Ex Parte Dismissal by CIT(A) Without Deciding Appeal on Merits Violates Section 359(4) of the Income-tax Act, 2025; Matter Remanded for Fresh Adjudication

ISSUE: Whether the Commissioner of Income Tax (Appeals) was justified in dismissing the assessee's appeals ex parte for non-prosecution without deciding the issues on merits, and whether such appellate orders complied with the provisions of the Income-tax Act, 2025.

FACTS: The assessee filed returns for AYs 2019-20 and 2020-21. Pursuant to search proceedings, assessments were completed under the Income-tax Act, 2025 equivalent provisions, resulting in additions. The assessee challenged the assessment orders before the Commissioner of Income Tax (Appeals). The CIT(A) issued three notices, but due to non-compliance by the assessee, dismissed both appeals ex parte and upheld the additions without adjudicating the issues on merits or conducting any inquiry. Before the Tribunal, the assessee sought one more opportunity, undertaking to fully cooperate in the appellate proceedings.

HELD: The Tribunal held that the appellate orders were unsustainable as the CIT(A) failed to decide the appeals on merits and did not pass reasoned speaking orders as mandated under Section 359(4) of the Income-tax Act, 2025. The CIT(A) also failed to exercise appellate powers, including inquiry contemplated under Section 359(3)(b), before dismissing the appeals. Accordingly, the Tribunal set aside both appellate orders and restored the matters to the file of the CIT(A) for fresh adjudication after providing adequate opportunity of hearing. The assessee was directed to cooperate in the remand proceedings, failing which the CIT(A) may decide the appeals ex parte on merits in accordance with Section 359(4). Both appeals were allowed for statistical purposes.

The Supreme Court: Sets Aside HC Rulings on Reassessment Notices; Sends JAO vs Faceless Jurisdiction Issue Back for Fresh Review Post-2026 Amendment, 10-04-2026

ISSUE: Whether, after the introduction of the faceless assessment scheme under Section 151A of the Income-tax Act, 1961, reassessment notices and orders under Sections 148 and 148A(d) issued by Jurisdictional Assessing Officers (JAO) are valid, and what is the effect of the retrospective insertion of Section 147A by the Finance Act, 2026 on such proceedings.

BACKGROUND: Divergent views emerged across various High Courts on the validity of reassessment proceedings initiated under section 148/148A, particularly on the issue of jurisdiction. In this backdrop of conflicting judicial precedents, the Hon’ble Supreme Court examined the validity of such reassessment notices and the interplay between the statutory provisions and the faceless assessment scheme.

FACTS: A large batch of appeals arose from conflicting High Court rulings on reassessment proceedings initiated under the amended framework (post Finance Act, 2021). Some High Courts quashed notices issued by JAOs for not following the faceless mechanism, while others upheld JAO jurisdiction. During pendency, Parliament enacted the Finance Act, 2026 inserting Section 147A retrospectively (from 01.04.2021), clarifying that “Assessing Officer” excludes faceless units, thereby affirming JAO’s role. Assessees challenged this as impermissible retrospective imposition of liability, while Revenue argued it was clarificatory.

AMENDMENTS: The Finance Act, 2026 brought in the following legislative amendments:

• Introduction of section 147A with retrospective effect from 01.04.2021, clarifying that for the purposes of sections 148 and 148A, the term “Assessing Officer” shall mean an officer other than the National Faceless Assessment Centre (NFAC) or faceless assessment units.

• Amendment to section 279 of the Income Tax Act, 2025 to align with section 147A, thereby clarifying the scope and meaning of AO within the statutory framework.

• For the purposes of sections 280 and 281 of the Income Tax Act, 2025, the term “AO” shall exclude NFAC and faceless assessment units.

HELD: The Supreme Court did not decide the merits of the controversy. It set aside High Court judgments quashing reassessment notices solely on the ground of lack of JAO jurisdiction in light of the retrospective amendment. Matters were remitted to respective High Courts for fresh adjudication, granting assessees liberty to challenge the constitutional validity of Section 147A and related provisions. Interim stay on reassessment proceedings was ordered, and all issues including retrospectivity and validity were left open.

VERDICT BY HON’BLE SC: 

1) Set aside the impugned High Court judgments (which had quashed reassessment proceedings solely on the ground of lack of jurisdiction of JAO).

2) Remanded the matters back to the respective High Courts for fresh adjudication.

3) Granted liberty to the Assessee’s to amend their writ petitions to challenge the constitutional validity and retrospectivity of section 147A and related amendments.

4) Clarified that it has expressed no opinion on merits, including validity or scope of the amendments.

5) It is further clarified that the amendment to Section 279 of the Income Tax Act, 2025 has been made to align it with the newly inserted Section 147A of the Income-tax Act, 1961, thereby providing that the term “Assessing Officer” for the purposes of Sections 280 and 281 shall mean an officer other than the NFAC or any faceless assessment unit referred to in Section 273(3).

Further, the Court directed:

• Interim stay of reassessment proceedings during pendency before High Courts.

• Expeditious disposal of matters preferably by 30.09.2026.

• Strict timelines for filing amended pleadings and submissions.