Jurisdictional Split in Faceless Reassessment: ITAT Chennai Invalidates Section 147 Order for Procedural Breach

Introduction

The Chennai Bench of the Income Tax Appellate Tribunal (ITAT) delivered a significant ruling addressing the procedural requirements under the faceless assessment regime. In the matter of All One Knit Yarns Traders Vs. ITO, bearing ITA No.2789/Chny/2025 for Assessment Year 2019-20, decided on December 31, 2025, the Tribunal struck down a reassessment order due to a fundamental jurisdictional defect. The case highlights the critical importance of maintaining procedural consistency when both jurisdictional and faceless authorities are involved in reassessment proceedings.

The crux of the dispute revolved around whether a reassessment order passed by the National Faceless Assessment Centre (NFAC) could be sustained when the initial proceedings under Section 148A(b), the order under Section 148A(d), and the notice under Section 148 were all issued by the Jurisdictional Assessing Officer (JAO). The Tribunal's decision underscores that such bifurcation of authority violates the prescribed legal framework under the faceless assessment mechanism introduced through Section 144B of the Income Tax Act, 1961.

Background of the Case

Facts Leading to Reopening

For the Financial Year 2018-19 corresponding to Assessment Year 2019-20, the assessee maintained a current account with ICICI Bank Limited. During this period, the assessee withdrew cash amounting to ₹3,27,62,725. The Assessing Officer observed that these substantial cash withdrawals remained unexplained and their purpose could not be ascertained. This situation arose primarily because the assessee had not filed a return of income for Assessment Year 2019-20.

The absence of a filed return coupled with the significant cash withdrawals triggered the Revenue's scrutiny. The Jurisdictional Assessing Officer formed the belief that income chargeable to tax had escaped assessment, thereby initiating proceedings for reopening the assessment under the revised provisions introduced for reassessment.

Initiation of Reassessment Proceedings

On February 27, 2023, the Jurisdictional Assessing Officer issued a notice under Section 148A(b) of the Income Tax Act, 1961, calling upon the assessee to show cause as to why a notice under Section 148 should not be issued for reassessment. This notice required the assessee to explain the nature and purpose of the cash withdrawals.

In response to this show cause notice, the assessee submitted written representations. The assessee clarified that no business operations were conducted during Financial Year 2018-19, which related to Assessment Year 2019-20. Consequently, the assessee contended that there existed no obligation to file a return of income for that assessment year, as the threshold requirements for filing were not met.

Order Under Section 148A(d) and Notice Under Section 148

After considering the assessee's submissions, the Jurisdictional Assessing Officer found them inadequate to explain the cash withdrawals satisfactorily. The officer remained unconvinced that the withdrawals had been properly accounted for or that they represented explained transactions. Accordingly, on March 30, 2023, the Jurisdictional Assessing Officer passed an order under Section 148A(d) of the Act, approving the issuance of reassessment notice.

Following this order, the Jurisdictional Assessing Officer issued a notice under Section 148 of the Income Tax Act, 1961, dated March 30, 2023, formally reopening the assessment for Assessment Year 2019-20. This notice required the assessee to file a return of income and provide complete particulars regarding the cash withdrawals.

Assessment by NFAC

The assessee provided partial information in response to the reassessment notice but failed to furnish complete details regarding the cash withdrawals to the satisfaction of the authorities. Subsequently, the assessment proceedings were transferred to or taken up by the assessment unit of the National Faceless Assessment Centre (NFAC).

On March 7, 2024, the assessment unit of NFAC completed the reassessment under Section 147 read with Section 144B of the Income Tax Act, 1961. In this assessment order, the NFAC treated the entire amount of ₹3,27,62,725 as unexplained expenditure under Section 69C of the Act. The total income of the assessee was assessed at ₹3,27,62,725.

Appellate Proceedings Before CIT(A)

Aggrieved by the reassessment order passed by NFAC, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi. The appellate authority, through an order dated October 6, 2025, upheld the reassessment order and confirmed the addition of ₹3,27,62,725 made under Section 69C of the Act.

The Commissioner (Appeals) did not find merit in the assessee's contentions regarding the jurisdictional defect arising from the split between the Jurisdictional Assessing Officer who initiated proceedings and the Faceless Assessing Officer who completed the assessment.

Contentions Before ITAT Chennai

Assessee's Arguments

The learned Authorized Representative, Shri S. Girish Kumar, Advocate, presented comprehensive arguments challenging the validity of the reassessment proceedings on jurisdictional grounds. The primary contention raised was procedural rather than substantive.

The AR drew the Tribunal's attention to specific documents in the paper book, particularly pages 1 and 5, which contained:

• The order under Section 148A(d) issued by the Jurisdictional Assessing Officer
• The notice under Section 148 dated April 30, 2023, issued by the Jurisdictional Assessing Officer
• The assessment order dated March 7, 2024, passed by the Faceless Assessing Officer under Section 147 read with Section 144B

The AR vehemently argued that this bifurcation of authority rendered the entire reassessment proceedings invalid. He contended that when the Jurisdictional Assessing Officer initiates proceedings by passing the order under Section 148A(d) and issuing notice under Section 148, the same authority should complete the assessment proceedings. The completion of assessment by the Faceless mechanism through NFAC, when the foundational steps were taken by the Jurisdictional Assessing Officer, violated the prescribed legal procedure.

The AR relied heavily on the judgment of the Hon'ble Madras High Court in TVS Credit Services Ltd. v. DCIT in W.P. No. 22402 of 2024 & WMP No. 13336 of 2023 dated June 24, 2025. He submitted that this decision directly addressed the identical issue and held that such split jurisdiction vitiates the reassessment proceedings.