Tribunal Deletes ₹2.14 Crore Addition Due to Invalid Pre-Notification NFAC Action

Albatross Investment Pvt. Ltd. Vs ITO (ITAT Kolkata)

Notice Issued by NFAC Pre-Notification Invalid — Addition of ₹2.14 Cr Deleted- NFAC Had No Jurisdiction Before 29-03-2022 — Faceless Assessment Without Notification- ITAT Kolkata Quashes Reassessment Order

Assessee raised an additional legal ground challenging jurisdiction of NFAC to frame a reassessment order dated 22.09.2021 u/s 147 r/w 144B. The argument was that NFAC had no authority to issue notices or complete reassessment before 29.03.2022, when CBDT notified the provisions of Section 151A governing faceless reassessment.

The record showed that—

• Notice u/s 143(2) was issued on 27.11.2020,
• NFAC thereafter issued notice u/s 142(1) on 04.02.2021, then SCN on 09.09.2021,
• Final order was passed on 22.09.2021—all BEFORE the effective notification No.18/2022 dated 29.03.2022.

ITAT held that although Section 151A was inserted w.e.f 01.11.2020, it became operational only on 29.03.2022 when CBDT notified the Faceless Assessment of Escaped Income Scheme. Hence, NFAC had no jurisdiction to issue notices or complete assessment during 2020–2021.

The Bench relied on its earlier decisions in MD Mahimud SK, Nabiul Industrial Metal, and Milani Swanirbhar Gosthi—all holding that pre-notification NFAC assessments are void. Accordingly, the reassessment order passed by NFAC was quashed as without jurisdiction, and the Assessee’s appeal was allowed in full.

FULL TEXT OF THE ORDER OF ITAT KOLKATA

This is an appeal preferred by the assessee against the order of the National Faceless Appeal Centre, Delhi (hereinafter referred to as the “Ld. CIT(A)”] dated 28.12.2024 for the AY 2013-14.

2. At the time of hearing, it was brought to our notice that the assessee has filed an application for admission of additional ground vide letter dated 09.10.2025. By virtue of the said additional ground the assessee has challenged the validity of assessment framed by the National Faceless assessment center, which is extracted below:-

“The reassessment in this case has been done by the National Faceless Assessment Centre and order has been passed on 22.09.2021 which is the subject matter of present appeal. However the powers were conferred on the NFAC only w.c.f 29.03.2022 vide Notification dated 18 of 2022. The issue is squarely covered by plethora of judgement of Coordinate Bench of this Tribunal which have been filed in Sr. No.8 10 10 of the judgements paper book.”

3. After hearing the rival contentions and perusing the material on record, we find that the assessee has raised an additional ground of appeal challenging the jurisdiction of the AO to make addition. In our opinion the issued raised in the additional ground is a purely a legal issue qua which all the facts are available in the appeal folder and no further verification of facts are required from any quarter whatsoever. In our considered view the assessee is at liberty to raise any legal issue before any appellate authority for the first time even when the same has not been raised before the lower authorities. The case of the assessee is squarely coverd by the decisions of the Apex court in the case of i) Jute Corporation of India Ltd. Vs CIT in 187 ITR 688 , ii) National Thermal Power Co. Ltd v. CIT [1998] 229 ITR 383 and also by the decision of Hon’ble Calcutta High Court in PCIT vs. Britannia Industries Ltd. [2017] 396 ITR 677 (Cal). Therefore, we are inclined to admit the same for adjudication.

4. The ld. AR submitted before us the facts in brief that the assessee has filed the return of income u/s 139(1) of the Act on 28.09.2013, declaring total income of ₹19,250/-. The case of the assessee was reopened u/s 147 of the Act by issuing notice u/s 148 of the Act on 24.03.2020, after recording reasons to believe. The assessee filed the return of income on 15.10.2020, in compliance to notice u/s 148 of the Act, declaring total income of ₹19,250/-. Notice u/s 143(2) of the Act was issued on 21.07.2020 and notice u/s 142(1) of the Act along with questionnaire was issued on 04.02.2021, which were complied with by the assessee. Finally, the assessment was completed by the ld. AR by making an addition of ₹2,14,50,000/-vide order dated 22.09.2021, passed u/s 147 read with section 144B of the Act, which was affirmed by the ld. CIT (A). The ld. AR vehemently submitted before us that all the notices were issued by the National Faceless Assessment Centre, Delhi by referring to page no.16 to 19, which comprised notices issued u/s 142(1) of the Act on 25.08.2021. The ld. AR also referred to the notice issued u/s 142(1) of the Act by NFAC. Finally, the ld. AR submitted that the assessment framed by the NFAC, Delhi was bad in law as provisions of Section 151A of the Act dealing with the faceless assessment were brought on the statute book on 01.11.2020, which were notified on 29.03.2022, vide notification number 18/2022. The ld. AR therefore, prayed that the assessment framed by the National Faceless Assessment Centre even prior to the date when the provisions of Section 151A of the Act were notified is bad in law and may be quashed. In defense of his arguments, the ld. AR relied on the co-ordinate Bench decision in the case of MD Mahimud SK Vs. ITO vide ITA No. 2230 & 2229/KOL/2024 vide order dated 04.03.2025, Nabiul Industrial metal Pvt. ltd. Vs. ITO in ITA No. 1329/KOL/2024 vide order dated 15.10.2024 and Milani Swanirbhar Gosthi Vs. ITO in ITA No. 397/KOL/2025 vide order dated 28.08.2025. The ld. AR therefore, prayed that the assessment may be quashed.

4.1. On the other hand , the ld. DR heavily relied on the order of authorities below by submitting that the section itself is brought on statute book with effect from 01.11.2020 and therefore, since these are the systems generated notices and accordingly, the assessment was made by the AO, the same needs to be upheld this forum also.

4.2. After hearing the rival contentions and perusing the materials available on record, we find that the notice u/s 143(2) of the Act was issued on 27.11.2020 and thereafter , the proceedings were taken over by National Faceless Assessment Centre, Delhi and notice u/s 142(1) of the Act dated 04.02.2021, was issued which was followed by issuance of show cause notice dated 09.09.2021 by the NFAC, Delhi. Finally, the assessment was framed vide order dated 22.09.2021, passed u/s 147 read with section 144B of the Act. We have perused the provisions of section 151A of the Act dealing with faceless assessment of income escaping income which was brought on statute book by the taxation and other law (realization and amendment of certain provisions) Act, 2020, with effect from 01.11.2020, and notified on 29.03.2022, vide notification number 18/2022 in F.No. 370142/16/2022-TPI(part). Therefore, the assessment proceedings were taken over by NFAC, Delhi by issuing notice u/s 142(1) of the Act on 25.08.2021 and therefore, assessment was framed accordingly after issuing show cause notice. In our opinion, the assessment framed is without jurisdiction as the provisions of section 151A were not notified by the CBDT on the date of issuance of notice u/s 142(1) of the Act and framing of assessment order. The case of the assessee is squarely covered by the decision of the co-ordinate Bench in series of decisions as has been relied on by the assessee. The operative part in the case of MD Mahimud SK Vs. ITO (supra), read as under:-

“010. 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.

011. 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

–

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 lees 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 2014-16 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 AY 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. 25,46,0801- 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. 16,96,6821- 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 Ws 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 assesses,

012. Considering the above facts and legal position, we are of the considered opinion that the order passed by the NFAC, Delhi is without jurisdiction and is hereby quashed. The appeal of the assessee is allowed.

013. The additional ground raised in ITA No. 2230/Kol/2024 A.Y.2017-18 is similar to one as decided by us in ITA No. 2229/Kol/2024 A.Y. 2015-16. Therefore, our decision would, mutatis mutandis, apply to this appeal as well. The appeal of the assessee is allowed.”

4.3. Similar issue has been laid down by the co-ordinate Bench in the Milani Swanirbhar Gosthi Vs. ITO (supra) for A.Y. 2018-19, vide order dated 28.08.2025. Since, the facts before us are materially same, we therefore, respectfully following the decision of the co-ordinate bench, quash the assessment framed by the NFAC as without valid jurisdiction. The additional ground raised by the assessee is allowed.

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

Order pronounced in the open court on 02.12.2025.