Reopening of assessment invalid as notice issued by wrong authority under Section 151A(2), proceedings quashed

The HC held that the reopening of assessment was invalid as the notice was issued by the JAO instead of the FAO, contravening the Scheme under Section 151A(2). The Scheme, having the status of subordinate legislation, governs proceedings under Sections 148 and 148A. The court relied on the precedent in Hexaware and a recent HC decision in Nainraj Enterprises Pvt. to conclude that the impugned notice was without jurisdiction. Consequently, the proceedings initiated under Section 148 were quashed, and the writ petition was allowed.

---

---

ISSUES:

Whether a notice under Section 148 of the Income Tax Act, 1961 can be validly issued by a Jurisdictional Assessing Officer (JAO) instead of a Faceless Assessing Officer (FAO) as mandated by Section 151A of the Act and the related Government Notification.Whether the procedure prescribed under Section 151A and the corresponding Notification dated 29 March 2022, including the faceless mechanism and automated allocation, is mandatory and exclusive for issuance of notices under Section 148.Whether non-compliance with the procedural requirements under Section 151A and the Notification renders the reassessment notice invalid and the proceedings vitiated.Whether prejudice needs to be demonstrated by the assessee to challenge an act done contrary to statutory provisions by the Income Tax Authority.

RULINGS / HOLDINGS:

The issuance of notice under Section 148 of the Income Tax Act must be done exclusively by a Faceless Assessing Officer (FAO) as per the Scheme notified under Section 151A and the Notification dated 29 March 2022; issuance by a Jurisdictional Assessing Officer (JAO) is invalid.The faceless mechanism and automated allocation of cases are mandatory and do not permit discretion to the Department to deviate; the Scheme "shall be through automated allocation" which is "mandatory and is required to be followed by the Department."Non-compliance with the Scheme and Section 151A results in the issuance of notice being "invalid and bad in law," thereby vitiating the reassessment proceedings initiated under Section 148.When an authority acts contrary to law, the act itself causes prejudice to the assessee, and there is "no question of petitioner having to prove further prejudice before arguing the invalidity of the notice."

RATIONALE:

The Court applied the statutory framework of Section 148, Section 148A, and Section 151A of the Income Tax Act, 1961, alongside the Central Government's Notification dated 29 March 2022, which introduced a faceless assessment mechanism.The Court relied heavily on a recent Division Bench decision which analyzed Section 151A and the Notification, holding that the jurisdiction to issue notices under Section 148 lies exclusively with the FAO, rejecting any notion of concurrent jurisdiction with the JAO.The Court emphasized that the Scheme is "in the character of subordinate legislation" and has been tabled before Parliament, binding the Department and subordinate authorities.The Court rejected the Revenue's argument that the Scheme applies only "to the extent" of Section 144B and not to issuance of notices under Section 148, clarifying that Section 151A contemplates a Scheme covering issuance of notices under Section 148 as well as assessment and reassessment proceedings under Section 147.The Court noted that failure to follow the prescribed procedure under Section 151A and the Notification results in invalidity of the notice without requirement to prove prejudice, as the statutory procedure is mandatory for protecting assessee's rights.The decision aligns with recent precedents from the same High Court which have consistently held the non-compliance with Section 151A and the faceless procedure as fatal to the validity of reassessment notices.

---