme Court); AIR 1967 SC 1269. Cited for the principle that administrative decisions affecting a person’s rights must observe natural justice and provide an adequate opportunity of hearing.
3. Dushyant Mainali matter (Supreme Court); Civil Appeal No. 15191/2022, as stated in the Tribunal’s order. The Tribunal discussed the Supreme Court’s objection to adverse judicial observations and directions made against an advocate without giving him an opportunity of hearing. The precise appeal identification and decision date require independent confirmation before assigning a case-specific hyperlink.
4. CIT Vs Amitabh Bachchan (Supreme Court); (2016) 384 ITR 200; 11/05/2016. Referred to regarding the necessity of granting the assessee an opportunity of hearing in quasi-judicial proceedings, particularly when conclusions adverse to the assessee are drawn under revisional powers.
5. CIT, West Bengal-II, Calcutta Vs Electro House (Supreme Court); (1972) 82 ITR 824. Discussed in connection with the legal significance of an opportunity of hearing and its distinction from the requirement of a specific show cause notice. The decision is also examined in the TaxGuru analysis of Section 263 and natural justice.
FULL TEXT OF THE ORIGINAL ORDER OF ITAT RAIPUR
The present appeal preferred by the assessee emanates from the order of the Ld.CIT(Appeals)/NFAC, Delhi dated 16.02.2026 for the assessment year 2017-18 as per the grounds of appeal on record.
2. The contention in law assailed by the Ld. Counsel for the assessee emanates from Ground of appeal No.6 which is extracted as follows:
“6. Ground No. VI
That the impugned assessment order has been passed after seeking the direction of the Ld. Addl. Commissioner of Income Tax, Range-2, Bilaspur, however, no prior opportunity of being heard is given to the appellant before issuing such directions which are prejudicial to the interest of the appellant which is highly illegal, against the express provisions of law, bad in law, vitiated and hence, it is hereby requested that the assessment order may please be quashed and annulled on this ground alone.”
3. The Ld. Counsel for the assessee assailing the aforesaid ground has brought to the notice of the Bench to Section 144A a/w. proviso which reads as follows:
“Power of Joint Commissioner to issue directions in certain cases.
144A. A Joint Commissioner may, on his own motion or on a reference being made to him by the Assessing Officer or on the application of an assessee, call for and examine the record of any proceeding in which an assessment is pending and, if he considers that, having regard to the nature of the case or the amount involved or for any other reason, it is necessary or expedient so to do, he may issue such directions as he thinks fit for the guidance of the Assessing Officer to enable him to complete the assessment and such directions shall be binding on the Assessing Officer :
Provided that no directions which are prejudicial to the assessee shall be issued before an opportunity is given to the assessee to be heard.
Explanation.—For the purposes of this section no direction as to the lines on which an investigation connected with the assessment should be made, shall be deemed to be a direction prejudicial to the assessee.”
4. Referring to the said provision, the Ld. Counsel for the assessee submitted that a Joint Commissioner on his own motion or on a reference being made by the Assessing Officer or on the application of an assessee, can provide directions as he thinks fit for the guidance of the Assessing Officer to complete the assessment and such directions shall be binding on the Assessing Officer. Further, “1st proviso” states that any directions which are prejudicial to the assessee shall be issued only when an opportunity of being heard provided to the assessee. In other words, no directions which are prejudicial to the assessee can be given by Joint Commissioner without providing an opportunity of being heard to the assessee and that hearing shall take place before the Joint Commissioner himself. Explanation further states that if direction is given only regarding an investigation connected with the assessment, such direction for investigation will not be considered prejudicial to the assessee.
5. The Ld. Counsel for the assessee further referred to the assessment order and demonstrated at Page 10, Para 16 of the said order wherein, the Addl. CIT, Range-2, Bilaspur had issued specific directions to the A.O where he writes “On perusal of the record, it was found that the assessee has deposited Rs.1,00,342/-, Rs.13,02,405/- and Rs.52,560/- during the period of demonetization, source of which was not explained. Hence it is established that the cash deposits amounting to Rs.14,55,307/- is nothing but undisclosed income and is liable to be added u/s.69A of the IT Act, 1961 in the hands of the assessee. In view of the above facts, assessment u/s 144 has to be completed on the basis of material available on record. Penal proceedings may be initiated accordingly. Any other bank account of any nature appearing in the name of the assessee also to be taken into account while completing the assessment. Any other income earned by the assessee including interest income etc. during the year under consideration may be taken into account. Business income of the assessee may be estimated by applying net profit rate of 5% on the turnover of the business of the assessee as disclosed.”
6. The Ld. Counsel for the assessee, therefore, submitted that the directions were prejudicial to the assessee since it enhanced the tax liability of the assessee, therefore, it was mandatory for the Addl. CIT, Range-2, Bilaspur to follow mandate of “1st proviso” to Section 144A of the Act wherein the statute itself states compliance of ‘principles of natural justice, more specifically right to be heard (audi alterem partem) shall have to be provided to the assessee. That without any opportunity of hearing, no directions which are prejudicial to the assessee shall be given by the said authority. In other words, there must be opportunity of hearing provided to the assessee by the Joint Commissioner in accordance with Section 144A of the Act r.w. 1st proviso before giving any direction to the A.O prejudicial to assessee for completing assessment.
7. Per contra, the Ld. Sr. DR relied on the orders of the sub-ordinate authorities.
8. In the present case, we find that no such opportunity of hearing has been provided to the assessee by the Joint Commissioner, hence, there is violation of the “1st proviso” to Section 144A of the Act. The Hon’ble Supreme Court has consistently emphasized the importance of adequate natural justice in the judicial and quasi-judicial proceedings. This principle ensures fairness, reasonableness and due process preventing arbitrary action and upholding fundamentality of the legal process. In the case of Maneka Gandhi Vs. Union of India (UOI) and Ors. AIR 1978 SC 597, the Hon’ble Apex Court expanded the scope of natural justice holding that any action violating fairness, reasonableness and due process is arbitrary and unconstitutional. In the case of State of Orissa Vs. Dr. (Miss) Binapani Dei, 1967 AIR 1269, the Hon’ble Apex Court has established that even administrative orders affecting a person’s rights must adhere to the principles of natural justice. There are certain principles ensuring within the parameters of natural justice, one of them is “audi alterm partem” which mandates that before taking any action against a party, they must be given an opportunity to be heard and present their case.
9. The right to be heard is the cornerstone of natural justice and in this regard in the case before the Hon’ble Uttarakhand High Court in 2022 regarding a practising advocate, Dushyant Mainali (CLR No.22/2022) wherein the Hon’ble High Court had observed that the said advocate Mainali was accused of professional misconduct for allegedly misleading the litigant and causing the delay in filing revisional petition. The Hon’ble High Court directed the Bar Counsel of Uttarakhand to initiate disciplinary proceedings against the lawyer. Mainali challenged these remarks before the Hon’ble Supreme Court, contending that he was neither a party to the case before the High Court nor was involved in any capacity. The remarks, therefore, not only tarnished his professional reputation but were also made in clear violation of the principles of natural justice. The Hon’ble Apex Court in Civil Appeal No.15191/2022, arising out of a Special Leave Petition filed by Dushyant Mainali examined the Hon’ble High Court’s order and found the approach to be legally untenable. Hon’ble Justice Gavai (as he was at that time) speaking for the bench, noted that “we are of the considered view that the approach of the High Court in making the observations against the appellant without giving him any opportunity of being heard is totally unsustainable in law.” The bench went on to delete the entire portion of the high court’s order that contained the contentious remarks and directives against Mainali, holding that such a move violates the fundamental principles of fairness and due process.
10. The Hon’ble Supreme Court in the case of CIT Vs. Amitabh Bachhan (2016) 384 ITR 200 (SC) while upholding the mandatory requirement for adhering to the principles of natural justice, in any proceedings by a quasi-judicial authority also referred to the decision in the case of the C.I.T., West Bengal, II, Calcutta Vs. M/s. Electro House, (1972) 82 ITR 824 (SC), wherein it was held and observed that a breach of principles of natural justice effects the legality of the order. Any contravention of the principles of natural justice vitiates the order passed by the authority. Accordingly, the Hon’ble Apex Court has ruled that it is mandatory to provide an opportunity to the assessee to be heard on all issues especially where conclusions are drawn adverse to the assessee.
11. That decisive factors in all the aforesaid judicial pronouncements is that principles of natural justice has to be duly complied with and no action prejudicial to any person can be taken by any authority without providing him a fair and reasonable opportunity of being heard. In the present case, Section 144A a/w. 1st proviso itself spells out specifically such opportunity has to be given by the Joint Commissioner which he has failed to comply with in the present case. That the assessment framed in consequent to the directions of the Joint Commissioner which itself is violative of Section 144A r.w. 1st proviso, therefore, such directions are held as bad in law, invalid and assessment framed in pursuant of such invalid directions also subsume to nullity. The assessment is quashed being null and void.
12. Since assessment itself is quashed, subsequent proceedings are non-est as per law. Rest any other grounds are academic only.
13. As per above terms, the appeal of the assessee is allowed.
Order pronounced in the open court on 4th November, 2026.
