2024 (8) TMI 1625 - HC - Income Tax

Notices under s.148 and order under s.148A(d) invalid where issued outside mandatory faceless mechanism under s.151A

Prakash Pandurang Patil Versus Income Tax Officer, Ward 5, Panvel & Ors.

HC held that notices issued under s.148 and the contemporaneous order under s.148A(d) were invalid because they were issued by the Jurisdictional ... Validity of reopening of assessment - jurisdiction of the JAO v/s FAO for issuance of notice u/s 148 - HELD THAT:- It is apparent that the impugned notice issued u/s 148 of the Act and the order of the same date u/s 148A(d) are issued by the Jurisdictional Assessing Officer (“JAO”) and not under the mandatory faceless mechanism as per the provisions of Section 151A of the Act. For a notice to be validly issued under Section 148 of the Act, the Respondent No.2 would be required to comply with the provisions of Section 151A of the Act, so as to adhere to the faceless mechanism, as notified by the Central Government by notification dated 29 March 2022. A Division Bench of this Court in the case of Hexaware Technologies Limited [2024 (5) TMI 302 - BOMBAY HIGH COURT] had considered the effect and interpretation of the said provision. There is no dispute that the Jurisdictional Assessing Officer (JAO) had no jurisdiction to issue the impugned order and the impugned notices, the writ petition is required to be allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a notice issued under Section 148 of the Income Tax Act is valid where the Jurisdictional Assessing Officer (JAO) issues the notice without following the faceless mechanism mandated by Section 151A and the Scheme notified under it. 2. Whether prior sanction for initiating reassessment beyond three years from the end of the relevant assessment year is valid if granted by an authority other than the 'specified authority' required by Section 151(ii) of the Act. 3. Whether an assessee must demonstrate specific prejudice resulting from a notice issued contrary to the statutory scheme, or whether procedural non-compliance itself renders the action invalid. ISSUE-WISE DETAILED ANALYSIS - 1. Validity of Section 148 notice issued without compliance with Section 151A/faceless Scheme Legal framework: Section 151A contemplates that a Scheme shall be framed for faceless assessment/reassessment proceedings including issuance of notice under Section 148; the Scheme provides for automated allocation and confers jurisdiction to the officer to whom the case is allocated (FAO or JAO) through that mechanism. Precedent treatment: A prior Division Bench decision of the High Court interpreted the Scheme as mandatory for issuance of notices under Section 148 and held that only the officer allocated through the automated faceless mechanism can validly issue the notice; concurrent jurisdiction of JAO and FAO for issuance of Section 148 notices is impermissible. Interpretation and reasoning: The Scheme's provision that issuance 'shall be through automated allocation' is mandatory, not directory; automated allocation (using defined technological tools) determines which officer has jurisdiction. Allowing the Department to ignore the Scheme or have concurrent jurisdiction would defeat the statutory design and render parts of the Scheme otiose. The Scheme is a subordinate instrument framed under Section 151A and governs procedure for issuance of notices as well as subsequent proceedings; therefore non-compliance vitiates the action. Ratio vs. Obiter: Ratio - A notice under Section 148 issued by an officer other than the one allocated under the faceless Scheme is invalid; the Scheme's mandatory allocation must be followed. Obiter - Observations on the technological nature of automated allocation and policy consequences of concurrent jurisdiction but these support the binding ratio. Conclusions: The impugned notice and order issued by the JAO without following the faceless Scheme are invalid. Proceedings initiated under such notices are not sustainable and must be quashed without requirement for the assessee to prove further prejudice arising from the non-compliance. ISSUE-WISE DETAILED ANALYSIS - 2. Validity of sanction where reassessment is initiated after three years and sanction obtained from incorrect authority Legal framework: Section 151 specifies the 'specified authority' who must grant sanction for issuance of notices under Section 148/148A where more than three years have elapsed from the end of the relevant assessment year; the distinction between clause (i) and clause (ii) identifies the rank of the competent authority depending on the time elapsed. Precedent treatment: Earlier High Court decisions have held that where reassessment is initiated beyond three years, sanction must be obtained from the higher-ranked authority specified in Section 151(ii); sanction obtained from a lower authority in such circumstances is invalid. Legislative/amendment timelines (e.g., temporary extensions) do not alter the substantive requirement of Section 151 as in force when sanction is obtained. Interpretation and reasoning: If the reassessment notice is issued after the three-year period, the statute prescribes a specific category of authority to grant sanction; obtaining sanction from an authority outside that category contravenes the statutory scheme. Temporary extensions of limitation (by other measures) do not change which authority must grant sanction once the amended Section 151 is in effect; a subordinate or inconsistent instrument cannot override the statute. Therefore, where sanction is shown to have been granted by an authority not falling within Section 151(ii), that sanction is legally ineffective. Ratio vs. Obiter: Ratio - Sanction for reassessment initiated after the three-year period must be granted by the authority specified in Section 151(ii); sanction by a lower authority is invalid and renders ensuing notices/orders void. Obiter - Comments on interaction with temporary limitation- extension measures or transitional notifications, insofar as they cannot override statutory amendments. Conclusions: Where the impugned proceedings were inaugurated beyond three years and the sanction shown is from an authority not specified in Section 151(ii), the sanction is invalid and the reassessment notice and related order must be quashed. ISSUE-WISE DETAILED ANALYSIS - 3. Requirement of showing prejudice from procedural non-compliance Legal framework: Fundamental principle that authorities must act in accordance with procedure prescribed by statute; acts contrary to statutory prescription are unlawful. Precedent treatment: The Court relied on pronouncements establishing that when an authority acts contrary to the statute, the action is void and the affected party need not prove further prejudice; procedural illegality itself constitutes prejudice to the assessee's right to be assessed as per law. Interpretation and reasoning: Non-compliance with mandatory procedural safeguards (such as the faceless Scheme under Section 151A) undermines the statutory protection afforded to an assessee. Requiring a showing of additional prejudice would permit procedural breaches to be condoned, contrary to statutory intent. Thus, invalidity flows from the statutory breach itself. Ratio vs. Obiter: Ratio - Procedural non-compliance by the taxing authority with mandatory statutory/scheme requirements renders the action invalid without the assessee having to prove separate prejudice. Obiter - Remarks on fairness and orderly administration of the tax regime supporting this rule. Conclusions: The petitioner need not establish specific prejudice; procedural invalidity of the notice/order suffices to quash the proceedings initiated in breach of the Scheme/Section 151A. OVERALL COURT CONCLUSION AND RELIEF GRANTED (LEGAL EFFECT) The Court held that the impugned order under Section 148A(d) and the notice under Section 148 were invalid because they were issued by the JAO in breach of the mandatory faceless Scheme under Section 151A, and, relatedly, because the requisite sanction for proceedings initiated after the three-year period must be granted by the authority specified in Section 151(ii); accordingly the proceedings were quashed. The Court expressly refrained from expressing any opinion on other substantive issues raised in the petition.