Reassessment notices must be issued under the faceless scheme, not in physical form.
Issue
Are reassessment notices issued by jurisdictional Assessing Officers in physical form legally valid when the law, under Section 151A of the Income-tax Act, 1961, mandates that such notices must be issued under the faceless assessment scheme?
Facts
- The petitioners filed writ petitions to challenge the reassessment proceedings that had been initiated against them for the Assessment Year 2017-18.
- The core of their challenge was that the show-cause notices under Section 148A and the final reassessment notices under Section 148 were issued by their respective jurisdictional Assessing Officers in the traditional, physical form.
- They argued that as per Section 151A of the Act and the schemes notified under it, the entire process of reopening an assessment, including the issuance of these specific notices, was required to be done in a faceless manner by the designated national faceless assessment unit.
Decision
The High Court ruled in favour of the assessee.
- The court held that the law, as per Section 151A, expressly includes the issuance of notices under Section 148A and Section 148 within the scope of the faceless assessment scheme.
- Therefore, the notices that were issued by the jurisdictional Assessing Officers in physical form, completely outside the faceless scheme, were issued by officers who lacked the proper jurisdiction to do so.
- The impugned notices were declared to be without jurisdiction and were consequently quashed.
Key Takeways
- Jurisdiction is a Fundamental Prerequisite: The authority that issues a notice must have the legal jurisdiction to do so. A notice issued by an officer or a unit that lacks the proper jurisdiction is a nullity from the very beginning.
- The Faceless Scheme is Mandatory, Not Optional: When the law mandates that a particular proceeding must be conducted in a faceless manner, the traditional jurisdictional Assessing Officer is divested of their power to conduct that proceeding. The designated faceless assessment unit becomes the sole competent authority.
- Section 151A Defines the Scope of Faceless Proceedings: This section and the notifications and schemes issued under it are what determine the scope of faceless proceedings. If a particular function, like issuing a Section 148 notice, is covered under the faceless scheme, then only the faceless authority has the power to perform it.
- A Jurisdictional Defect is a Fatal Flaw: A notice issued without jurisdiction is not a minor procedural irregularity that can be corrected later. It is a fundamental legal flaw that renders the entire proceeding void and legally unsustainable.
HIGH COURT OF KARNATAKA
Ramachandra Reddy Ravi Kumar
v.
Deputy Commissioner of Income-tax
M. Nagaprasanna, J.
WRIT PETITION Nos. 17352 OF 2022, 14168, 26203 and 28182 of 2024 (T-IT)
AUGUST 28, 2025
A. Shankar, Sr. Adv., Madhusudhan U.A., S. Annamalai, Venkatesh K. Pani, Monish Sawkar, Joseph Varghese, Pranaav G. Ambekar, G. Venkatesh and Y. Pranay Sharma, Advs. for the Petitioner. E.I. Sanmathi, Adv. for the Respondent.
ORDER
1. The petitioners in all these cases, inter alia, call in question the notice issued by the jurisdictional Assessing Officer contending that it is without jurisdiction as the notice had to emerge in a faceless manner. Since the issue of jurisdiction being common in all these cases, they are taken up together and considered by this common order.
2. Facts, in brief, germane are as follows:
IN WRIT PETITION NO.28182 OF 2024:
The petitioner is an individual. He files his return of income for the assessment year 2017-18 on 02-11-2017 declaring total income of Rs.1,24,22,910/-. The 1st respondent issued notice under Section 148A of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’ for short) on 16-02-2024 holding that a search and seizure operation under Section 132 of the Act was conducted in the case of M/s AMR India Private Limited and others on 02-05-2018, and as a part of the search operation M/s.YHR Infra Projects was surveyed under Section 133A of the Act. During the course of assessment proceedings of Sri Yedugundla H.Reddy, it is noticed that he had purchased property from the petitioner and paid an amount of Rs.2,19,00,000/- out of which, Rs.44,99,850 was paid in cash. Therefore, in terms of Section 148A(a) of the Act, the petitioner was required to furnish information and documents concerning the assessment year 2017-18. The petitioner submits his reply contending that the information available through insight portal is regarding sale of immovable property. The petitioner has sold his undivided share in the immovable property for a sale consideration as explained by the petitioner. The respondent issues a show cause notice under Section 148A(b) of the Act on 28-02-2024 in accordance with Risk Management Strategy formulated by the Board. The information was received by the petitioner through insight portal wherein, search and seizure operation conducted in the year 2018, comes to the knowledge of the petitioner. The petitioner in response to the notice filed a reply in the income tax portal on 08.03.2024, urging several contentions. The contentions were all touching upon the jurisdiction. One notice issued with regard to jurisdiction was when the notice had to be issued on escaped assessment. The notice could not be issued in a physical manner by the jurisdictional Assessing Officer after the notification of the Government of India dated 29-03-2022, which mandated that the notice should be through faceless regime. This is not the only contention in the case at hand. The petitioner has urged several other contentions to buttress his submissions towards quashment of proceedings.
In WRIT PETITION NO.17352 OF 2022:
3. The petitioner calls in question certain instructions issued on 11-05-2022 by the 1st respondent/Central Board of Direct Taxes and a notice issued under Section 148 of the Act. The petitioner is a Company engaged in the business of providing services for design support and development of application solutions for semiconductor products and providing marketing support services to the group companies. The petition challenges the notice issued by the 2nd respondent against a non-existing entity AMD India Private Limited seeking to reopen the assessment for the assessment year 2017-18. Here again, the petitioner has projected plethora of grounds in challenge to the notice so issued and further proceedings taken by the respondent – one such ground is the notice suffering lack of jurisdiction inasmuch as, after faceless regime, the proceedings could not have been initiated by the jurisdictional Assessing Officer.
In WRIT PETITION NO.26203 OF 2024:
4. The subject petition is by an individual. The petitioner is at the doors of this Court calling in question a notice so issued by the 1st respondent/Income Tax Officer under Section 148A(b) of the Act on the contention that it is without jurisdiction. In the subject petition no other ground is urged except the jurisdictional aspect qua faceless regime.
5. Thus, in all these cases, one common stream of challenge that runs through is, challenge to the jurisdictional issue qua the notice issued on initiation of proceedings under Section 148A (a) & (b) of the Act.
6. Heard Sri A.Shankar, learned senior counsel appearing for the petitioner in W.P.No.28182 of 2024; Sri K.K. Chythanya, learned senior counsel appearing for the petitioner in W.P.No.17352 of 2022; Sri T. Suryanarayana, learned senior counsel appearing for the petitioner in W.P.No.26203 of 2024; Sri E.I.Sanmathi, learned counsel appearing for the respondents in Writ Petition Nos.28182 of 2024 and 26203 of 2024 and Sri Y.V.Ravi Raj, learned counsel appearing for respondents in Writ Petition No.17352 of 2022.
7. Sri K.K.Chythanya, learned senior counsel and Sri A. Shankar, learned senior counsel heading the submissions would contend that the Government of India notifies faceless regime in terms of the Notification dated 29-03-2022. On and from 29-03-2022, if proceedings are to be initiated under Section 148 of the Act it should be e-assessment of the income escaping assessment under E-Assessment of Income Escaping Assessment Scheme, 2022 (for short ‘ the Scheme’). Learned senior counsel representing the petitioners in all the petitions, would submit that several High Courts have considered this issue and the division benches of several High Courts have held that faceless regime has to prevail. But, the matters are pending before the Apex Court. In the light of the matter being pending before the Apex Court, the learned senior counsel for the petitioners in all the petitions would submit that this Court should follow two division bench judgments – one of High Court of Madras and the other of High Court of Telangana, which have quashed the proceedings, reserving liberty to the revenue to re-open the proceedings, in the event, the Apex Court would hold in favour of the revenue. They would submit that all other contentions other than the issue relating to faceless regime be kept open on revival of those proceedings, which the division benches have held so. They would seek similar order to be passed at the hands of this Court.
8. Learned counsel appearing for the revenue in all the petitions, would though refute the submissions contending that there are High Courts which have held in favour of the revenue. They place reliance upon the judgment of the High Court of Delhi, wherein, interpreting the very provision holds that it need not be by faceless regime alone, it can be by both. They would however, contend that all the other contentions be left open to be urged after the Apex Court decides the issue.
9. In the light of the aforesaid submissions, it becomes necessary to leave open all other contentions and consider the purport and impact of Notification dated 29-03-2022. For consideration of the said issue, it becomes necessary to notice Sections 147 to 151A of the Act. They read as follows:
“147. Income escaping assessment.—If any income chargeable to tax, in the case of an assessee, has escaped assessment for any assessment year, the Assessing Officer may, subject to the provisions of Sections 148 to 153, assess or reassess such income or recompute the loss or the depreciation allowance or any other allowance or deduction for such assessment year (hereafter in this section and in Sections 148 to 153 referred to as the relevant assessment year).
Explanation.—For the purposes of assessment or reassessment or recomputation under this section, the Assessing Officer may assess or reassess the income in respect of any issue, which has escaped assessment, and such issue comes to his notice subsequently in the course of the proceedings under this section, irrespective of the fact that the provisions of Section 148-A have not been complied with.]
148. Issue of notice where income has escaped assessment.—(1) Before making the assessment, reassessment or recomputation under Section 147, the Assessing Officer shall, subject to the provisions of Section 148-A, issue a notice to the assessee, along with a copy of the order passed under sub-section (3) of Section 148-A, requiring him to furnish, within such period as may be specified in the notice, not exceeding three months from the end of the month in which such notice is issued, a return of his income or income of any other person in respect of whom he is assessable under this Act during the previous year corresponding to the relevant assessment year:
Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year:
Provided further that where the Assessing Officer has received information under the scheme notified under Section 135-A, no notice under this section shall be issued without prior approval of the specified authority.
(2) The return of income required under subsection (1) shall be furnished in such form and verified in such manner and setting forth such other particulars, as may be prescribed, and the provisions of this Act shall, apply accordingly as if such return were a return required to be furnished under Section 139:
Provided that any return of income required under sub-section (1), furnished after the expiry of the period specified in the notice under the said sub-section, shall not be deemed to be a return under Section 139.
(3) For the purposes of this section and Section 148-A, the information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment means,—
| (i) | any information in the case of the assessee for the relevant assessment year in accordance with the risk management strategy formulated by the Board from time to time; or |
| (ii) | any audit objection to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of this Act; or |
| (iii) | any information received under an agreement referred to in Section 90 or Section 90-A of the Act; or |
| (iv) | any information made available to the Assessing Officer under the scheme notified under Section 135-A; or |
| (v) | any information which requires action in consequence of the order of a Tribunal or a Court; or |
| (vi) | any information in the case of the assessee emanating from survey conducted under Section 133-A, other than under sub-section (2-A) of the said section, on or after the 1st day of September, 2024.] |
148-A. Procedure before issuance of notice under Section 148.—(1) Where the Assessing Officer has information which suggests that income chargeable to tax has escaped assessment in the case of an assessee for the relevant assessment year, he shall, before issuing any notice under Section 148 provide an opportunity of being heard to such assessee by serving upon him a notice to show cause as to why a notice under Section 148 should not be issued in his case and such notice to show cause shall be accompanied by the information which suggests that income chargeable to tax has escaped assessment in his case for the relevant assessment year.
(2) On receipt of the notice under sub-section (1), the assessee may furnish his reply within such period, as may be specified in the notice.
(3) The Assessing Officer shall, on the basis of material available on record and taking into account the reply of the assessee furnished under sub-section (2), if any, pass an order with the prior approval of the specified authority determining whether or not it is a fit case to issue notice under Section 148.
(4) The provisions of this section shall not apply to income chargeable to tax escaping assessment for any assessment year in the case of an assessee where the Assessing Officer has received information under the scheme notified under Section 135-A.
Explanation.—For the purposes of this section and Section 148, “specified authority” means the specified authority referred to in Section 151.]
148-B. Prior approval for assessment, reassessment or recomputation in certain cases.— No order of assessment or reassessment or recomputation under this Act shall be passed by an Assessing Officer below the rank of Joint Commissioner, in respect of an assessment year to which clause (i) or clause (ii) or clause (iii) or clause (iv) of Explanation 2 to Section 148 apply except with the prior approval of the Additional Commissioner or Additional Director or Joint Commissioner or Joint Director.]
149. Time limit for notices under Sections 148 and 148-A.—(1) No notice under Section 148 shall be issued for the relevant assessment year,—
| (a) | if three years and three months have elapsed from the end of the relevant assessment year, unless the case falls under clause (b); |
| (b) | if three years and three months, but not more than five years and three months, have elapsed from the end of the relevant assessment year unless the Assessing Officer has in his possession books of account or other documents or evidence related to any asset or expenditure or transaction or entries which show that the income chargeable to tax, which has escaped assessment, amounts to or is likely to amount to fifty lakh rupees or more. |
(2) No notice to show cause under Section 148-A shall be issued for the relevant assessment year,—
| (a) | if three years have elapsed from the end of the relevant assessment year, unless the case falls under clause (b); |
| (b) | if three years, but not more than five years, have elapsed from the end of the relevant assessment year unless the income chargeable to tax which has escaped assessment, as per the information with the Assessing Officer, amounts to or is likely to amount to fifty lakh rupees or more.] |
150. Provision for cases where assessment is in pursuance of an order on appeal, etc.—(1) Notwithstanding anything contained in Section 149, the notice under Section 148 may be issued at any time for the purpose of making an assessment or reassessment or recomputation in consequence of or to give effect to any finding or direction contained in an order passed by any authority in any proceeding under this Act by way of appeal, reference or revision or by a Court in any proceeding under any other law.
(2) The provisions of sub-section (1) shall not apply in any case where any such assessment, reassessment or recomputation as is referred to in that sub-section relates to an assessment year in respect of which an assessment, reassessment or recomputation could not have been made at the time the order which was the subject-matter of the appeal, reference or revision, as the case may be, was made by reason of any other provision limiting the time within which any action for assessment, reassessment or recomputation may be taken.
151. Sanction for issue of notice.—Specified authority for the purposes of Sections 148 and 148-A shall be the Additional Commissioner or the Additional Director or the Joint Commissioner or the Joint Director, as the case may be.
151-A. Faceless assessment of income escaping assessment.—(1) The Central Government may make a scheme, by notification in the Official Gazette, for the purposes of assessment, reassessment or recomputation under Section 147 or issuance of notice under Section 148 or sanction for issue of such notice under Section 151, so as to impart greater efficiency, arency and accountability by—
| (a) | eliminating the interface between the income tax authority and the assessee or any other person to the extent technologically feasible; |
| (b) | optimising utilisation of the resources through economies of scale and functional specialisation; |
| (c) | introducing a team-based assessment, reassessment, recomputation or issuance or sanction of notice with dynamic jurisdiction. |
(2) The Central Government may, for the purpose of giving effect to the scheme made under sub-section (1), by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification:
Provided that no direction shall be issued after the 31st day of March, 2022.
(3) Every notification issued under sub-section (1) and sub-section (2) shall, as soon as may be after the notification is issued, be laid before each House of Parliament.”
(Emphasis supplied)
Section 147 of the Act deals with assessment, reassessment and re-computation and on any escaped assessment for any assessment year, a notice under Section 148 of the Act must be handed over to the assessee. Section 148A of the Act deals with the procedure to be followed before issuance of notice under Section 148 of the Act. Section 151A of the Act confers power to the Central Government to formulate a scheme for the faceless assessment of the income, which escape the assessment. It is here the Scheme is to be noticed. The Scheme was then formulated in exercise of powers conferred under Section 151A of the Act at the hands of the Government of India. It came into effect from the date of its publication in the Official Gazette, which happens on 29-03-2022. The Scheme is as follows:
“MINISTRY OF FINANCE
(Department of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)
NOTIFICATION
New Delhi, the 29th March, 2022
S.O. 1466(E).—In exercise of the powers conferred by sub-sections (1) and (2) of section 151A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following Scheme, namely:-
1. Short title and commencement.—(1) This Scheme may be called the e-Assessment of Income Escaping Assessment Scheme, 2022.
(2) It shall come into force with effect from the date of its publication in the Official Gazette.
2. Definitions.-(l) In this Scheme, unless the context otherwise requires, –
| (a) | “Act” means the Income-tax Act, 1961 (43 of 1961); |
| (b) | “automated allocation” means an algorithm for randomised allocation of cases, by using suitable technological tools, including artificial intelligence and machine learning, with a view to optimise the use of resources. |
(2) Words and expressions used herein and not defined, but defined in the Act, shall have the meaning respectively assigned to them in the Act.
3. Scope of the Scheme.-For the purpose of this Scheme,-
| (a) | assessment, reassessment or recomputation under section 147 of the Act, |
| (b) | issuance of notice under section 148 of the Act, |
shall be through automated allocation, in accordance with risk management strategy formulated by the Board as referred to in section 148 of the Act for issuance of notice, and in a faceless manner, to the extent provided in section 144B of the Act with reference to making assessment or reassessment of total income or loss of assessee.
[Notification No. 18/2022/F. No. 370142/16/2022-TPL(Part1]”
(Emphasis supplied)
In furtherance of the Scheme, a notification comes to be issued on 29-03-2022. The notification reads as follows:
“E-ASSESSMENT OF INCOME ESCAPNG
ASSESSMENT SCHEME, 2022
NOTIFICATION S.O. 1466(E)
[NO.18/2022/F.NO.370142/16/2022-
TPL(PART1)],
DATED 29-3-2022
In exercise of the powers conferred by subsections (1) and (2) of section 151A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following Scheme, namely:-
Short title and commencement.
1. (1) This Scheme may be called the eAssessment of Income Escaping Assessment Scheme, 2022.
(2) It shall come into force with effect from the date of its publication in the Official Gazette.
Definitions.
2. (1) In this Scheme, unless the context otherwise requires, –
| (a) | “Act” means the Income-tax Act, 1961 (43 of 1961); |
| (b) | “automated allocation” means an algorithm for randomised allocation of cases, by using suitable technological tools, including artificial intelligence and machine learning, with a view to optimise the use of resources. |
(2) Words and expressions used herein and not defined, but defined in the Act, shall have the meaning respectively assigned to them in the Act.
Scope of the Scheme.
3. For the purpose of this Scheme,-
| (a) | assessment, reassessment or recomputation under section 147 of the Act, |
| (b) | issuance of notice under section 148 of the Act, |
shall be through automated allocation, in accordance with risk management strategy formulated by the Board as referred to in section 148 of the Act for issuance of notice, and in a faceless manner, to the extent provided in section 144B of the Act with reference to making assessment or reassessment of total income or loss of assessee.”
(Emphasis supplied)
The Scope of the Scheme was that assessment, re-assessment and re-computation under Section 147 of the Act and issuance of a notice under Section 148 of the Act. The Scheme and the Notification when read in tandem, the purpose of the scheme was for issuance of notification under Section 148 of the Act in a faceless manner under Section 144B of the Act, so that there is no inter-action between the assessee and the Officer which would also speed up the process.
10. The Apex Court in the case of Union of India v. Ashish Agarwal 183/444 ITR 1 (SC) holds that the new provision of the Finance Act, 2021 in which the faceless regime being remedial and benevolent in nature must be strictly adhered to. The Apex Court particularly recognizes the manner in which the notice can be issued after bringing in Section 151A of the Act, which deals with faceless assessment. The other High Courts have also interpreted the mandatory nature of the notification dated 29-03-2022. A division bench of the High Court of Telangana in the case of Kankanala Ravindra Reddy v. ITO 652 (TELANGANA), has held as follows:
“19. It would be relevant at this juncture to take note of the observations made by the hon’ble Supreme Court in paragraph 7 and paragraph 8. The relevant portion of which is being reproduced herein under:
“Thus, the new provisions substituted by the Finance Act, 2021 being remedial and benevolent in nature and substituted with a specific aim and object to protect the rights and interest of the assessee as well as and the same being in public interest, the respective High Courts have rightly held that the benefit of new provisions shall be made available even in respect of the proceedings relating to past assessment years, provided section 148 notice has been issued on or after April 1, 2021. We are in complete agreement with the view taken by the various High Courts in holding so.
However, at the same time, the judgments of the several High Courts would result in no reassessment proceedings at all, even if the same are permissible under the Finance Act, 2021 and as per substituted sections 147 to 151 of the Incometax Act. The Revenue cannot be made remediless and the object and purpose of reassessment proceedings cannot be frustrated. It is true that due to a bona fide mistake and in view of subsequent extension of time vide various notifications, the Revenue issued the impugned notices under section 148 after the amendment was enforced with effect from April 1, 2021, under the unamended section 148. In our view the same ought not to have been issued under the unamended Act and ought to have been issued under the substituted provisions of sections 147 to 151 of the Income-tax Act as per the Finance Act, 2021. There appears to be genuine non-application of the amendments as the officers of the Revenue may have been under a bona fide belief that the amendments may not yet have been enforced. Therefore, we are of the opinion that some leeway must be shown in that regard which the High Courts could have done so. Therefore, instead of quashing and setting aside the reassessment notices issued under the unamended provisions of the Income-tax Act, the High Courts ought to have passed an order construing the notices issued under the unamended Act/unamended provisions of the Income-tax Act as those deemed to have been issued under section 148A of the Income-tax Act as per the new provisions of section 148A and the Revenue ought to have been permitted to proceed further with the reassessment proceedings as per the substituted provisions of sections 147 to 151 of the Income-tax Act as per the Finance Act, 2021, subject to compliance of all the procedural requirements and the defences, which may be available to the assessee under the substituted provisions of sections 147 to 151 of the Income-tax Act and which may be available under the Finance Act, 2021 and in law. Therefore, we propose to modify the judgments and orders passed by the respective High Courts as under:
| (i) | The respective impugned section 148 notices issued to the respective assessees shall be deemed to have been issued under section 148A of the Income-tax Act as substituted by the Finance Act, 2021 and treated to be show-cause notices in terms of section 148A(b). The respective Assessing Officers shall within thirty days from today provide to the assessees the information and material relied upon by the Revenue so that the assessees can reply to the notices within two weeks thereafter; |
| (ii) | The requirement of conducting any enquiry with the prior approval of the specified authority under section 148A(a) be dispensed with as a one-time measure vis-a-vis those notices which have been issued under section 148 of the unamended Act from April 1, 2021 till date, including those which have been quashed by the High Courts; |
| (iii) | The Assessing Officers shall thereafter pass an order in terms of section 148A(d) after following the due procedure as required under section 148A(b) in respect of each of the concerned assessees;” |
The Hon’ble Supreme Court further, in order to strike a balance between the rights of the Revenue as well as the respective assessees ordered that the notices issued under section 148 of the unamended Act to be deemed to have been issued under section 148A of the Income-tax Act as substituted by the Finance Act, 2021, and also ordered for construing or treating the notices to be the show-cause notice in terms of section 148A(b) while disposing of the batch matters. The hon’ble Supreme Court in its operative part gave the following directions in paragraph No. 10, which again for ready reference is being reproduced herein under:
“In view of the above and for the reasons stated above, the present appeals are allowed in part. The impugned common judgments and orders passed by the High Court of Judicature at Allahabad in W.T. No. 524 of 2021 and other allied tax appeals/petitions, is/are hereby modified and substituted as under:
| (i) | The impugned section 148 notices issued to the respective assessees which were issued under unamended section 148 of the Income-tax Act, which were the subject matter of writ petitions before the various respective High Courts shall be deemed to have been issued under section 148A of the Income-tax Act as substituted by the Finance Act, 2021 and construed or treated to be show-cause notices in terms of section 148A(b). The Assessing Officer shall, within thirty days from today provide to the respective assessees information and material relied upon by the Revenue, so that the assessees can reply to the show-cause notices within two weeks thereafter; |
| (ii) | The requirement of conducting any enquiry, if required, with the prior approval of specified authority under section 148A(a) is hereby dispensed with as a onetime measure vis-a-vis those notices which have been issued under section 148 of the unamended Act from April 1, 2021 till date, including those which have been quashed by the High Courts. |
Even otherwise as observed hereinabove holding any enquiry with the prior approval of specified authority is not mandatory but it is for the concerned Assessing Officers to hold any enquiry, if required;
| (iii) | The Assessing Officers shall thereafter pass orders in terms of section 148A(d) in respect of each of the concerned assessees; thereafter after following the procedure as required under section 148A may issue notice under section 148 (as substituted); |
| (iv) | All defences which may be available to the assessees including those available under section 149 of the Income-tax Act and all rights and contentions which may be available to the concerned assessees and Revenue under the Finance Act, 2021 and in law shall continue to be available.” |
20. Keeping the aforesaid view of the hon’ble Supreme Court, it would be relevant at this juncture to take note certain provisions of the Income-tax Act which stood amended with effect from 1-4-2021 by virtue of the Finance Act, 2021. Section 144B inserted by virtue of the Finance Act, 2021, with effect from 1-4-2021 provides for faceless assessment and sub- section (1) of the said newly inserted section 144B is an non-obstante clause. The relevant portion of sub-section (1) of section 144B necessary for adjudication of the preliminary issue under consideration is reproduced herein under:
“Notwithstanding anything to the contrary contained in any other provisions of this Act, the assessment, reassessment or recomputation under subsection (3) of section 143 or under section 144 or under section 147 as the case may be, with respect to the cases referred to in sub-section (2), shall be made in a faceless manner as per the following procedure, namely:—
| (i) | the National Faceless Assessment Centre shall assign the case selected for the purposes of faceless assessment under this section to a specific assessment unit through an automated allocation system; |
| (ii) | the National Faceless Assessment Centre shall intimate the assessee that assessment in his case shall be completed in accordance with the procedure laid down under this section; |
| (iii) | a notice shall be served on the assessee, through the National Faceless Assessment Centre, under sub-section (2) of section 143 or under sub-section (1) of section 142 and the assessee may file his response to such notice within the date specified therein, to the National Faceless Assessment Centre which shall forward the same to the assessment unit;” |
21. In continuation to the aforesaid provisions, it would be relevant to take note of yet another provision of law, i.e., sub-section (1) of section 151A which was inserted with effect from 1-11-2020. It refers to faceless assessment of income escaping assessment which would be relevant for better understanding of the issue being decided in the present batch of writ petitions, which again for ready reference is being reproduced herein under:
“151A. (1) The Central Government may make a scheme, by notification in the Official Gazette, for the purposes of assessment, reassessment or recomputation under section 147 or issuance of notice under section 148 or conducting of enquiries or issuance of showcause notice or passing of order under section 148A or sanction for issue of such notice under section 151, so as to impart greater efficiency, transparency and accountability by—
| (a) | eliminating the interface between the Incometax authority and the assessee or any other person to the extent technologically feasible; |
| (b) | optimising utilisation of the resources through economies of scale and functional specialisation; |
| (c) | introducing a team-based assessment, reassessment, recomputation or issuance or sanction of notice with dynamic jurisdiction.” |
22. Similarly, the Central Board of Direct Taxes had also amended section 130 of the Income-tax Act so far as conferring jurisdiction on the income- tax authorities in the light of the faceless assessment procedure being adopted. The amended section 130 and sub-section (1) which is relevant for the present issue under consideration again for ready reference is being reproduced herein under:
“(1) The Central Government may make a scheme, by notification in the Official Gazette, for the purpose of—
| (a) | exercise of all or any of the powers and performance of all or any of the functions conferred on, or, as the case may be, assigned to Income-tax authorities by or under this Act as referred to in section 120; or |
| (b) | vesting the jurisdiction with the Assessing Officer as referred to in section 124; or |
| (c) | exercise of power to transfer cases under section 127; or |
| (d) | exercise of jurisdiction in case of change of incumbency as referred to in section 129, |
so as to impart greater efficiency, transparency and accountability by—
| (i) | eliminating the interface between the Incometax authority and the assessee or any other person, to the extent technologically feasible; |
| (ii) | optimising utilisation of the resources through economies of scale and functional specialisation; |
| (iii) | introducing a team-based exercise of powers and performance of functions by two or more Incometax authorities, concurrently, in respect of any area or persons or classes of persons or incomes or classes of income or cases or classes of cases, with dynamic jurisdiction.” |
23. In furtherance to the powers conferred under sub-sections (1) and (2) of section 130 of the aforesaid Income-tax Act, the Central Board of Direct Taxes framed a scheme called as the “Faceless Jurisdiction of Incometax Authorities Scheme, 2022” ((2022) 442 ITR (St) 197). A plain reading of the aforesaid notification would clearly reflect that as has been amended under section 130. The Central Board of Direct Taxes has framed a scheme which defines the Act to be the Income-tax Act and it specifically defines automated allocation which is defined under section 2(1)(b), which again for ready reference is being re-produced herein under (page 197 of 442 ITR (St)):
“In this Scheme, unless the context otherwise requires,—
| (a) | ‘Act’ means the Income-tax Act, 1961 (43 of 1961); |
| (b) | ‘automated allocation’ means an algorithm for randomised allocation of cases, by using suitable technological tools, including artificial intelligence and machine learning, with a view to optimise the use of resources;” |
Further section 3 of the said scheme deals with vesting of the jurisdiction with the Assessing Officer, which again for ready reference is being reproduced herein under:
“(b) vesting the jurisdiction with the Assessing Officer as referred to in section 124 of the Act, shall be in a faceless manner, through automated allocation, in accordance with and to the extent provided in—
| (i) | section 144B of the Act with reference to making faceless assessment of total income or loss of assessee;” |
24. In furtherance to the aforesaid notification, the Central Board of Direct Taxes again in exercise of its powers conferred under sub-sections (1) and (2) of section 151A framed another scheme called as the eAssessment of Income Escaping Assessment Scheme, 2022 which defines automated allocation is reproduced herein under:
“In this Scheme, unless the context otherwise requires,—
| (a) | ‘Act’ means the Income-tax Act, 1961 (43 of 1961); |
| (b) | ‘automated allocation’ means an algorithm for randomised allocation of cases, by using suitable technological tools, including artificial intelligence and machine learning, with a view to optimise the use of resources.” |
And the scope of the scheme again has been envisaged in section 3 of the said scheme, which again for ready reference is being reproduced herein under:
“For the purpose of this Scheme,—
| class=”list”> |
| (a) | assessment, reassessment or recomputation under section 147 of the Act, |
| (b) | issuance of notice under section 148 of the Act, |
shall be through automated allocation, in accordance with risk management strategy formulated by the Board as referred to in section 148 of the Act for issuance of notice, and in a faceless manner, to the extent provided in section 144B of the Act with reference to making assessment or reassessment of total income or loss of assessee.”
25. A plain reading of the aforesaid two notifications issued by the Central Board of Direct Taxes dated March 28, 2022 and March 29, 2022, it would clearly indicate that the Central Board of Direct Taxes was very clear in its mind when it framed the aforesaid two schemes with respect to the proceedings to be drawn under section 148A, that is to have it in a faceless manner. There were two mandatory conditions which were required to be adhered to by the Department, firstly, the allocation being made through the automated allocation system in accordance with the risk management strategy formulated by the Board under section 148 of the Act. Secondly, the reassessment has to be done in a faceless manner to the extent provided under section 144B of the Act.
26. After the introduction of the above two schemes, it becomes mandatory for the Revenue to conduct/initiate proceedings pertaining to reassessment under sections 147, 148 and 148A of the Act in a faceless manner. Proceedings under section 147 and section 148 of the Act would now have to be taken as per the procedure legislated by Parliament in respect of reopening/reassessment, i.e., proceedings under section 148A of the Act.
27. In the present case, both the proceedings, i.e., the impugned proceedings under section 148A of the Act, as well as the consequential notices under section 148 of the Act were issued by the local jurisdictional officer and not in the prescribed faceless manner. The order under section 148A(d) of the Act and the notices under section 148 of the Act are issued on April 29, 2022, i.e., after the “Faceless Jurisdiction of the Income-tax Authorities Scheme, 2022” and the “e-Assessment of Income Escaping Assessment Scheme, 2022” were introduced.
28. From the aforegiven factual matrix, firstly the statutory provisions enumerated in the preceding paragraphs and secondly, the subsequent direction given by the Hon’ble Supreme Court in the case of Ashish Agarwal, supra, what is clearly reflected is the fact that when the hon’ble Supreme Court had partly allowed the petitions which were filed by the Union of India challenging the judgments of various High Courts whereby the notices under section 148 of the unamended Act were set aside by the High Courts, the hon’ble Supreme Court has only permitted the Union of India to proceed further with the reassessment proceedings under the amended provisions of law, more particularly, as amended by the Finance Act, 2021. It never intended the authorities concerned to continue with the proceedings from the stage of the issuance of notices under section 148, nor is the direction to that effect. And there cannot be any confusion, ambiguity or misconception for the respondent-Department to have in this regard.
29. The Hon’ble Supreme Court has in paragraph 7 specifically held that the High Courts have rightly held that the benefit of new provisions shall be made available in respect of the proceedings relating to past assessment years. Further, the hon’ble Supreme Court again in paragraph 8 very emphatically had said that the proceedings ought not to have been issued under the unamended Act. Rather ought to have been issued under the substituted provisions as per the Finance Act, 2021. Further, in the same paragraph clearly directed the Income-tax Department to proceed further as per the Finance Act, 2021, subject to compliance of all the procedural requirements and defences available to the assessee under the substituted provisions under the Finance Act, 2021. The fact that the hon’ble Supreme Court allowed the notice earlier issued under section 148 be treated as notice one under section 148A and further it was also to be treated as the show-cause notice issued under section 148A(b) by itself establishes the fact the directions given by the hon’ble Supreme Court for the respondent- Department was to proceed further in accordance with the substituted provisions which stood introduced by the Finance Act, 2021.
30. In the instant case, undisputedly the respondent-Department has not proceeded against the petitioner under the substituted provisions of the Finance Act, 2021. Rather, it proceeded with the unamended provisions of law. This in other words takes the position back to the stage as it stood when the initial notices under section 148 under the unamended provisions of law were issued. This in other words also takes us to a position or a stage prior to the large number of writ petitions being allowed across the country, approximately 9,000 in number and confirmed by the hon’ble Supreme Court also vide the judgment of Ashish Agarwal, supra.
31. It is well settled principle of law that where the power is given to do certain things in certain way, the thing has to be done in that way alone and not in any other manner which is otherwise not provided under the law.
32. The Hon’ble Supreme Court in the case of Chandra Kishore Jha v. Mahavir Prasad, (1999) 8 SCC 266 in paragraph 17 laying down the aforesaid principle held as under “it is well settled solitary principle that if statute provides for a thing to be done in a particular manner, then it has to be done in that manner and in no other manner. The said principle of law was further reiterated in the case of Cherukuri Mani v. Chief Secretary, Government of Andhra Pradesh, (2015) 13 SCC 722, wherein, again in paragraph 14, the aforesaid principle has been reinforced by the hon’ble Supreme Court holding that “where law prescribe a thing to be done in a particular manner following a particular procedure, it shall have to be done in the same manner following the provisions of law without deviating from the prescribed procedure”.The said principle has again recently been reiterated and followed in the case of Municipal Corporation of Greater Mumbai (MCGM) v. Abhilash Lal, (2020) 13 SCC 234, and in the case of Opto Circuit India Ltd. v. Axis Bank, (2021) 6 SCC 707 and again in the case of Union of India v. Mahendra Singh (Civil Appeal No. 4807 of 2022 dated July 25, 2022). In the case of Tata Chemicals Ltd. v. Commissioner of Customs, (2015) 32 GSTR 468 (SC); (2015) 11 SCC 628, wherein it has been held that there can be no stopple against the law. If the law requires something to be done in a particular manner, then it must be done in that manner, if it is not done in that manner then it would have no existence in the eyes of law. In paragraph 18 of the said judgment, the hon’ble Supreme Court held as under:
“The Tribunal’s judgment has proceeded on the basis that even though the samples were drawn contrary to law, the appellants would be estopped because their representative was present when the samples were drawn and they did not object immediately. This is a completely perverse finding both on fact and law. On fact, it has been more than amply proved that no representative of the appellant was, in fact, present at the time the customs inspector took the samples. Shri K.M. Jani who was allegedly present not only stated that he did not represent the clearing agent of the appellants in that he was not their employee but also stated that he was not present when the samples were taken. In fact, therefore, there was no representative of the appellants when the samples were taken. In law equally the Tribunal ought to have realized that there can be no estoppel against law. If the law requires that something be done in a particular manner, it must be done in that manner, and if not done in that manner has no existence in the eye of law at all. The Customs Authorities are not absolved from following the law depending upon the acts of a particular assessee. Something that is illegal cannot convert itself into something legal by the act of a third person.”
33. If we look into the principle of law laid down by the Hon’ble Supreme Court as enumerated in the preceding paragraphs and when we look into the facts of the present case, it would clearly reflect that Parliament had by virtue of the Finance Act, 2021, brought certain amendments to the provisions of the Income-tax Act, more particularly, in respect of the manner in which the reassessment and the procedure to be adopted by the Income-tax Department. The amendment was brought with an intention to make the law more transparent and effective. The hon’ble Supreme Court also while deciding the case of Ashish Agarwal, supra, as is discussed in the preceding paragraph had specifically directed the Union of India to proceed further in terms of the substituted provisions brought in by way of the Finance Act, 2021.
34. What is also relevant to take note of is the fact that the Hon’ble Supreme Court while exercising its power under article 142 of the Constitution of India has also not relaxed the applicability of the Finance Act, 2021. Rather, the Hon’ble Supreme Court in very clear and unambiguous terms had held that the notices issued under the unamended provisions, which were struck down by the High Court, shall be treated as a notice under new amended provisions and the Union of India was directed to proceed further from that stage in terms of the amended provisions of law. In spite of such specific clear directions by the hon’ble Supreme Court, the Union of India for reasons best known again proceeded with the procedure as it stood prior to the amended provisions which came into force from April 1, 2021.
35. In view of the aforesaid discussions, it is by now very clear that the procedure to be followed by the respondent-Department upon treating the notices issued for reassessment being under section 148A, the subsequent proceedings were mandatorily required to be undertaken under the substituted provisions as laid down under the Finance Act, 2021. In the absence of which, we are constrained to hold that the procedure adopted by the respondent-Department is in contravention to the statute, i.e., the Finance Act, 2021, at the first instance. Secondly, it is also in direct contravention to the directives issued by the hon’ble Supreme Court in the case of Ashish Agarwal supra.
36. For all the aforesaid reasons, the impugned notices issued and the proceedings drawn by the respondent-Department is neither tenable, nor sustainable. The notices so issued and the procedure adopted being per se illegal, deserves to be and are accordingly set aside/quashed. As a consequence, all the impugned orders getting quashed, the consequential orders passed by the respondent-Department pursuant to the notices issued under sections 147 and 148 would also get quashed and it is ordered accordingly. The reason we are quashing the consequential order is on the principles that when the initiation of the proceedings itself was procedurally wrong, the subsequent orders also gets nullified automatically.
37. The preliminary objection raised by the petitioner is sustained and all these writ petitions stands allowed on this very jurisdictional issue. Since the impugned notices and orders are getting quashed on the point of jurisdiction, we are not inclined to proceed further and decide the other issues raised by the petitioner which stands reserved to be raised and contended in an appropriate proceedings.
38. Since the hon’ble Supreme Court had, in the case of Ashish Agarwal supra, as a one-time measure exercising the powers under article 142 of the Constitution of India, permitted the Revenue to proceed under the substituted provisions, and this court allowing the petitions only on the procedural flaw, the right conferred on the Revenue would remain reserved to proceed further if they so want from the stage of the order of the Supreme Court in the case of Ashish Agarwal supra.”
(Emphasis supplied)
The High Court of Punjab and Haryana in Jatinder Singh Bhangu v. Union of India 228 (Punjab & Haryana), has held as follows:
“12. The issue involved came up for consideration before a single judge Bench of the Gauhati High Court in Ram Narayan Sah v. Union of India [(2024) 471 ITR 228 (Gauhati); 478 (Gauhati).]. The court expressed the same opinion as was formed by Telangana and Bombay High Courts. As per 1961 Act, every assessee has to file annual return disclosing its total income, taxable income and tax liability. In case the Assessing Officer disagrees with the disclosed income, he has right to reassess the tax liability of the assessee. Reassessment cannot be made without granting opportunity to the assessee. The opportunity is granted by way of issuing notice followed by personal hearing. Sections 147, 148 and 148A contemplate procedure of reassessment. Section 144B prescribes procedure of self assessment. Section 151A provides that assessment of escaped income shall be made faceless. The concept of self assessment has been introduced with effect from April 1, 2021. The object of faceless assessment is to eliminate interface between the Income-tax authority and assessee to the extent feasible. There are further objects as enshrined in section 151A. Section 148 provides for issuance of notice where income has escaped assessment. For ready reference, sections 148 and 151A of the 1961 Act are reproduced as below:
“148. Issue of notice where income has escaped assessment.—
Before making the assessment, reassessment or recomputation under section 147, and subject to the provisions of section 148A, the Assessing Officer shall serve on the assessee a notice, along with a copy of the order passed, if required, under clause (d) of section 148A, requiring him to furnish within such period, as may be specified in such notice, a return of his income or the income of any other person in respect of which he is assessable under this Act during the previous year corresponding to the relevant assessment year, in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed; and the provisions of this Act shall, so far as may be, apply accordingly as if such return were a return required to be furnished under section 139:
Provided that no notice under this section shall be issued unless there is information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment in the case of the assessee for the relevant assessment year and the Assessing Officer has obtained prior approval of the specified authority to issue such notice:
Provided further that no such approval shall be required where the Assessing Officer, with the prior approval of the specified authority, has passed an order under clause (d) of section 148A to the effect that it is a fit case to issue a notice under this section.
Explanation 1.—For the purposes of this section and section 148A, the information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment means,—
| (i) | any information in the case of the assessee for the relevant assessment year in accordance with the risk management strategy formulated by the Board from time to time; |
| (ii) | any audit objection to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of this Act; or |
| (iii) | any information received under an agreement referred to in section 90 or section 90A of the Act; or |
| (iv) | any information made available to the Assessing Officer under the scheme notified under section 135A; or |
| (v) | any information which requires action in consequence of the order of a Tribunal or a court. |
Explanation 2.—For the purposes of this section, where,—
| (i) | a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A, on or after the 1st day of April, 2021, in the case of the assessee; or |
| (ii) | a survey is conducted under section 133A, other than under sub-section (2A) of that section, on or after the 1st day of April, 2021, in the case of the assessee; or |
| (iii) | the Assessing Officer is satisfied, with the prior approval of the Principal Commissioner or Commissioner, that any money, bullion, jewellery or other valuable article or thing, seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1st day of April, 2021, belongs to the assessee; or |
| (iv) | the Assessing Officer is satisfied, with the prior approval of Principal Commissioner or Commissioner, that any books of account or documents, seized or requisitioned under section 132 or section 132A in case of any other person on or after the 1st day of April, 2021, pertains or pertain to, or any information contained therein, relate to, the assessee, the Assessing Officer shall be deemed to have information which suggests that the income chargeable to tax has escaped assessment in the case of the assessee where the search is initiated or books of account, other documents or any assets are requisitioned or survey is conducted in the case of the assessee or money, bullion, jewellery or other valuable article or thing or books of account or documents are seized or requisitioned in case of any other person. |
Explanation 3.—For the purposes of this section, specified authority means the specified authority referred to in section 151.
151A. Faceless assessment of income escaping assessment.—
(1) The Central Government may make a scheme, by notification in the Official Gazette, for the purposes of assessment, reassessment or recomputation under section 147 or issuance of notice under section 148 or conducting of enquiries or issuance of show-cause notice or passing of order under section 148A or sanction for issue of such notice under section 151, so as to impart greater efficiency, transparency and accountability by—
| (a) | eliminating the interface between the Incometax authority and the assessee or any other person to the extent technologically feasible; |
| (b) | optimising utilisation of the resources through economies of scale and functional specialisation; |
| (c) | introducing a team-based assessment, reassessment, recomputation or issuance or sanction of notice with dynamic jurisdiction. |
(2) The Central Government may, for the purpose of giving effect to the scheme made under sub-section (1), by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification:
Provided that no direction shall be issued after the 31st day of March, 2022.
(3) Every notification issued under sub-section (1) and sub-section (2) shall, as soon as may be after the notification is issued, be laid before each House of Parliament.”
13. The Central Government in exercise of power conferred by section 151A of the 1961 Act by Notification No. S.O. 1466(E) dated March 29, 2022 ((2022) 442 ITR (Stat) 198) has introduced e-assessment scheme for escaped income. The said scheme is known as eAssessment of Income Escaping Assessment Scheme, 2022 which is reproduced as below (page 198 of 442 ITR (St.)):
“In exercise of the powers conferred by subsections (1) and (2) of section 151A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following Scheme, namely:—
1. Short title and commencement.—
| (1) | This Scheme may be called the e-Assessment of Income Escaping Assessment Scheme, 2022. |
| (2) | It shall come into force with effect from the date of its publication in the Official Gazette. |
2. Definitions.—(1) In this Scheme, unless the context otherwise requires,——
| (a) | ‘Act’ means the Income-tax Act, 1961 (43 of 1961); |
| (b) | ‘automated allocation’ means an algorithm for randomised allocation of cases, by using suitable technological tools, including artificial intelligence and machine learning, with a view to optimize the use of resources. |
(2) Words and expressions used herein and not defined, but defined in the Act, shall have the meaning respectively assigned to them in the Act.
3. Scope of the Scheme.—
For the purpose of this Scheme,——
| (a) | assessment, reassessment or recomputation under section 147 of the Act, |
| (b) | issuance of notice under section 148 of the Act, shall be through automated allocation, in accordance with risk management strategy formulated by the Board as referred to in section 148 of the Act for issuance of notice, and in a faceless manner, to the extent provided in section 144B of the Act with reference to making assessment or reassessment of total income or loss of assessee.” |
14. The respondent during the course of arguments vehemently and vigorously pleaded that notice under section 148 can be issued by the jurisdictional Assessing Officer. In support of his contention, they heavily relied upon Office Memorandum dated February 20, 2023 and letter dated January 19, 2024 issued by the Directorate of Income-tax (System).
15. From the perusal of section 151A, it is quite evident that the scheme of faceless assessment is applicable from the stage of showcause notice under section 148 as well as section 148A. Clause 3(b) of notification dated March 29, 2022 issued under section 151A clearly provides that scheme would be applicable to notice under section 148. Even otherwise, it is a settled proposition of law that assessment proceedings commence from the stage of issuance of showcause notice. The object of introduction of faceless assessment would be defeated if show-cause notice under section 148 is issued by the jurisdictional Assessing Officer. The respondents are heavily placing reliance upon the office memorandum and letter issued by the Departmental authorities. It is axiomatic in tax jurisprudence that circulars, instructions and letters issued by the Board or any other authority cannot override statutory provisions. The circulars are binding upon the authorities and the courts are not bound by such circulars. The mandate of sections 144B, 151A read with notification dated March 29, 2022 issued thereunder is quite lucid. There is no ambiguity in the language of statutory provisions, thus, the office memorandum or any other instruction issued by the Board or any other authority cannot be relied upon. Instructions/circulars can supplement but cannot supplant statutory provisions.”
(Emphasis supplied)
The High Court of Bombay in Hexaware Technologies Ltd. v. Asstt. CIT 225/464 ITR 430 (Bombay), has held as follows:
“32 As regards issue no.4, Section 151A reads as under :
151A. Faceless assessment of income escaping assessment. (1) The Central Government may make a scheme, by notification in the Official Gazette, for the purposes of assessment, reassessment or recomputation under section 147 or issuance of notice under section 148 [or conducting of enquiries or issuance of show-cause notice or passing of order under section 148A] or sanction for issue of such notice under section 151, so as to impart greater efficiency, transparency and accountability by–
| (a) | eliminating the interface between the income-tax authority and the assessee or any other person to the extent technologically feasible; |
| (b) | optimising utilisation of the resources through economies of scale and functional specialisation; |
| (c) | introducing a team-based assessment, reassessment, recomputation or issuance or sanction of notice with dynamic jurisdiction. |
(2) The Central Government may, for the purpose of giving effect to the scheme made under sub-section (1), by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification:
Provided that no direction shall be issued after the 31st day of March, 2022.
(3) Every notification issued under sub-section (1) and sub- section (2) shall, as soon as may be after the notification is issued, be laid before each House of Parliament.
Section 151A of the Act gives the power to the Central Board of Direct Taxes (“CBDT”) to notify the Scheme for :
| (i) | the purpose of assessment, reassessment or recomputation under Section 147; |
| (ii) | issuance of notice under Section 148; or |
| (iii) | conducting of inquiry or issuance of show cause notice or passing of order under Section 148A; or |
| (iv) | sanction for issuance of notice under Section 151; |
so as to impart greater efficiency, transparency and accountability by inter alia eliminating the interface between the Income Tax Authorities and assessee. Subsection 3 of Section 151A of the Act also provides that every notification issued under sub-section (1) and (2) of Section 151A of the Act shall be laid before each House of Parliament.
In exercise of the powers conferred by sub-sections (1) and (2) of Section 151A of the Act, CBDT issued a notification dated 29th March, 2022 [Notification No.18/2022/F. No.370142/16/2022-TPL and formulated a Scheme. The Scheme provides that –
| (a) | the assessment, reassessment or recomputation under Section 147 of the Act, |
| (b) | and the issuance of notice under Section 148 of the Act, shall be through automated allocation, in accordance with risk management strategy formulated by the Board as referred to in Section 148 of the Act for issuance of notice and in a faceless manner, to the extent provided in Section 144B of the Act with reference to making assessment or reassessment of total income or loss of assessee. The impugned notice dated 27th August, 2022 has been issued by respondent no.1 (JAO) and not by the Gauri Gaekwad 64/87 904.WP-1778-2023.doc NFAC, which is not in accordance with the aforesaid Scheme. |
33.The guideline dated 1st August 2022 relied upon by the Revenue is not applicable because these guidelines are internal guidelines as is clear from the endorsement on the first page of the guideline – “Confidential For Departmental Circulation Only”. The said guidelines are not issued under Section 119 of the Act. Any such guideline issued by the CBDT is not binding on petitioner. Further the said guideline is also not binding on respondent no.1 as they are contrary to the provisions of the Act and the Scheme framed under Section 151A of the Act. The effect of a guideline came up for discussion in Sofitel Realty LLP v. Income Tax Officer (TDS)13 wherein this Court has held that the guidelines which are contrary to the provisions of the Act cannot be relied upon by the Revenue to reject an application for compounding filed by an assessee. The Court held that guidelines are subordinate to the principal Act or Rules, it cannot restrict or override the application of specific provisions enacted by legislature. The guidelines cannot travel beyond the scope of the powers conferred by the Act or the Rules.
The guidelines do not deal with or even refer to the Scheme dated 29th March 2022 framed by the Government under Section 151A of the Act. Section 151A(3) of the Act provides that the Scheme so framed is required to be laid before each House of the Parliament. Therefore, the Scheme dated 29th March 2022 under Section 151A of the Act, which has also been laid before the Parliament, would be binding on the Revenue and the guideline dated 1st August 2022 cannot supersede the Scheme and if it provides anything to the contrary to the said Scheme, then the same is required to be treated as invalid and bad in law.
34. As regards ITBA step-by-step Document No.2 regarding issuance of notice under Section 148 of the Act, relied upon by Revenue, an internal document cannot depart from the explicit statutory provisions of, or supersede the Scheme framed by the Government under Section 151A of the Act which Scheme is also placed before both the Houses of Parliament as per Section 151A(3) of the Act. This is specially the case when the document does not even consider or even refer to the Scheme. Further the said document is clearly intended to be a manual/guide as to how to use the Income Tax Department’s portal, and does not even claim to be a statement of the Revenue’s position/stand on the issue in question. Our observations with respect to the guidelines dated 1st August 2022 relied upon by the Revenue will equally be applicable here.
35. Further, in our view, there is no question of concurrent jurisdiction of the JAO and the FAO for issuance of notice under Section 148 of the Act or even for passing assessment or reassessment order. When specific jurisdiction has been assigned to either the JAO or the FAO in the Scheme dated 29th March, 2022, then it is to the exclusion of the other. To take any other view in the matter, would not only result in chaos but also render the whole faceless proceedings redundant. If the argument of Revenue is to be accepted, then even when notices are issued by the FAO, it would be open to an assessee to make submission before the JAO and vice versa, which is clearly not contemplated in the Act. Therefore, there is no question of concurrent jurisdiction of both FAO or the JAO with respect to the issuance of notice under Section 148 of the Act. The Scheme dated 29th March 2022 in paragraph 3 clearly provides that the issuance of notice “shall be through automated allocation ” which means that the same is mandatory and is required to be followed by the Department and does not give any discretion to the Department to choose whether to follow it or not. That automated allocation is defined in paragraph 2(b) of the Scheme to mean an algorithm for randomised allocation of cases by using suitable technological tools including artificial intelligence and machine learning with a view to optimise the use of resources. Therefore, it means that the case can be allocated randomly to any officer who would then have jurisdiction to issue the notice under Section 148 of the Act. It is not the case of respondent no.1 that respondent no.1 was the random officer who had been allocated jurisdiction.
36. With respect to the arguments of the Revenue, i.e., the notification dated 29th March 2022 provides that the Scheme so framed is applicable only ‘to the extent’ provided in Section 144B of the Act and Section 144B of the Act does not refer to issuance of notice under Section 148 of the Act and hence, the notice cannot be issued by the FAO as per the said Scheme, we express our view as follows:-
Section 151A of the Act itself contemplates formulation of Scheme for both assessment, reassessment or recomputation under Section 147 as well as for issuance of notice under Section 148 of the Act. Therefore, the Scheme framed by the CBDT, which covers both the aforesaid aspect of the provisions of Section 151A of the Act cannot be said to be applicable only for one aspect, i.e., proceedings post the issue of notice under Section 148 of the Act being assessment, reassessment or recomputation under Section 147 of the Act and inapplicable to the issuance of notice under Section 148 of the Act. The Scheme is clearly applicable for issuance of notice under Section 148 of the Act and accordingly, it is only the FAO which can issue the notice under Section 148 of the Act and not the JAO. The argument advanced by respondent would render clause 3(b) of the Scheme otiose and to be ignored or contravened, as according to respondent, even though the Scheme specifically provides for issuance of notice under Section 148 of the Act in a faceless manner, no notice is required to be issued under Section 148 of the Act in a faceless manner.
In such a situation, not only clause 3(b) but also the first two lines below clause 3(b) would be otiose, as it deals with the aspect of issuance of notice under Section 148 of the Act. Respondents, being an authority subordinate to the CBDT, cannot argue that the Scheme framed by the CBDT, and which has been laid before both House of Parliament is partly otiose and inapplicable. The argument advanced by respondent expressly makes clause 3(b) otiose and impliedly makes the whole Scheme otiose. If clause 3(b) of the Scheme is not applicable, then only clause 3(a) of the Scheme remains. What is covered in clause 3(a) of the Scheme is already provided in Section 144B(1) of the Act, which Section provides for faceless assessment, and covers assessment, reassessment or recomputation under Section 147 of the Act. Therefore, if Revenue’s arguments are to be accepted, there is no purpose of framing a Scheme only for clause 3(a) which is in any event already covered under faceless assessment regime in Section 144B of the Act. The argument of respondent, therefore, renders the whole Scheme redundant. An argument which renders the whole Scheme otiose cannot be accepted as correct interpretation of the Scheme. The phrase “to the extent provided in Section 144B of the Act” in the Scheme is with reference to only making assessment or reassessment or total income or loss of assessee. Therefore, for the purposes of making assessment or reassessment, the provisions of Section 144B of the Act would be applicable as no such manner for reassessment is separately provided in the Scheme. For issuing notice, the term “to the extent provided in Section 144B of the Act” is not relevant. The Scheme provides that the notice under Section 148 of the Act, shall be issued through automated allocation, in accordance with risk management strategy formulated by the Board as referred to in Section 148 of the Act and in a faceless manner. Therefore, “to the extent provided in Section 144B of the Act” does not go with issuance of notice and is applicable only with reference to assessment or reassessment. The phrase “to the extent provided in Section 144B of the Act” would mean that the restriction provided in Section 144B of the Act, such as keeping the International Tax Jurisdiction or Central Circle Jurisdiction out of the ambit of Section 144B of the Act would also apply under the Scheme. Further the exceptions provided in sub-section (7) and (8) of Section 144B of the Act would also be applicable to the Scheme.
37. When an authority acts contrary to law, the said act of the Authority is required to be quashed and set aside as invalid and bad in law and the person seeking to quash such an action is not required to establish prejudice from the said Act. An act which is done by an authority contrary to the provisions of the statue, itself causes prejudice to assessee. All assessees are entitled to be assessed as per law and by following the procedure prescribed by law. Therefore, when the Income Tax Authority proposes to take action against an assessee without following the due process of law, the said action itself results in a prejudice to assessee. Therefore, there is no question of petitioner having to prove further prejudice before arguing the invalidity of the notice.
38. With respect to the Office Memorandum dated 20th February 2023, the said Office Memorandum merely contains the comments of the Revenue issued with the approval of Member (L&S) CBDT and the said Office Memorandum is not in the nature of a guideline or instruction issued under Section 119 of the Act so as to have any binding effect on the Revenue. Moreover, the arguments advanced by the Revenue on the said Office Memorandum dated 20th February 2023 is clearly contrary to the provisions of the Act as well as the Scheme dated 29 th March 2022 and the same are dealt with as under –
| (i) | It is erroneously stated in paragraph 3 of the Office Memorandum that “The scheme clearly lays down that the issuance of notice under section 148 of the Act has to be through automation in accordance with the risk management strategy referred to in section 148 of the Act.” The issuance of notice is not through automation but through “automated allocation”. The term “automated allocation” is defined in clause 2(1)(b) of the said Scheme to mean random allocation of cases to Assessing Officers. Therefore, it is clear that the Assessing Officer are randomly selected to handle a case and it is not merely a case where notice is sought to be issued through automation. |
| (ii) | It is further erroneously stated in paragraph 3 of the Office Memorandum that “To this end, as provided in the section 148 of the Act, the Directorate of Systems randomly selects a number of cases based on the criteria of Risk Management Strategy.” The term ‘randomly’ is further used at numerous other places in the Office Memorandum with respect to selection of cases for consideration/issuance of notice under Section 148 of the Act. Respondent is clearly incorrect in its understanding of the said Scheme as the reference to random in the said Scheme is reference to selection of Assessing Officer at random and not selection of Section 148 cases as random. If the cases for issuance of notice under Section 148 of the Act are selected based on criteria of the risk management strategy, then, obviously, the same are not randomly selected. The term ‘randomly’ by definition mean something which is chosen by chance rather than according to a plan. Therefore, if the cases are chosen based on risk management strategy, they certainly cannot be said to be random. The Computer/System cannot select cases on random but selection can be based on certain well- defined criteria. Hence, the argument of respondents is clearly unsustainable. If the case of respondent is that the applicability of Section 148 of the Act is on random basis, then the provision of Section 148 itself would become contrary to Article 14 of the Constitution of India as being arbitrary and unreasonable. Randomly selecting cases for reopening without there being any basis or criteria would mean that the section is applied by the Revenue in an arbitrary and unreasonable manner. The word ‘random’ is used in clause 2(1)(b) of the said Scheme in the definition of “automated allocation”. “Automated allocation” is defined in the said clause to mean “an algorithm for randomised allocation of cases. “. The term ‘random’, in our view, has been used in the context of assigning the case to a random Assessing Officer, i.e., an Assessing Officer would be randomly chosen by the system to handle a particular case. The term ‘random’ is not used for selection of case for issuance of notice under Section 148 as has been alleged by the Revenue in the Office Memorandum. Further, in paragraph 3.2 of the Office Memorandum, with respect to the reassessment proceedings, the reference to ‘random allocation’ has correctly been made as random allocation of cases to the Assessment Units by the National Faceless Assessment Centre. When random allocation is with reference to officer for reassessment then the same would equally apply for issuance of notice under Section 148 of the Act. |
| (iii) | The conclusion at the bottom of page 2 in paragraph 3 of the Office Memorandum that “Therefore, as provided in the scheme the notice under section 148 of the Act is issued on automated allocation of cases to the Assessing Officer based on the risk management criteria ” is also factually incorrect and on the basis of incorrect interpretation of the Scheme. Clause 2(1)(b) of the Scheme defined ‘automated allocation’ to mean ‘an algorithm for randomised allocation of cases by using suitable technological tools, including artificial intelligence and machine learning, with a view to optimise the use of resources ‘. The said definition does not provide that the automated allocation of case to the Assessing Officer is based on the risk management criteria. The reference to risk management criteria in clause 3 of the Scheme is to the effect that the notice under Section 148 of the Act should be in accordance with the risk management strategy formulated by the board which is in accordance with Explanation 1 to Section 148 of the Act. In our view, the Revenue is misinterpreting the Scheme, perhaps to cover its deficiency of not following the Scheme for issuing notice under Section 148 of the Act. |
| (iv) | In paragraph 3.1 of the Office Memorandum, it is stated that the case is selected prior to issuance of notice are decided on the basis of an algorithm as per risk management strategy and are, therefore, randomly selected. It is further stated that these cases are ‘flagged’ to the JAO by the Directorate of Systems and the JAO does not have any control over the process. It is further stated that the JAO has no way of predicting or determining beforehand whether the case will be ‘flagged’ by the system. The contention of the Revenue is that only cases which are ‘flagged’ by the system as per the risk management strategy formulated by CBDT can be considered by the Assessing Officer for reopening, however, in clause (i) in the Explanation 1 to Section 148 of the Act, the term “flagged” has been deleted by the Finance Act, 2022, with effect from 1 st April 2022. In any case, whether only cases which are flagged can be reopened or not is not relevant to decide the scope of the Scheme framed under Section 151A of the Act, which required the notice under Section 148 of the Act to be issued on the basis of random allocation and in a faceless manner. |
| (v) | The Revenue has wrongly contended in paragraph 3.1 of the Office Memorandum that “Therefore, whether JAO or NFAC should issue such notice is decided by administration keeping in mind the end result of natural justice to the assessees as well as completion of required procedure in a reasonable time. ” In our opinion, there is no such power given to the administration under either Section 151A of the Act or under the said Scheme. The Scheme is clear and categorical that notice under Section 148 of the Act shall be issued through automated allocation and in a faceless manner. Therefore, the argument of the Revenue is clearly contrary to the provisions of the Scheme. |
| (vi) | In paragraph 3.3 of the Office Memorandum, it is again erroneously stated that “Here it is pertinent to note that the said notification does not state whether the notices to be issued by the NFAC or the Jurisdictional Assessing Officer (“JAO”).It states that issuance of notice under section 148 of the Act shall be through automated allocation in accordance with the risk management strategy and that the assessment shall be in faceless manner to the extent provided in section 144B of the Act.” The Scheme is categoric as stated aforesaid that the notice under Section 148 of the Act shall be issued through automated allocation and in a faceless manner. The Scheme clearly provides that the notice under Section 148 of the Act is required to be issued by NFAC and not the JAO. Further, unlike as canvassed by Revenue that only the assessment shall be in faceless manner, the Scheme is very clear that both the issuance of notice and assessment shall be in faceless manner. |
| (vii) | In paragraph 5 of the Office Memorandum, a completely unsustainable and illogical submission has been made that Section 151A of the Act takes into account that procedures may be modified under the Act or laid out taking into account the technological feasibility at the time. Reading the said Scheme along with Section 151A of the Act makes it clear that neither the Section or the Scheme speak about the detailed specifics of the procedure to be followed therein. This argument of the Revenue is clearly contrary to the Scheme as the Scheme is very specific to provide, inter alia, that the issuance of notice under Section 148 of the Act shall be through automated location and in a faceless manner. Therefore, the Scheme is mandatory and provides the specification as to how the notice has to be issued. Further the argument of the Revenue that Section 151A of the Act takes into account that the procedure may be modified under the Act is without appreciating that if the procedure is required to be modified then the same would require modification of the notified Scheme. It is not open to the Revenue to refuse to follow the Scheme as the Scheme is clearly mandatory and is required to be followed by all Assessing Officers. |
| (viii) | The argument of the Revenue in paragraph 5.1 of the Office Memorandum that the Section and Scheme have left it to the administration to device and modify procedures with time while remaining confined to the principles laid down in the said Section and Scheme, is without appreciating that one of the main principles laid down in the Scheme is that the notice under Section 148 of the Act is required to be issued through automated allocation and in a faceless manner. There is no leeway given on the said aspect and, therefore, there is no question of the administration to device and modify procedures with respect to the issuance of notice. |
39. With reference to the decision of the Hon’ble Calcutta High Court in Triton Overseas Private Limited (supra), the Hon’ble Calcutta High Court has passed the order without considering the Scheme dated 29th March 2022 as the said Scheme is not referred to in the order. Therefore, the said judgment cannot be treated as a precedent or relied upon to decide the jurisdiction of the Assessing Officer to issue notice under Section 148 of the Act. The Hon’ble Calcutta High Court has referred to an Office Memorandum dated 20th February 2023 being F No.370153/7/2023 TPL which has been dealt with above. Therefore, no reliance can be placed on the said Office Memorandum to justify that the JAO has jurisdiction to issue notice under Section 148 of the Act. Further the Hon’ble Telangana High Court in the case of Kankanala Ravindra Reddy v. Income Tax Officer 652 (Telangana)] has held that in view of the provisions of Section 151A of the Act 14 read with the Scheme dated 29th March 2022 the notices issued by the JAOs are invalid and bad in law. We are also of the same view. “
(Emphasis supplied)
The High Court of Bombay in Paras Mahendra Shah v. Union of India 546 (Bombay), has held as follows:
“5. Therefore, it is apparent that the RespondentRevenue is not in compliance with the Scheme notified by the Central Government pursuant to Section 151A(2) of the Act. The Scheme has also been tabled in Parliament and is in the character of subordinate legislation, which governs the conduct of proceedings under Section 148A as well as Section 148 of the Act. In view of the explicit declaration of the law in Hexaware, the grievance of the Petitioner-Assessee insofar as it relates to an invalid issuance of a notice is sustainable and consequently, the very manner in which the proceedings have been initiated, vitiates the proceedings.
6. Learned Counsel for both the parties agree that the proceedings initiated under Section 148 of the Act would not be sustainable in view of the judgment rendered in Hexaware. Learned Counsel for the Respondents-Revenue has also drawn our attention to a recent decision of this Court in Nainraj Enterprises Pvt. Ltd. v. The Deputy Commissioner of Income Tax, Circle-4(3)(1), Mumbai, whereby in similar circumstances, this Court has allowed the petition considering the provisions of Section 151A of the Act.
7. In the light of the above discussion, and as there is no dispute that the JAO had no jurisdiction to issue the impugned notice, the Writ Petition is accordingly allowed and the impugned notice as well as order are hereby quashed and set aside.
8. We make it clear that having disposed of this petition on the ground of non-compliance with Section 151A of the Act, we have not expressed any opinion on the other issues raised in the Writ Petition. The other questions raised in this petition are not being answered since it is not necessary to do so.”
(Emphasis supplied)
A division bench of the High Court of Bombay in the case of Kairos Properties (P.) Ltd. v. Asstt. CIT 760/468 ITR 168 (Bombay), holds as follows:
“9. The scheme under such notification has been issued to give effect to the provisions of section 151A of the Act, as the notification explicitly provides that it has been issued under the powers conferred by sub-sections (1) and (2) of section 151A of the Act by the Central Government. Paragraph 3 defining the scope of the scheme reads thus (page 198 of 442 ITR (Stat):
“3. Scope of the scheme.—For the purpose of this scheme,—
| class=”list”> | class=”list”> class=”list”> |
| (a) | assessment, reassessment or recomputation under section 147 of the Act, |
| (b) | issuance of notice under section 148 of the Act, |
shall be through automated allocation, in accordance with risk management strategy formulated by the Board as referred to in section 148 of the Act for issuance of notice, and in a faceless manner, to the extent provided in section 144B of the Act with reference to making assessment or reassessment of total income or loss of the assessee.”
10. On a plain reading of paragraph 3, it is clear to us that the provisions of section 148A would also fall within the ambit/scope of the scheme. All aspects pertaining to “assessment”,”reassessment” or “recomputation” under section 147 of the Act and issuance of notice under section 148 of the Act, are to be undertaken through automated allocation, in accordance with risk management strategy formulated by the Board, as provided for in section 148 of the Act for issuance of notice, and in a faceless manner, to the extent provided under section 144B of the Act, in making assessment or reassessment of total income or loss of assessee.
11. Having noted the scope of the scheme under the aforesaid notification, the basic provision under which such notification is issued, namely, section 151A would also be required to be noted, which reads thus:
“151A. Faceless assessment of income escaping assessment.—
(1) The Central Government may make a scheme, by notification in the Official Gazette, for the purposes of assessment, reassessment or re-computation under section 147 or issuance of notice under section 148 or conducting of enquiries or issuance of show-cause notice or passing of order under section 148A [Inserted by the Finance Act, 2021, w.e.f. 1-4-2021 ((2021) 432 ITR (Stat) 52).] or sanction for issue of such notice under section 151, so as to impart greater efficiency, transparency and accountability by—
| (a) | eliminating the interface between the Income-tax authority and the assessee or any other person to the extent technologically feasible; |
| (b) | optimising utilisation of the resources through economies of scale and functional specialisation; |
| (c) | introducing a team-based assessment, reassessment, recomputation or issuance or sanction of notice with dynamic jurisdiction. |
(2) The Central Government may, for the purpose of giving effect to the scheme made under sub-section (1), by notification in the Official Gazette, direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification:
Provided that no direction shall be issued after the 31st day of March, 2022.
(3) Every notification issued under sub-section (1) and sub-section (2) shall, as soon as may be after the notification is issued, be laid before each House of Parliament.”
12. On a plain reading of sub-section (1) of section 151A, it is seen that it clearly provides that the Central Government may make a scheme by notification in the Official Gazette for the purposes of assessment, reassessment or recomputation under section 147 or issuance of notice under section 148 or conducting of enquiries, etc., or sanction for issue of such notice under section 151, so as to impart greater efficiency, transparency and accountability which could be in terms of clauses (a), (b) and (c) of sub-section (1) of section 151A, namely, eliminating the interface between the Income-tax authority and the assessee or any other person, to the extent technologically feasible; optimising utilisation of resources through economies of scale and functional specialisation; and introducing a team-based assessment, reassessment, recomputation or issuance or sanction of notice with dynamic jurisdiction. Subsection (2) makes it explicit that for the purpose of giving effect to the scheme made under sub-section (1), by notification in the Official Gazette, the Central Government can also direct that any of the provisions of this Act shall not apply or shall apply with such exceptions, modifications and adaptations as may be specified in the notification and further under sub-section (3), every notification issued under sub-section (1) and subsection (2) shall be laid before each House of Parliament.
13. It is thus clear from the implications as brought about by the provisions of section 151A that the notification dated March 29, 2022 ((2022) 442 ITR (Stat) 198) is issued in terms of what has been provided under section 151A. It has been issued after the amendments were incorporated in subsection (1) by Finance Act, 2021 ((2021) 432 ITR (Stat) 52) with effect from April 1, 2022. It would be thus difficult to accept a proposition when in paragraph 3(a) of the scheme defining the scope of the scheme when the words “assessment”,”reassessment” or “recomputation” under section 147 of the Act are explicitly provided, and further when clause (b) in paragraph 3 of the scheme provides for issuance of notice under section 148 of the Act, it would not take within its ambit the provisions of section 148A which are the initial steps, which in a given case are required to be taken in issuance of notice under section 148 of the Act. Section 148A provides for “Conducting inquiry, providing opportunity before issue of notice under section 148”.Thus, this provision postulates a procedure inextricably linked to section 148 which would apply to all cases of reassessment with a proviso stipulating exceptions to the rule. In other words, section 148A in its object, intent and purpose is inextricably connected with the assessment, reassessment or recomputation, for which a notice under section 148 may be issued. Any other view would mean that the requirement to adopt the faceless procedure under the scheme is a mere ministerial requirement for issuance of the notice. Such a reading would not be in conformity with the objectives spelt out in clauses (a), (b) and (c) of section 151A(1).
14. Thus, to accept a contention that merely because the notification does not explicitly refer to the provisions of section 148A, the scope of the scheme as defined in paragraph 3 would exclude the applicability of section 148A, would lead to an absolute absurdity, and more particularly, considering the express provisions of sub-section (1) of section 151A. Also it is not possible to accept reading of the provisions of section 144B dehors section 151A(1). Sub-section (2) of section 151A is specifically incorporated to empower the Central Government to exclude the applicability of any of the provisions of the Act and/or to make such provisions applicable with exceptions, modifications and adaptations. Nothing of this nature is found in the notification to infer any exclusion of section 148A, and when it clearly concerns the entire assessment, reassessment or recomputation under section 147 and issuance of notice in that regard under section 148 of the Act.
15. Thus, the Central Government has not applied the provisions of sub-section (2) of section 151A to specifically exclude the application of section 148A from the scope of the scheme in paragraph 3 of the notification dated March 29, 2022 ((2022) 442 ITR (Stat) 198), it would hence not be possible to accept the Revenue’s contention that the provisions of section 148A stands excluded from the applicability of the faceless mechanism.
16. For the aforesaid reasons, we would not accept Mr. Mohanty’s submission that the scope of the scheme would exclude the applicability of section 148A and if steps are taken by the jurisdictional Assessing Officer under section 148A culminating into issuance of a notice under section 148 of the Act, the entire exercise being undertaken outside the faceless mechanism would be required to be quashed and set aside. There cannot be any other reading of these provisions along with the notification.
17. In the light of the above discussion, and as there is no dispute that the jurisdictional Assessing Officer had no jurisdiction to issue the impugned notice, the writ petition is accordingly allowed in terms of prayer clause (a) which reads thus:
| “(a) | that this hon’ble court be pleased to issue a writ of certiorari or any other writ, order or direction under article 226 of the Constitution of India calling for the records of the case leading to the issue of the impugned initial notice (exhibit L) dated March 30, 2024, passing of the impugned order (exhibit P) dated April 25, 2024 and the issue of the impugned notice (exhibit Q) dated April 25, 2024 and after going through the same and examining the question of legality thereof quash, cancel and set aside the impugned initial notice (exhibit L) dated March 30, 2024, the impugned order (exhibit P) dated April 25, 2024 and the impugned notice (exhibit Q) dated April 25, 2024;” |
(Emphasis supplied)
Therefore, the division benches of the High Courts as afore-quoted in one voice held that any notice issued outside faceless regime would be contrary to law and without jurisdiction.
11. A learned single Judge of the High Court of Madras in TVS Credit Services Ltd. v. Deputy Commissioner of Income-tax 1078 (Madras)/W.P.No. 22402 of 2024 and connected cases decided on 21-04-2025 has held as follows:
“I) Scope of Assessment:
5.3.1. The High Courts of Delhi and Madras appear on proceed on the premise that reassessment would commence only on issuance of notice under Section 148 of the Act and proceedings under Section 148A is atleast a step removed from commencement of proceedings relating to reassessment. This, I would think involves dissection of proceeding relating to assessment of escaped income/ reassessment into two parts. The first part relating to assessment being until orders are passed under Section 148A and corresponding issuance of notice under Section 148 of the Act. The second part being post issuance of notice under Section 148 of the Act, commencing with issuance of notice under Section 143(2) or Section 142(1) of the Act. While, the first part is to be carried out/performed by JAO, second part of assessment must be by FAO. This dissection appears to be artificial.
5.3.2. The above view also appears to be in conflict with the judgments of the Hon’ble Supreme Court wherein assessment has been held to be comprehensive and would encompass the entire gamut of proceedings starting with filing of returns or issue of notice and ending with the determination of tax payable by assessee. Importantly, in Auto and metal Engineers case, the Hon’ble Supreme Court had also rejected the contention suggesting splitting/ dissecting the assessment into various stages, the relevant portions of the judgment are extracted hereunder:
| (i) | S. Sankarappa v. Income Tax Officer, reported in 1967 SCC OnLine SCC 25: |
“3……The word assessment is used in a comprehensive sense and includes all proceedings, starting with the filing of the return or issue of notice and ending with the determination of the tax payable by assessee.”
| (ii) | J.K. Iron & Steel Co. v. L.T. Officer, reported in 1965 SCC OnLine ALL 423: |
“9……The word ‘assessment’ includes not only computation of income but also the entire machinery and procedure for imposing and enforcing the tax liability.”
| (iii) | Auto & Metal Engineers v. Union of India, reported in (1997) 7 SCC 734: |
“7…..the expression “assessment proceeding” in the explanation must be construed to comprehend the entire process of assessment starting from the stage of filing of the return under Section 139 or issuance of notice under Section 142(1) till the making of the order of assessment under Section 143(3) or Section 144. Since the making of the order of assessment under Section 143(3) or Section 144 of the Act is an integral part of the assessment proceeding, it is not possible to split the assessment proceeding and confine it up to the stage of inquiry under Sections 142 and 143 and exclude the making of the order of assessment from its ambit.”
5.3.3. It thus appears that proceedings for reassessment would commence with initiation of proceedings under Section 148A of the Act inasmuch as the notice is preceded by an enquiry with respect to information, which suggests that income chargeable to tax has escaped assessment. In other words, proceedings under Section 148 A of the Act itself could be invoked only when there is information which suggests that income chargeable to tax has escaped assessment. It is thus an integral part of re-assessment/ assessment of escaped income and any attempt to treat it as distinct or removed from re-assessment would only result in distorting the scheme relating to reassessment/ assessment of escaped income. This would be clear if we bear in mind that Section 148A of the Act, was inserted with a view to legislatively incorporate the procedure laid down in GKN Driveshafts. The dissection of reassessment proceedings into two parts appear to be in conflict with the judgment of the Hon’ble Supreme Court on assessment being comprehensive and expansive to take within its fold all proceedings relating thereto referred supra.
5.3.4. It may also be relevant to note that Apex Court in the case of Union of India v. Ashish Agarwal reported in (2023) 1 SCC 617, while dealing with validity of reassessment notices issued post 01.04.2021 under the erst while provisions governing re-assessment viz., Sections 148 to Section 151 of the Act and not in terms of the amended Sections 147 to 149 and Section 151 of the Act which would govern re-assessment with effect from 01.04.2021, observed as under:
“10. Parliament introduced reformative changes to Sections 147 to 151 of the Income Tax Act, 1961 governing reassessment proceedings by way of the Finance Act, 2021, which was passed on 28-3-2021. The substituted Sections 147 to 149 and Section 151 applicable w.e.f. 1-4-2021
…..
11. In sub-section (1) of Section 151-A of the Income Tax Act, in the opening portion, after the words and figures “issuance of notice under Section 148”, the words, figures and letter “or conducting of enquiries or issuance of show-cause notice or passing of order under Section 148-A”are inserted.
12. Despite the substituted Sections 147 to 151 of the Income Tax Act, 1961 by the Finance Act, 2021 coming into force on 1-4-2021, according to learned ASG, the Revenue issued approximately 90,000 reassessment notices to the respective assessees under the erstwhile Sections 148 to 151 thereof by relying on explanations in the Notifications dated 31-3-2021 and 27-4-2021. The said reassessment notices were the subject-matter of writ petitions before the various High Courts. The respective High Courts have held that all the respective reassessment notices issued under the erstwhile Sections 148 to 151 of the Income Tax Act, 1961, are bad in law as the reassessment notices issued after 1-42021 are governed by the substituted Sections 147 to 151 of the Income Tax Act, 1961, substituted by the Finance Act, 2021. Consequently, the respective High Courts have set aside all the reassessment notices issued under Section 148 of the Income Tax Act, 1961 wherever assailed.
13. The common judgment and order [Ashok Kumar Agarwal v.Union of India, 2021 SCC OnLine All 799] passed by the High Court of Allahabad is the subjectmatter of the present appeals. However, the High Court of Delhi in its common judgment and order dated 15-122021 [Mon Mohan Kohli v. CIT, 2021 SCC OnLine Del 5250] while quashing the respective reassessment notices has also observed that if the law permits the Revenue to take further steps in the matter they shall be at liberty to do so.
14. We have heard Shri N. Venkataraman, learned ASG appearing on behalf of the Revenue and Shri C.A. Sundaram and Shri S. Ganesh, learned Senior Advocates and other learned counsel appearing on behalf of the respective assessee.
15. It cannot be disputed that by substitution of Sections 147 to 151 of the Income Tax Act (“the IT Act”) by the Finance Act, 2021, radical and reformative changes are made governing the procedure for reassessment proceedings. Amended Sections 147 to 149 and Section 151 of the IT Act prescribe the procedure governing initiation of reassessment proceedings. However, for several reasons, the same gave rise to numerous litigations and the reopening were challenged inter alia, on the grounds such as:
| (1) | no valid “reason to believe”. |
| (2) | no tangible/reliable material/information in possession of the assessing officer leading to formation of belief that income has escaped assessment, |
| (3) | no enquiry being conducted by the assessing officer prior to the issuance of notice; and reopening is based on change of opinion of the assessing officer and |
| (4) | lastly the mandatory procedure laid down by this Court in GKN Driveshafts (India) Ltd. v. ITO [GKN Driveshafts (India) Ltd. v. ITO, (2003) 1 SCC 72], has not been followed. |
…..
17. Under the substituted provisions of the IT Act vide the Finance Act, 2021, no notice under Section 148 of the IT Act can be issued without following the procedure prescribed under Section 148-A of the IT Act. Along with the notice under Section 148 of the IT Act, the assessing officer (“AO”) is required to serve the order passed under Section 148-A of the IT Act. Section 148-A of the IT Act is a new provision which is in the nature of a condition precedent. Introduction of Section 148-A of the IT Act can thus be said to be a game changer with an aim to achieve the ultimate object of simplifying the tax administration, ease compliance and reduce litigation.
18. But prior to pre-Finance Act, 2021, while reopening an assessment, the procedure of giving the reasons for reopening and an opportunity to the assessee and the decision of the objectives were required to be followed as per the judgment of this Court in GKN Driveshafts (India) [GKN Driveshafts (India) Ltd. v. ITO, (2003) 1 SCC 72].
19. However, by way of Section 148-A, the procedure has now been streamlined and simplified. It provides that before issuing any notice under Section 148, the assessing officer shall:
| (i) | conduct any enquiry, if required, with the approval of specified authority, with respect to the information which suggests that the income chargeable to tax has escaped assessment; |
| (ii) | provide an opportunity of being heard to the assessee, with the prior approval of specified authority; |
| (iii) | consider the reply of the assessee furnished, if any, in response to the show-cause notice referred to in clause (b); and |
| (iv) | decide, on the basis of material available on record including reply of the assessee, as to whether or not it is a fit case to issue a notice under Section 148 of the IT Act; and |
| (v) | the AO is required to pass a specific order within the time stipulated. |
……
24. There appears to be genuine non-application of the amendments as the officers of the Revenue may have been under a bona fide belief that the amendments may not yet have been enforced.Therefore, we are of the opinion that some leeway must be shown in that regard which the High Courts could have done so. Therefore, instead of quashing and setting aside the reassessment notices issued under the unamended provision of the IT Act, the High Courts ought to have passed an order construing the notices issued under the unamended Act/unamended provision of the IT Act as those deemed to have been issued under Section 148-A of the IT Act as per the new provision Section 148-A and the Revenue ought to have been permitted to proceed further with the reassessment proceedings as per the substituted provisions of Sections 147 to 151 of the IT Act as per the Finance Act, 2021, subject to compliance of all the procedural requirements and the defences, which may be available to the assessee under the substituted provisions of Sections 147 to 151 of the IT Act and which may be available under the Finance Act, 2021 and in law.
…..
25.1. The respective impugned Section 148 notices issued to the respective assessees shall be deemed to have been issued under Section 148-A of the IT Act as substituted by the Finance Act, 2021 and treated to be show-cause notices in terms of Section 148-A(b). The respective assessing officers shall within thirty days from today provide to the assessees the information and material relied upon by the Revenue so that the assessees can reply to the notices within two weeks thereafter.
25.2. The requirement of conducting any enquiry with the prior approval of the specified authority under Section 148-A(a) be dispensed with as a one-time measure vis-a-vis those notices which have been issued under Section 148 of the unamended Act from 1-4-2021 till date, including those which have been quashed by the High Courts.”
(emphasis supplied)
5.3.5. The above observations would suggest the following:
| (a) | Proceedings under Section 148A of the Act is an integral part of re- assessment. |
| (b) | Proceedings under Section 148 A of the Act is a condition precedent and thus to say that reassessment would commence only after issuance of a notice under Section 142(1) or Section 143(2) of the Act, after completion of proceedings under Section 148A of the Act, results in bringing about an artificial dissection of an integrated re-assessment proceeding. |
| (c) | It cannot be disputed that the changes to Sections 147 to 151 of the Act, introduced vide Finance Act, 2021, are made governing the procedure relating to reassessment. In other words, Section 148A of the Act is also part of the procedure governing reassessment. |
| (d) | If Section 148A of the Act is distinct from re-assessment/ assessment of escaped income, the need to deem notice issued under Section 148 of the Act, post introduction of Section 148 A of the Act as one under Section 148A of the Act, would not have arisen. The deeming was necessary, else reassessment would be rendered vulnerable to challenge on the ground of want of jurisdiction. |
5.3.6. In view of the above, I am unable to concur with the decision of this Court dissecting the integrated reassessment proceeding into two parts.
II) Scheme not in confirmity with Parent Act:
5.3.7. Considering the legislative and judicial history leading up to insertion of Section 148A and Section 151A of the Act, it appears that omission of Section 148A in the Scheme framed by the Central Government in exercise of powers under Section 151A is an omission by the delegate and may well constrict the scope and policy behind Section 151A of the Act. Thus, the scheme may have to be understood as also covering the procedure contemplated under Section 148A of the Act. While this Court is conscious that a matter which should have been, but has not been provided for in a statute cannot be supplied by Courts, as to do so will be legislation and not costruction. However, the same is not without exception and the following observations of Denning, L.J. cited with approval by the Supreme Court would make it clear:
“When a defect appears a judge cannot simply fold his hands and blame the draftsman. He must set to work on the constructive task of finding the intention of Parliament and then he must supplement the written words so as to give ‘force and life’ to the intention of the Legislature. A judge should ask himself the question how, if the makers of the Act had themselves come across this ruck in the texture of it, they would have straightened it out? He must then do as they would have done. A judge must not alter the material of which the Act is woven, but he can and should iron out the creases.”
5.3.8. Yet another reason why I am inclined to depart from the restraint which Courts are normally required to exercise while examining a case of omission by legislature or its delegate, is in view of the fact that Section 151A of the Income Tax Act (Parent Act) provides and contemplates a scheme being framed for assessment, re-assessment, re computation under Section 147, 148A and 148 of the Act.
5.3.9. It is trite law that legislature shall enunciate the policy before entrusting the power to make subordinate/subsidiary legislation to another body of its choice. The delegate must necessarily work within the scope of its authority and cannot widen or constrict the scope of the Act or the policy laid down thereunder. The relevant portion is extracted hereunder:
| (i) | Agricultural Market Committee v. Shalimar Chemical Works Ltd. , reported in (1997) 5 SCC 516: |
“26. The principle which, therefore, emerges out is that the essential legislative function consists of the determination of the legislative policy and the legislature cannot abdicate essential legislative function in favour of another. Power to make subsidiary legislation may be entrusted by the legislature to another body of its choice but the legislature should, before delegating, enunciate either expressly or by implication, the policy and the principles for the guidance of the delegates. These principles also apply to taxing statutes. The effect of these principles is that the delegate which has been authorised to make subsidiary rules and regulations has to work within the scope of its authority and cannot widen or constrict the scope of the Act or the policy laid down thereunder. It cannot, in the garb of making rules, legislate on the field covered by the Act and has to restrict itself to the mode of implementation of the policy and purpose of the Act.”
| (ii) | Gaurav Kumar v. Union of India, reported in (2025) 1 SCC 641: |
“67. A two-Judge Bench of this Court identified the following relevant principles in matters of delegated legislation : (Shalimar Chemical Works case [Agricultural Market Committee v. Shalimar Chemical Works Ltd. , (1997) 5 SCC 516], SCC p. 525, para 26)
“26….the delegate which has been authorised to make subsidiary rules and regulations has to work within the scope of its authority and cannot widen or constrict the scope of the Act or the policy laid down thereunder. It cannot, in the garb of making rules, legislate on the field covered by the Act and has to restrict itself to the mode of implementation of the policy and purpose of the Act.”
Given the above principle, it was observed that Section 12 is a fiscal provision and had to be construed strictly. It was further observed that any circumstance, situation, factor, or condition which was not contemplated by the Act could not be taken into consideration to raise the presumption regarding sale or purchase of the notified agricultural produce. It was held that the bye-law introduced additional factors such as “weighed”, “measured”, and “counted” which were not contemplated under Section 12. Therefore, the bye-laws were held to be ultra vires for widening the scope of the presumption under Section 12.
…..
72.2. A delegate cannot widen or constrict the scope of the parent legislation or the legislative policy prescribed under it; and.”
5.3.10. Section 151A being an Act of parliament reflects the legislative policy. Importantly, Section 151A of the Act expressly includes within the scope of faceless assessment, conducting of enquiries, issuance of notice, passing order under Section 148A and issuance of notice under Section 148 of the Act. Section 151A confers power on the Central Government to make a scheme by notification in the official gazettee for the purpose of effectuating the above legislative policy. The Central Government has in exercise of its powers conferred under Section 151A of the Act framed a scheme wherein Section 148A of the Act, has been omitted while including other provisions mentioned in Section 151A of the Act including Section 148 of the Act, which is consequential to a proceeding under Section 148A of the Act. It appears doubtful if it is even open to the Central Government to frame a scheme leaving out one of the elements enumerated in the parent Act viz., Section 148A of the Act, while exercising its powers conferred under Section 151A of the Act, more so when the enabling provision i.e., Section 151 A of the Act expressly includes Section 148A of the Act. It appears unless Section 148 A of the Act is read into the scheme framed under Section 151A of the Act, it would result in constricting the scope of Section 151A of the Act, which is a plenary legislation, by a delegated legislation i.e., scheme, which is impermissible. It thus appears to me that any attempt to suggest that Section 148A of the Act is outside the Scheme framed by the Central Government in exercise of its power conferred under Section 151A of the Act, would be overlooking the legislative policy enunciated in Section 151A of the Act. It may result in giving primacy to the scheme which is a subordinate legislation over Section 151A of the Act, which as stated above is the parent Act enabling the Central Government to frame a scheme. A consequence/ construction which ought to be avoided.”
(Emphasis supplied)
Few of the afore-mentioned judgments are taken to the Apex Court. The Apex Court has issued notice and the matters are pending consideration before the Apex Court. Noticing pendency of the issue before the Apex Court, a division bench of the High Court of Madras in the case of Dadha Pharma LLP v. Deputy Commissioner of Income-tax [W.P. No. 35385 of 2024, dated, 24-6-2025], holds as follows:
“This petition got listed in view of a difference of opinion between two learned Single Judges.
2. Learned Single Judge in order dated 20.12.2024 in WP Nos.25223 of 2024 held that it does not matter if the Jurisdictional Assessing Officer (JAO) issues the notice and it is not mandatory that it should be issued by the Faceless Assessment Officer (FAO). Another learned Single Judge in order dated 21.04.2025 in WP No.22402 of 2024 and batch cases, followed what was held by the Bombay High Court in Hexaware Technologies Ltd v. Assistant Commissioner of Income Tax; and opined that it was mandatory for the FAO to issue notice and issuance of notice by JAO would make the notice invalid.
3. Learned Single Judge thereafter directed the matter to be placed before the Chief Justice for constituting a Division Bench to consider the divergent views. It is, therefore, this matter was listed before us today.
4. Learned Senior Counsel, Mr.Jayakumar, submits that the law as laid in BMC Software India (P) Ltd v. Deputy Commissioner of Income Tax will apply. This judgment followed Hexaware Technologies Ltd (supra) and Kairos Properties (P) Ltd v. Assistant CIT.
5. Mr.Srinivas states that Special Leave Petitions are pending against the judgment in BMC Software India (P) Ltd (supra), Hexaware Technologies Ltd (supra) as also Kairos Properties (P) Ltd (supra) and that the petitions are expected to be taken up after the Supreme Court reopens.
6. We follow the law as laid down in Hexaware Technologies Ltd (supra), the said judgment was authored by one of us (Chief Justice), that it is mandatory for the FAO to issue the concerned notices and issuance thereof by the JAO would make the notice invalid.
7. Admittedly, Mr.Srinivas, in fairness, states that there is no stay. Therefore, the law as laid down by Hexaware Technologies Ltd (supra) applies.
8. It is clarified that if the Apex Court reverses the judgment of Hexaware Technologies Ltd (supra), parties will be governed by the decision of the Apex Court.
9. Keeping open all rights and contentions of parties, including liberty to apply to this Court, in case the Revenue succeeds before the Apex Court, for revival of this petition, the notice issued in this petition is quashed and set aside.
10. In this petition, apart from the issue of notice issued by JAO instead of FAO, all or many of the issues which were considered in Hexaware Technologies Ltd (supra) are involved.
11. To the extent the issues raised in Hexaware Technologies Ltd (supra) are not covered, those are kept open to be raised at the appropriate stage.
12. With the liberty as noted above, this petition stand disposed of holding in favour of assessee. There will be no order as to costs. Consequently, the interim applications also stand disposed of.”
(Emphasis supplied)
The division bench holds that the issue would get covered by the judgment rendered in the case of Hexaware Technology Ltd. (supra), which is quoted supra and the judgment in the case of Hexaware Technology Ltd. (supra), is carried to the Apex Court by the Revenue. Noticing that the proceedings therein are quashed with a clarification that in the event, the Apex Court reverses the judgment against the Hexaware Technology Ltd. (supra), the parties would be covered by the decision of the Apex Court. Keeping open all the contentions, the notice challenged was set aside. The High Court of Telangana in the case of Kanakanala Ravindra Reddy (supra), has held in favour of the assessee, holding that once faceless regime is in place, the jurisdictional Assessing Officer could not have acted outside the notification by issuing a notice invoking his jurisdiction. A subsequent judgment rendered by the division bench of the High Court of Telangana in the case of Southern Power Distribution Company of Telangana Ltd. v. Asstt. CIT 800 (Telangana) while quashing the notices kept the issue open as is done by the High Court of Madras in the case of Dadha Pharma LLP (supra), as afore-quoted. The division bench in Southern Power Distribution Co. (supra), has held as follows:
“2. This is a writ petition where the proceedings are either challenged to the notices which were issued under Section 148A and 148 of the Income Tax Act, 1961 (for short ‘the Act’) or the assessment orders those have been passed under Section 147 of the Act which have been assailed.
3. This writ petition is being taken up today only on one of the grounds, that the notices issued under Section 148A of the Act and the subsequent initiation of proceedings under Section 148 of the Act by the jurisdictional Assessing Officer, whereas in terms of the amendment that was brought to the Income Tax Act by way of Finance Act, 2021 w.e.f., 01.04.2021 onwards, proceedings under Section 148A of the Act as also under Section 148 of the Act ought to have also been issued and proceeded in a faceless manner.
4. The contention of the petitioner is that the issue of proceedings being in violation of the Finance Act, 2021 i.e., the impugned notices under Section 148A and Section 148 of the Act not being issued in a faceless manner, have already been dealt with and decided by this Court in the case of KANKANALA RAVINDRA REDDY v. INCOME-TAX OFFICER 178/652 (TELANGANA) decided on 14.09.2023 whereby a batch of writ petitions were allowed and the proceedings initiated under Section 148A as also under Section 148 of the Act were held to be bad with consequential reliefs on the ground of it being in violation of the provisions of Section 151A of the Act read with Notification 18/2022 dated 29.03.2022. The said judgment passed by this Court has also been subsequently followed in a large number of writ petitions which were allowed on similar terms.
5. Down the line, we find that the same issue has also been decided against the Revenue by various High Courts i.e., by the Bombay High Court in the case of HEXAWARE TECHNOLOGIES LTD., v. ASSISTANT COMMISSIONER OF INCOME TAX 225/464 ITR 430 (Bombay), Gauhati High Court in the case of RAM NARAYAN SAH v. UNION OF INDIA 478/101 GST 711/81 GSTL 139(Delhi), Punjab and Haryana High Court in the case of JATINDER SINGH BANGU v. UNION OF INDIA 115 (Punjab and Haryana), and Telangana High Court in the case of SRI VENKATARAMANA REDDY PATLOOLA v. DEPUTY COMMISSIONER OF INCOME TAX 411/468 ITR 181 (Telangana) where the issue was in respect of international taxation, Bombay High Court in the case of ABHIN ANILKUMAR SHAH v. INCOME TAX OFFICER, INTERNATIONAL TAXATION 156/468 ITR 350 (Bombay) which is again on international taxation and central circle, High Court of Himachal Pradesh in the case of GOVIND SINGH v. INCOME TAX OFFICER 216 (Himachal Pradesh), Gujarat High Court in the case of MANSUKHBHAI DAHYADHAI RADADIYA V.INCOME TAX OFFICER 2024 SCC OnLine Guj 4012, Jharkand High Court in the case of SHYAM SUNDAR SAW V.UNION OF INDIA 2025 SCC OnLine Jhar 287, Rajasthan High Court in the case of SHARDA DEVI CHHAJER v. INCOME TAX OFFICER & ANOTHER [2023: RJ-JD:4984-DB] which stood decided on 19.03.2024. Similar views have also been taken by the Division Bench of Calcutta High Court in the case of GIRDHAR GOPAL DALMIA v. UNION OF INDIA & ORS [M.A.T 1690 of 2023, decided on 25.09.2024].
6. Even though the same issue having been decided by a large number of High Courts, we are still confronted with large filing of identical matters on daily basis ranging between 5 to 10 writ petitions. That upon the instructions being sought from the Department, they have been taking a solitary ground that the decision of the Bombay High Court in the case of Hexaware Technologies Ltd., (2 supra) as also the one which has been decided by this Court in the case of Kanakala Ravindra Reddy (1 supra) has been subjected to challenge in a Special Leave Petition i.e., SLP No.3574 of 2024 before the Hon’ble Supreme Court and the Hon’ble Supreme Court is seized of the matter. In addition, there are about 1200 SLPs also filed arising out of the same issue being decided by various High Courts.
7. To a query being put to the learned counsel for the Revenue, they have categorically accepted the fact that there is no interim order granted by the Hon’ble Supreme Court in any of these matters pending before it Meanwhile, fresh writ petitions of identical nature are being piled up before this Bench on daily basis and the pendency is getting increased on matter which otherwise has already been dealt and decided by this very High Court itself.
8. On the one hand, even though the order of this Court that was passed as early as on 14.09.2023 and more 16 months have lapsed, till date, we do not find any remedial steps having been taken by the Income Tax Department to take appropriate steps to either hold back issuance of notice under Section 148A and under Section 148 of the Act by the jurisdictional Assessing Officer, rather the authorities concerned in the teeth of series of decisions by all the major High Courts in India are continuously still initiating proceedings under Section 148A of the Act and also initiating proceedings under Section 148 of the Act in contravention to the amendments brought into the Income Tax Act pursuant to the Finance Act, 2020 as also the Finance Act 2021.
9. Upon a query being put as to why can’t this writ petition be disposed of in the teeth of the decision rendered by this Court in the case of Kanakala Ravindra Reddy (1 supra), learned Standing Counsel for the Income Tax Department contends that those would unnecessarily burden the Income Tax Department where they would be required to file equal number of SLPs before the Hon’ble Supreme Court and it would be further burdening the exchequer of the Union of India. It was also the contention of the learned Standing Counsel that no prejudice would be caused to the interest of the petitioners in case if this writ petition is kept pending till the finalization of the SLPs pending before the Hon’ble Supreme Court and the fact that the petitioner is already enjoying the benefit of interim protection. Nonetheless, on the earlier query of this Court as to why the Income Tax Department have not come out with a mechanism to issue appropriate instructions or to take appropriate steps in ensuring that proceedings under Section 148A of the Act as also the assessment orders under Section 148 of the Act are kept in a hold in the light of the decisions dedcided by the various High Courts, it was submitted by the learned Standing Counsel that the said steps can only be taken at the level of CBDT as any such steps would have to be taken Pan India and cannot be limited to any of these jurisdictional High Courts.
10. As a result of which, what we are facing is steep increase of litigation day in and day out even though various orders have been passed by this High Court allowing writ petitions on the very same issue. The Income Tax authorities concerned are still even now in 2025 also initiating proceedings in contravention to the provisions of Section 151A of the Act and as a result by now, more than 600 to 700 petitions have been already got piled up before this High Court on an issue which otherwise stands squarely covered by the judgment of this Court in the case of Kanakala Ravindra Reddy (1 supra). What is also surprising is the fact that though while allowing the writ petitions in the case of Kanakala Ravindra Reddy (1 supra), the Division Bench while reserving the right of the Revenue, has also protected the interest of the petitioners insofar as the liberty which was granted to the Revenue for initiating fresh proceedings strictly in accordance with the amended provisions of the Act, as amended by the Finance Act, 2020 and the Finance Act, 2021. The petitioner assessee would be entitled to challenge or raise the other legal objections if the Revenue initiates fresh proceedings. The Department has made no endeavour in availing the said liberty that was reserved for the Revenue. On the contrary, they have been still sticking on to the stand, which this High Court as well as many other High Courts already held to be bad.
11. It appears that because of the aforesaid liberty that this High Court had granted permitting the Revenue for initiating fresh proceedings as a one-time measure in a faceless manner, the Income Tax Department wants to take advantage of the same by protracting these proceedings which would enable them to meet the limitation that would otherwise come in the way. Likewise, if the writ petition is kept pending for a considerable long period of time and finally at a later stage if the Hon’ble Supreme Court confirms the decision taken by this High Court as also by the other High Courts in which the SLPs are still pending, the Income Tax Department would get the advantage of the liberty that is otherwise protected in favour of the Revenue for initiation of fresh proceedings from the disposal of these matters at a much later stage which would be advantageous and beneficial to the Revenue and would be equally disadvantageous and detrimental so far as interest of the assesses are concerned. As a consequence, the Income Tax Department gets an extended period of time for initiation of fresh proceedings.
12. The alarming trend of docket explosion in this Court, despite the clear precedent set in Kanakala Ravindra Reddy (1 supra), is a matter of grave concern. The Income Tax Department’s persistent initiation of fresh proceedings, disregarding the established judicial pronouncements, has led to an unprecedented surge in litigation with over 600-700 petitions piling up on the same issue. This deliberate approach not only undermines the principle of judicial precedent but also strains the judicial resources unnecessarily. The Department’s strategy of awaiting the Supreme Court’s decision on pending SLPs while continuing to initiate fresh proceedings appears to be a calculated move to buy time and circumvent limitation periods, rather than adhering to the established legal position. Such conduct raises serious questions about the administrative efficiency and the respect for judicial pronouncements, particularly when this Court has already provided a balanced approach by preserving both the Revenue’s rights and assesses interests.
13. Another aspect which needs to be considered is that in fact it should have been realized by the Income Tax Department itself and should have found out via media in ensuring that proceedings under Sections 148-A and 148 should not have been issued in a faceless manner, at least till the Hon’ble Supreme Court decide the twelve hundred (1200) odd SLPs which it is already seized of or, at least the Income Tax Department should have found out some remedial steps to ensure that wherever the authorities intend to initiate proceedings under Sections 148-A and 148, other than in a faceless manner, the proceedings should have been deferred without precipitating the matter further intimating the assessee that they shall initiate appropriate proceedings only after the SLP’s are decided by the Hon’ble Supreme Court on the very same issue. This again, the Income Tax Department, has not been able to give a convincing reply, except for the fact that such a decision if at all has to be taken, has to be taken for the whole of India, and which otherwise has to be by way of a policy decision and that too at the level of Central Board of Direct Taxes. Though the learned Standing Counsel for the Income Tax Department contended that the Delhi High Court dismissed a writ petition of similar nature, on the one hand when the High Court is struggling to reduce its pendency, such notices which are under challenge in this writ petition are forcing the assessee to knock the doors of this High Court resulting in filing of hundreds of new writ petitions which in the long run not only affects the disposal of the writ petitions but also consumes substantial time of the Bench in hearing these matters again and again on daily basis. Admittedly, in spite of the matter before the Hon’ble Supreme Court having been taken on many occasions, the Hon’ble Supreme Court which is seized of the matter has been reluctant in granting any interim protection to the Income Tax Department. Yet, the authorities concerned at the State level are not ready to accept the verdict passed by a majority of High Courts of different States on the same issue; and to make things further worse, the Income Tax Department is showing audacity by issuing notices continuously under Sections 148-A and 148 through the jurisdictional Assessing Officer whereas it ought to have been only in the faceless manner.
14. In the case of BANK OF INDIA v. ASSISTANT COMMISSIONER, INCOME TAX 422 (Bombay), on an issue whether it was justifiable on the part of the Income Tax Department in not following an order passed by the adjudicating authority only on the ground that the appeals are pending, the Division Bench of the High Court of Bombay held at paragraph No.25 as under, viz., :
“25. Mr. Paridwalla has rightly drawn out attention to the decision of this Court in Commissioner of Income Tax v. Smt. Godavaridevi Saraf [1978] 113 ITR 589 (Bombay) as also the recent decision of the co- ordinate Bench of this Court in Samp Furniture (P) Ltd. v. ITO 452 (Bombay) of which one of us (Justice G.S. Kulkarni) was a member, wherein the Court categorically observed that the Revenue having not “accepted” the judgment of the High Court would not mean that till the same is set aside in a manner known to law, it would loose its binding force. Referring to the decision of the Supreme Court in Union of India v. Kamlakshi Finance Corporation Ltd. 16/55 ELT 433 (SC), the Court observed that the approach of the officials of Revenue of treating decisions being “not acceptable” was criticized by the Supreme Court. In such decision, following are the relevant observations made by the Supreme Court.
“6. Sri Reddy is perhaps right in saying that the officers were not actuated by any mala fides in passing the impugned orders. They perhaps genuinely felt that the claim of the assessee was not tenable and that, if it was accepted, the Revenue would suffer. But what Sri Reddy overlooks is that we are not concerned here with the correctness or otherwise of their conclusion or of any factual malafides but with the fact that the officers, in reaching in their conclusion, by-passed two appellate orders in regard to the same issue which were placed before them, one of the Collector (Appeals) and the other of the Tribunal. The High Court has, in our view, rightly criticized this conduct of the Assistant Collectors and the harassment to the assessee caused by the failure of these officers to give effect to the orders of authorities higher to them in the appellate hierarchy. It cannot be too vehemently emphasized that it is of utmost importance that, in disposing of the quasijudicial issues before them, revenue officers are bound by the decisions of the appellate authorities. The order of the Appellte Collector is binding on the Assistant Collectors working within his jurisdiction and the order of the Tribunal is binding upon the Assistant Collectors and the Appellate Collectors who function under the jurisdiction of the Tribunal. The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities. The mere fact that the order of the appellate authority is not “acceptable” to the department – in itself an objectionable phrase – and is the subject matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court. If this healthy rule is not followed, the result will only be undue harassment to assesses and chaos in administration of tax laws.
……..
12. We have dealt with this aspect at some length, because it has been suggested by the learned Additional Solicitor General that the observations made by the High Court, have been harsh on the officers. It is clear that the observations of the High Court, seemingly vehement, and apparently unpalatable to the Revenue, are only intended to curb a tendency in revenue matters which, if allowed to become widespread, could result in considerable harassment to the assesses-public without any benefit to the Revenue. We would like to say that the department should take these observations in the proper spirit. The observations of the High Court should be kept in mind in future and the utmost regard should be paid by the adjudicating authorities and the appellate authorities to the requirements of judicial discipline and the need for giving effect to the orders of the higher appellate authorities which are binding on them.”
15. What is worrying this Bench more is the fact that an endeavour is being made whole heartedly to ensure not to generate further litigation on issues which have been laid to rest by a large number of High Courts all of whom have taken a consistent stand that the action of the Income Tax Department being violative of the Finance Act, 2020 and Finance Act, 2021. Now, in order to protect the interest of the Revenue as also that of the assessee, it would be trite at this juncture, if we dispose of the writ petition with an observation/direction that the disposal of the instant writ petition in terms of the judgment rendered by this High Court in the case of Kankanala Ravindra Reddy (1 supra) shall however be subject to the outcome of the SLPs which were filed by the Income Tax Department and which is pending consideration before the Hon’ble Supreme Court.
16. In the given facts and circumstances, this Bench is of the considered opinion that unless and until we do not timely dispose of matters which are squarely covered by the decision of this Court and which stands fortified by the decisions of the various other High Courts on the very same issue, the pendency of this High Court would further be burdened which otherwise can be decided and disposed of as a covered matter.
17. So far as the interest of the Revenue is concerned, we are of the considered opinion that the interest of the Revenue has already been considered and protected, as has been observed in paragraphs 36, 37 and 38 of the order which, for ready reference, is reproduced hereunder:
“36. For all the aforesaid reasons, the impugned notices issued and the proceedings drawn by the respondent Department is neither tenable, nor sustainable. The notices so issued and the procedure adopted being per se illegal, deserves to be and are accordingly set aside/quashed. As a consequence, all the impugned orders getting quashed, the consequential orders passed by the respondent-Department pursuant to the notices issued under Section 147 and 148 would also get quashed and it is ordered accordingly. The reason we are quashing the consequential order is on the principles that when the initiation of the proceedings itself was procedurally wrong, the subsequent orders also gets nullified automatically.
37. The preliminary objection raised by the petitioner is sustained and all these writ petitions stands allowed on this very jurisdictional issue. Since the impugned notices and orders are getting quashed on the point of jurisdiction, we are not inclined to proceed further and decide the other issues raised by the petitioner which stands reserved to be raised and contended in an appropriate proceedings.
38. Since the Hon’ble Supreme Court had, in the case of Ashish Agarwal, supra, as a one-time measure exercising the powers under Article 142 of the Constitution of India, permitted the Revenue to proceed under the substituted provisions, and this Court allowing the petitions only on the procedural flaw, the right conferred on the Revenue would remain reserved to proceed further if they so want from the stage of the order of the Supreme Court in the case of Ashish Agarwal, supra.”
18. We would only further like to make observations that since we are inclined to dispose of the instant writ petition, conscious of the fact that the earlier order of this High Court in the case of Kanakala Ravindra Reddy (1 supra) is subjected to challenge before the Hon’ble Supreme Court in SLP No.3574 of 2024, preferred by the Income Tax Department, we make it clear that allowing of the instant writ petition is subject to outcome of the aforesaid SLP preferred by the Revenue against the decision of this High Court in the case of Kanakala Ravindra Reddy (1 supra). This, in other words, would mean that either of the parties, if they so want, may move an appropriate petition seeking revival of this writ petition in the light of the decision of the Hon’ble Supreme Court in the pending SLP on the very same issue.
19. Accordingly, the instant writ petition stands allowed in favour of the assessee so far as the issue of jurisdiction is concerned. As a consequence, the impugned notice under challenge under Sections 148-A and 148 stands set aside/quashed. The consequential orders, if any, also stand set aside/quashed in similar terms as have been passed by this High Court in the case of Kankanala Ravindra Reddy (1 supra). There shall be no order as to costs.”
(Emphasis supplied)
12. Respective learned senior counsel representing the parties would seek similar order at the hands of this Court. In the light of the issue pending before the Apex Court and division benches of different High Courts noticing the pendency of proceedings before the Apex Court thought it fit to set at naught the notices and all further proceedings, reserving liberty to the revenue to reopen the proceedings in the event the Apex Court would hold in favour of the revenue. I am in respectful agreement of the decisions rendered by different High Courts and submissions made by the respective learned senior counsel for the petitioners, would become acceptable.
13. I, therefore, pass the following:
ORDER
| (i) | The impugned show cause notices issued by the jurisdictional Assessing Officer outside the scope of Section 151-A of the Act stand obliterated. All further proceedings initiated thereto, challenged in these cases would stand quashed. |
| (ii) | Liberty is reserved to the respondents – revenue to revive all these petitions in the event the Apex Court would hold in favour of the Revenue in the pending before it. |
| (iii) | With the aforesaid liberty and to the aforesaid extent, the petitions are allowed. |
| (iv) | Contentions of both the parties except the one noted hereinabove, shall remain open to be considered in the event revival of these petitions would become necessary. |