Faceless reassessment before the scheme became operational lacked jurisdiction, and third-party-based additions failed for breach of natural justice.

Faceless reassessment initiated before the scheme became operational through the applicable notification was treated as unauthorised, rendering the assessment without jurisdiction. The article also notes that additions relating to sale of unlisted investments and alleged undisclosed receipts could not be sustained where the investments appeared in audited balance sheets, no comparable valuation basis was produced, the bank account relied on was not shown to be the assessee's only account, and third-party credits were traced to other accounts. Denial of the underlying material and cross-examination was treated as a breach of natural justice, making the additions unsustainable.

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Issues: (i) Whether the assessment framed through the faceless mechanism was without jurisdiction because the faceless reassessment procedure under the relevant provision had not become operational on the date notices were issued and the assessment proceedings were initiated; (ii) Whether the additions made in respect of sale of unlisted investments and alleged undisclosed receipts could be sustained on the material relied upon by the Assessing Officer.

Issue (i): Whether the assessment framed through the faceless mechanism was without jurisdiction because the faceless reassessment procedure under the relevant provision had not become operational on the date notices were issued and the assessment proceedings were initiated.

Analysis: The assessment notices were issued and the faceless assessment proceedings were conducted before the scheme for faceless reassessment was made effective through the relevant notification. The governing provision was on the statute book earlier, but its operative application for reassessment was notified only later. On that basis, the assumption of jurisdiction by the faceless authority and the consequential assessment were held to be unauthorized.

Conclusion: The issue was answered in favour of the assessee. The faceless assessment was held to be without jurisdiction and was quashed.

Issue (ii): Whether the additions made in respect of sale of unlisted investments and alleged undisclosed receipts could be sustained on the material relied upon by the Assessing Officer.

Analysis: The investments were shown in the audited balance sheets and had earlier been accepted in assessment proceedings. The sale consideration could not be rejected without any comparable evidence or valuation basis. As regards the alleged undisclosed receipts, the bank account relied upon by the Department was not shown to be the assessee's only account, while the alleged credits were traced to third-party accounts. The assessee had also sought the underlying reports and cross-examination of persons whose statements were used, but neither were provided. Reliance on third-party material without effective opportunity of rebuttal was held to violate natural justice.

Conclusion: The issue was answered in favour of the assessee. The additions were held unsustainable.

Final Conclusion: The assessment was annulled on jurisdictional grounds and the additions were also found unsustainable on merits, resulting in complete relief to the assessee.

Ratio Decidendi: A faceless reassessment made before the operative notification bringing the scheme into force is without jurisdiction, and additions based on untested third-party material cannot be sustained where the assessee is denied a fair opportunity of rebuttal and cross-examination.

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