Natural Justice Breach in Faceless Assessment: Delhi HC Nullifies AO’s Order, Directs CBDT to Fix DRP Procedure [Read Order]

The Delhi High Court has quashed a final assessment order and demand notice against the petitioner, holding that the assessing officer's (AO) action violated natural justice as he failed to consider objections filed before the Dispute Resolution Panel (DRP). The Court also directed the Central Board of Direct Taxes (CBDT) to issue procedural safeguards to prevent recurrence of such lapses in faceless assessment cases.

The AO had issued a draft assessment order on 6 November 2025 under the faceless regime. The petitioner, Express Freight Consortium, filed objections before the DRP on 5 December 2025. But the petitioner failed to forward a copy of the same to the AO, believing that the DRP would communicate the same.

Meanwhile, the AO issued a notice to which the petitioner did not respond, assuming proceedings would be kept in abeyance pending DRP’s decision. On 18 Dcember 2025, the AO passes a final assessment order and raised a demand with a presumption that no objections had been filed. The petitioner challenged the same before the High Court.

The petitioner argued that the objections were duly filed before the DRP within the stipulated time. It contended that the faceless regime created confusion as the petitioner assumed DRP would forward objections to AO. it was also argued that passing a final order without considering objections undermined the statutory scheme of Section 144C of the Income Tax Act, 1961.

The revenue argued that the AO acted correctly under Section 144C(4) as he presumed no objections were filed since none were received. It was also argued that the petitioner failed to comply with Section 144C(2)(b), which requires forwarding a copy of objections to the AO.

The Division Bench of Justice Dinesh Mehta and Justice Vinod Kumar observed that Section 144C(2)(b) indeed requires the assessee to forward objections to the AO. The petitioner’s failure was a “small lapse.”

It was observed that,

“The scheme of Section 144C of the Act of 1961 provides that once the draft order is prepared by the Faceless Assessment Officer (FAO), the petitioner has a right to file objection, which shall be considered by the DRP. The objection filed by the assessee are supposed to be considered by the DRP on the one hand and requires the FAO to keep the proceedings in abeyance and await the order of DRP.

The provision takes care of the natural justice aspect and provides automatic deferral of the assessment proceedings.”

The court opined as follows,

“We wonder what will happen to the proceedings before the DRP in the instant case! Will they be rendered infructuous or if not, then what will happen to the assessment order, in case the DRP accepts the objection filed by the petitioner – how will that order of the DRP be given effect to?”

Thus, it was held that the AO may be legally correct in drawing an inference (that no objection has been filed by the petitioner) because a copy of the objection has not been sent to him, but factually, the objections had been filed.

The bench also directed the CBDT to ensure that the DRP Registry must not accept objections unless proof of service to the AO is enclosed. This safeguard will avert both inadvertent lapses and deliberate attempts by assessees to buy time or manipulate timelines.

The court quashed and set aside both the assessment order and the demand notice.

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