Calcutta High Court annuls Section 143(3) assessment for breach of natural justice in Pricewaterhouse Coopers Private Limited Vs ACIT
Introduction
The Calcutta High Court in Pricewaterhouse Coopers Private Limited Vs ACIT examined whether an assessment framed under Section 143(3) of the Income Tax Act 1961 could survive when completed without affording a genuine and effective hearing to the assessee. The Court concluded that such an assessment is legally unsustainable as it violates the principles of natural justice, even if a statutory appellate remedy exists under the Act.
This decision is important for assessees facing scrutiny assessments, including those routed through the faceless assessment regime and later transferred to jurisdictional authorities. It reiterates that adherence to procedural fairness is not a mere formality but a mandatory requirement for the validity of an assessment order.
Background of the case
Return filing and initial processing
The assessee, Pricewaterhouse Coopers Private Limited, filed its return of income for AY 2024-25 declaring a loss. The return was initially processed under Section 143(1), resulting in a sizeable refund in favour of the assessee.
Subsequently, the case was taken up for scrutiny under the Faceless Assessment Scheme. Thus, the assessment proceedings progressed in the electronic environment in the first phase.
Transfer from NFAC to Jurisdictional Assessing Officer
In the course of the proceedings, the assessment was transferred from the National Faceless Assessment Centre (NFAC) to the Jurisdictional Assessing Officer (JAO). This shifted the responsibility of completing the assessment from the centralized faceless mechanism to the local office of the Assessing Officer having territorial jurisdiction over the assessee.
Show cause notice and extremely compressed timeline
On 28 March 2026, the Jurisdictional Assessing Officer issued a show cause notice. The notice was based on information stated to have been received from the Investigation Wing concerning the acquisition of KSK Energy Ventures Ltd. by the assessee.
The notice called upon the assessee to submit a response by 30 March 2026. Thus, the assessee effectively had only a very short window to collate material and submit an explanation to serious allegations involving substantial tax implications.
The assessee complied with this strict timeline and furnished its reply on 30 March 2026 itself, within the time stipulated in the notice.
Assessment order passed on the same day
Despite the assessee submitting its explanation on the very date fixed for compliance, the Assessing Officer proceeded to finalise the assessment on 30 March 2026 itself under Section 143(3).
The order:
- Created a tax demand of around ₹87.21 crore, and
- Was passed without granting any meaningful or effective opportunity of hearing, and without properly considering the reply filed on the same day.
Consequently, demand notice and penalty proceedings, being consequential to the assessment order, were also set in motion.
Issues before the Court
The Calcutta High Court dealt with two central questions:
- Whether the assessment order passed under
Section 143(3)was vitiated due to violation of the principles of natural justice and liable to be quashed on that ground.