Revenue's appeal dismissed as Section 148 notice lacked jurisdiction under faceless assessment regime and reassessment was time-barred

ITAT Mumbai dismissed revenue's appeal challenging CIT(A)'s order quashing reassessment proceedings for AY 2013-14. The tribunal held that notice u/s 148 dated 28 July 2022 issued by jurisdictional AO was without jurisdiction as CBDT Notification 18/2022 mandated faceless assessment through NFAC from 29 March 2022. Additionally, proceedings under Section 148A were also required to be conducted in faceless manner. The tribunal further ruled that reassessment was barred by limitation as the time limit for AY 2013-14 expired on 31 March 2020, making even the April 2021 notice time-barred.

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1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

• Whether the reassessment proceedings initiated under Section 148 of the Income-tax Act, 1961, are valid and within jurisdiction, particularly when the notice under Section 148 was issued by the Jurisdictional Assessing Officer (JAO) instead of the Faceless Assessing Officer (FAO) after the implementation of the e-Assessment Scheme pursuant to Section 151A of the Act and Notification No. 18/2022 dated 29.03.2022.
• Whether the reassessment notice issued on 28.07.2022 is barred by limitation under Section 149(1)(b) of the Income-tax Act, considering the limitation period for reopening the assessment for the Assessment Year (AY) 2013-14 expired on 31.03.2020.
• Whether the initial procedural requirements under Section 148A, which mandates inquiry and opportunity before issuance of notice under Section 148, are required to be conducted in a faceless manner under the said e-Assessment Scheme.
• Whether the reassessment proceedings can be initiated on the basis of information pertaining to a preceding year (AY 2012-13) instead of the relevant assessment year (AY 2013-14), in light of Explanation 1 to Section 148 of the Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity and Jurisdiction of Reassessment Proceedings - Issuance of Notice under Section 148 by JAO instead of FAO

Relevant Legal Framework and Precedents: Section 151A of the Income-tax Act empowers the Central Government to notify a scheme for faceless assessment, reassessment, re-computation, and issuance of notices including under Section 148. Pursuant to this, Notification No. 18/2022 dated 29.03.2022 introduced the 'e-Assessment of Income Escaping Assessment Scheme, 2022', mandating issuance of notices under Section 148 and completion of assessments under Section 147 in a faceless manner through the National Faceless Assessment Centre (NFAC).

The Hon'ble Bombay High Court in Hexaware Technologies Ltd vs. ACIT [2024] 162 taxmann.com 225 held that there is no concurrent jurisdiction between the JAO and FAO for issuance of notice under Section 148 after the scheme came into effect. The notice must be issued by the FAO through automated allocation and the JAO issuing such notice post-notification is without jurisdiction.

Court's Interpretation and Reasoning: The Tribunal noted that the notice under Section 148 dated 28.07.2022 was issued by the Jurisdictional Assessing Officer and not the Faceless Assessing Officer as mandated by Notification No. 18/2022. The Tribunal followed the binding precedent of the Hon'ble Bombay High Court in Hexaware Technologies Ltd, which unequivocally states that the issuance of notice under Section 148 must be by the FAO and not the JAO after the scheme came into force.

Key Evidence and Findings: The notice dated 28.07.2022 was issued by the JAO, contrary to the scheme's requirement. The scheme mandates automated allocation and faceless issuance of notices, which was not followed.

Application of Law to Facts: Since the notice was issued by an officer without jurisdiction, the reassessment proceedings initiated on this basis were invalid from inception.

Treatment of Competing Arguments: The Revenue contended that the AO had jurisdiction and followed the procedure; however, the Tribunal rejected this, relying on the binding High Court decision and the statutory scheme.

Conclusion: The reassessment notice issued by the JAO after 29.03.2022 is without jurisdiction and invalid.

Issue 2: Limitation Bar on Reopening of Assessment for AY 2013-14

Relevant Legal Framework and Precedents: Section 149(1)(b) of the Income-tax Act prescribes a six-year limitation period for reopening assessments. The limitation for AY 2013-14 expired on 31.03.2020. The Tribunal referred to the decision in New India Assurance Company Ltd vs. ACIT [2024] 158 taxmann.com 367 (Bombay), which held that reopening notices issued beyond this period are barred by limitation, notwithstanding the Supreme Court's decision in Union of India vs. Ashish Agarwal.

Court's Interpretation and Reasoning: The Tribunal observed that the initial notice under Section 148 issued in April 2021 was beyond the limitation period and hence invalid. The subsequent notices issued in 2022, relying on the earlier notice and Supreme Court's judgment, could not cure this limitation defect.

Key Evidence and Findings: The reopening notice for AY 2013-14 was issued in April 2021 and later in July 2022, both beyond the six-year limitation period.

Application of Law to Facts: The limitation period expired on 31.03.2020, and therefore, the notices issued post this date are barred by limitation and invalid.

Treatment of Competing Arguments: Revenue argued the reopening was valid under the Supreme Court ruling and TOLA notifications; however, the Tribunal followed the High Court's binding precedent that the TOLA notifications did not extend limitation for AY 2013-14 reopening.

Conclusion: The reassessment proceedings are barred by limitation and hence invalid.

Issue 3: Requirement of Faceless Procedure for Initial Reassessment Inquiry under Section 148A

Relevant Legal Framework and Precedents: Section 148A provides for conducting inquiry and giving opportunity before issuance of notice under Section 148. Notification No. 18/2022 and Section 151A mandate faceless proceedings for assessment, reassessment, and related notices.

The Bombay High Court in Kairos Properties Private Limited [2024] 165 taxmann.com 760 held that the initial procedure under Section 148A is inextricably linked with issuance of notice under Section 148 and must also be conducted in a faceless manner under the scheme.

Court's Interpretation and Reasoning: The Tribunal accepted the High Court's reasoning that excluding Section 148A from the faceless scheme would defeat the purpose of transparency and efficiency envisaged under Section 151A. Since the reassessment order and Section 148A order were passed by the JAO and not the FAO, the proceedings lacked jurisdiction.

Key Evidence and Findings: The order under Section 148A was passed by the JAO instead of the FAO, violating the faceless scheme.

Application of Law to Facts: The procedural defect vitiates the reassessment proceedings.

Treatment of Competing Arguments: Revenue did not successfully rebut the binding High Court ruling.

Conclusion: The reassessment proceedings are invalid for non-compliance with faceless procedure under Section 148A.

Issue 4: Reassessment Based on Information Pertaining to Preceding Year

Relevant Legal Framework: Explanation 1 to Section 148 of the Income-tax Act restricts reopening of assessment to cases where income has escaped assessment for the relevant assessment year.

Court's Interpretation and Reasoning: The reassessment was initiated on the basis of information disclosed in the financial statement for the year ending 31 March 2013 (relevant to AY 2012-13), whereas the reassessment was for AY 2013-14. The Tribunal noted this as a violation of Explanation 1 to Section 148.

Conclusion: The reassessment proceedings lacked validity as they were based on information not relating to the relevant assessment year.

3. SIGNIFICANT HOLDINGS

The Tribunal upheld the following crucial legal principles and determinations:

"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."

"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."

"The limitation under the Income-tax Act, 1961 (erstwhile Section 149) for reopening the assessment for the AY 2013-14 expired on 31st March 2020. Hence, Notification No. 20/2021 did not apply to the facts of the present case... Therefore, the Revenue could not issue any notice under section 148 beyond 31st March 2021 and hence, even the relate back theory of the Revenue could not safeguard the reassessment proceedings initiated after 1st April 2021 for AY 2013-14."

"The initial procedure for reassessment under Section 148A of the Act shall also be done in faceless manner."

Accordingly, the Tribunal concluded that the reassessment proceedings initiated by the Revenue were without jurisdiction from inception, barred by limitation, and procedurally invalid due to non-compliance with the faceless scheme mandated under Section 151A and Notification No. 18/2022. The appeal filed by the Revenue was dismissed, and the reassessment proceedings were quashed.

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