2026 (1) TMI 1207 - HC - Income Tax

Validity of order passed under Section 144C in faceless assessments: objections ignored by DRP led to demand being raised

The note addresses validity of assessment orders under the scheme governing draft orders and objections, emphasizing that failure to deliver objections to ... Validity of order passed u/s 144C - objection filed by the petitioner before the DRP ignored - HELD THAT:- We feel that the consequence of such breach on the part of the petitioner to comply with Section 144C(2)(b) has resulted in adverse consequence to it inasmuch as a demand has been raised without the objection filed by the petitioner before the DRP being considered. The scheme of Section 144C of the Act of 1961 provides that once the draft order is prepared by the Faceless Assessment Officer (FAO), the petitioner has a right to file objection, which shall be considered by the DRP. The objection filed by the assessee are supposed to be considered by the DRP on the one hand and requires the FAO to keep the proceedings in abeyance and await the order of DRP. The provision takes care of the natural justice aspect and provides automatic deferral of the assessment proceedings. But the manner in which the provision has been enacted, may give rise to a confusion in the mind of an assessee, more particularly in the era of e-filing, when the assessments are faceless assessments and in case of failure of the assessee to send copy of the objections, drawing of an inference by the FAO that the objections have not been filed. The consequence of not sending a copy to the Assessing Officer, who too is unknown (faceless) cannot and should not be so drastic. Issues: Whether the final assessment order and demand notice passed by the Assessing Officer without considering objections filed by the assessee before the Dispute Resolution Panel (and without the AO receiving a copy of those objections) is liable to be quashed for breach of the assessee's right to be heard under Section 144C of the Income-tax Act, 1961.Analysis: The Court examined the faceless assessment scheme under Section 144C, the procedural requirement in Section 144C(2)(b) that the assessee must forward a copy of objections to the Assessing Officer, and the operation of Section 144C(4) enabling the AO to proceed where no objection is received by him. The Court recognised that under the faceless regime the AO may reasonably infer non-filing if he does not receive a copy of objections, but also noted that the statutory scheme envisages automatic deferral and consideration by the DRP when objections are filed. The Court observed that in the present case the objections were factually filed before the DRP but were not sent to the AO, resulting in the AO passing the final order and demand without hearing the assessee or awaiting DRP's view, thereby producing an adverse consequence to the assessee.Conclusion: The impugned final assessment order and the demand notice dated 18.12.2025 are quashed and set aside; relief is granted in favour of the assessee.