Faceless assessment procedure must include draft order and hearing before adverse income variation, or the assessment is vitiated.

Under the faceless assessment regime, section 144B requires a show cause notice-cum-draft assessment order before any adverse variation in income, together with a meaningful opportunity to respond and, where requested, a personal hearing. The text states that failure to follow this mandatory procedure, even if earlier notices were issued during assessment, breaches the statutory scheme and principles of natural justice. It further states that such non-compliance vitiates the assessment order and consequential demand and penalty notices, while permitting a fresh assessment in accordance with law after hearing through videoconferencing and prior intimation.

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Issues: Whether the assessment order and consequential demand and penalty notices were liable to be set aside for breach of the statutory procedure under the faceless assessment regime and violation of principles of natural justice.

Analysis: The statutory scheme under section 144B of the Income-tax Act, 1961 requires issuance of a show cause notice-cum-draft assessment order before variation of the assessee's income, together with an opportunity to respond and, where sought, a personal hearing. The assessee's income was varied to its prejudice, but the mandated draft assessment process was not followed. The prior notices issued in the course of assessment did not cure the omission because they did not satisfy the safeguards built into the faceless assessment framework.

Conclusion: The assessment order and the consequential notices were set aside as being contrary to the statutory mandate and the principles of natural justice.

Final Conclusion: The writ petition succeeded, and the revenue was left at liberty to pass a fresh assessment in accordance with law after granting a hearing through videoconferencing and due prior intimation.

Ratio Decidendi: Where the faceless assessment provisions require a show cause notice-cum-draft assessment order before an adverse variation in income, non-compliance with that mandatory procedure vitiates the assessment for breach of natural justice.

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