Assessment proceedings often move at a slow pace during their initial stages but accelerate dramatically as the statutory limitation period approaches. In practice, a substantial portion of assessment activity is compressed into the final quarter of the limitation period, which expires twelve months from the end of the relevant assessment year. Consequently, proceedings frequently reach a frantic pace during the closing days before limitation.
The faceless assessment scheme under section 144B of the Income-tax Act (corresponding to section 273 of the Income-tax Act, 2025) has added a new layer of procedural complexity. Every faceless assessment under section 144B(3) (new section 273) involves multiple authorities with distinct functional responsibilities. These include the National Faceless Assessment Centre (NFAC), which facilitates faceless assessment proceedings in a centralized manner; Assessment Units, which conduct the assessment; Verification Units, which undertake verification and enquiry; Technical Units, which provide assistance on legal, accounting, forensic, information technology, valuation, transfer pricing, data analytics, management and other technical matters; and Review Units, which review the proposed assessment.
Sub-section (5) further provides for communication among these units as well as between the NFAC and the taxpayer. In addition, sub-section (8) authorizes the NFAC to transfer the case to the Jurisdictional Assessing Officer (JAO) at any stage of the assessment proceedings.
This redistribution of assessment functions has inevitably increased the need for continuous coordination and communication among the various units while simultaneously ensuring effective interaction with the assessee. Although the faceless assessment scheme seeks to promote efficiency and transparency, the multiplicity of authorities often adds procedural complexity.
As the limitation period draws to a close, the NFAC, instead of acting as a facilitator, frequently attempts to complete the assessment within a compressed timeframe. It is not uncommon for all earlier submissions and explanations furnished by the assessee to be consolidated into a single show-cause notice issued only a few days before the limitation expires, requiring an immediate response. Such an approach hardly facilitates the assessment process. Rather, it places an undue burden on taxpayers, leaving them with insufficient time to examine the issues, collect supporting evidence and furnish an effective reply.
A similar situation arose in Pricewaterhouse Coopers (P.) Ltd. v. Assistant Commissioner of Income-tax [2026] 187 taxmann.com 981 (Calcutta), decided on 25 June 2026 (“PWCPL”). The case was initially selected for scrutiny by an Assessment Unit of the National Faceless Assessment Centre (NFAC), which issued notices under section 142(1). The assessee duly furnished replies to those notices.
Subsequently, following a survey conducted under section 133A at the assessee’s business premises, the proceedings were transferred by the NFAC to the Jurisdictional Assessing Officer (JAO) under section 144B(8). The JAO thereafter issued further notices under section 142(1), to which the assessee again submitted replies. The transfer of proceedings and involvement of multiple authorities considerably increased the procedural complexity of this assessment.
A show-cause notice dated 28 March 2026 was issued barely three days before the expiry of the limitation period, seeking further clarification and supporting documents, with the assessee being required to respond by 30 March 2026. The assessee furnished its reply on the stipulated date. However, on the very same day, the JAO completed the assessment under section 143(3), raising a tax demand of approximately Rs.87.21 crore as against the loss returned by the assessee. Aggrieved by the denial of an effective opportunity of hearing, the assessee challenged the assessment by filing a writ petition before the Calcutta High Court.
The High Court observed that substantial additions had been made without providing the assessee with an adequate opportunity to explain the alleged discrepancies. The Court further noted that the assessment order had been passed in undue haste at the very end of the limitation period. The procedure adopted by the JAO reduced the opportunity of hearing to a mere ritualistic formality rather than the meaningful safeguard contemplated by the principles of natural justice.
After examining the judicial precedents governing the principles of natural justice, Justice Smita Das De held that the record clearly demonstrated the respondents’ failure to provide the petitioner with a meaningful and effective opportunity to present its case. The Court held that denying an effective hearing and bypassing the statutory requirement of personal interaction vitiated the entire decision-making process. Consequently, the impugned assessment order, having been passed in gross violation of the principles of natural justice, was declared void ab initio.
In reaching this conclusion, the High Court relied upon the decision of the Supreme Court in Tin Box Co. v. CIT [2001] 249 ITR 216 (SC), wherein the following question arose for consideration:
“Whether, on the facts and in the circumstances of the case, the Tribunal was justified in not setting aside the assessment order despite finding that the Income-tax Officer had not given a proper opportunity of hearing to the assessee?”
The Supreme Court answered the question in unequivocal terms:
“In our opinion, there can only be one answer to this question, which is inherent in the question itself: in the negative and in favour of the assessee.”
The principle emerging from the above decision by the Calcutta High Court in PWCPL case is that a proper, effective and meaningful opportunity of hearing necessarily includes a personal hearing. A proper, effective and meaningful opportunity of hearing is not satisfied merely by issuing notices or granting a short period for filing written submissions. Where the statutory framework contemplates a personal hearing, the taxpayer must be afforded a real and effective opportunity of such hearing before an adverse assessment order is passed.