Delhi High Court annuls faceless assessment dated 15.04.2021 for AY 2018-19 for not following Section 144B procedure

1. Background and context

In Gurgaon Realtech Limited Vs National Faceless Assessment Centre Delhi, the Delhi High Court examined whether an assessment completed on 15.04.2021 for Assessment Year 2018-19 under Section 143(3) read with Sections 143(3A) and 143(3B) of the Income Tax Act 1961 could legally stand after the statutory shift to the new faceless assessment regime embodied in Section 144B.

The assessee assailed:

  • The assessment order dated 15.04.2021 passed under Section 143(3) read with Sections 143(3A) and 143(3B);
  • The corresponding demand notice under Section 156; and
  • The notice initiating penalty proceedings under Section 274 read with Section 270A, both also dated 15.04.2021.

The dispute centred on whether, after 01.04.2021, the Revenue could still rely on the earlier scheme under Sections 143(3A) and 143(3B), or whether all such assessments had mandatorily to comply with the procedure prescribed in Section 144B, especially in light of Section 143(3D) and the CBDT notification dated 31.03.2021.

The principal jurisdictional question before the Court was:

  • Whether an assessment order dated 15.04.2021 for AY 2018-19, purporting to be passed under Section 143(3) read with Sections 143(3A) and 143(3B), was valid when Section 143(3D) explicitly provides that Sections 143(3A) and 143(3B) shall not apply to assessments made on or after 01.04.2021, and
  • Whether such assessments must, instead, necessarily follow the faceless assessment procedure embodied in Section 144B, as also reflected in the CBDT notification dated 31.03.2021.

An additional procedural issue arose because the assessee had simultaneously filed an appeal before the Commissioner of Income Tax (Appeals) on 29.05.2021 to ensure that the period of limitation, expiring on 31.05.2021, did not lapse. The Revenue contended that this alternative remedy deprived the assessee of recourse to writ jurisdiction. The assessee argued that, since the order itself was without jurisdiction, the existence or exercise of appellate remedy was not a bar to a writ challenge.

3. Assessee’s arguments

(i) Challenge to jurisdiction

Counsel for the assessee contended that:

  • By virtue of Section 143(3D), the statutory scheme under Sections 143(3A) and 143(3B) ceased to apply to assessments made under Section 143(3) or Section 144 on or after 01.04.2021.
  • The impugned assessment order dated 15.04.2021 was expressly framed under the erstwhile scheme (Section 143(3) read with Sections 143(3A) and 143(3B)) which, post 01.04.2021, was legally inapplicable.
  • In addition, the CBDT notification dated 31.03.2021, issued under Section 144B(2), clarified that assessments on or after 01.04.2021 had to be carried out in accordance with the procedure set out in Section 144B.

On this basis, it was argued that the assessment order was wholly without jurisdiction and therefore “non-est in law”.

(ii) Maintainability of writ despite appeal

The assessee candidly disclosed that an appeal had been filed before the CIT(A) on 29.05.2021, solely as a protective measure to avoid limitation expiring on 31.05.2021. However, relying on the principle laid down by the Supreme Court in Kiran Singh Vs Chaman Paswan, (1955) 1 SCR 117, it was submitted that:

  • An order that suffers from a fundamental lack of jurisdiction is a nullity;
  • Such invalidity can be raised at any stage, in any proceeding, even in execution or collateral challenges; and
  • A jurisdictional defect is not cured by consent, waiver, acquiescence, or by the mere fact that an appellate remedy exists or has been invoked.

Therefore, the assessee asserted that the writ petition was maintainable despite the pending statutory appeal, since the very competence of the authority to pass the order on 15.04.2021 under Sections 143(3A) and 143(3B) was being questioned.

4. Revenue’s stand

Counsel for the Revenue: