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of <h1>Notices under s.148A(b)/148A(d) and s.148 issued outside faceless mechanism invalid; reassessment and s.271AAC(1) penalty quashed</h1> ITAT CHENNAI - AT held that notices issued by the JAO under s.148A(b)/148A(d) and s.148 after the Faceless Scheme (29.03.2022) were invalid since section ... Validity of reassessment - notices issued by the JAO v/s FAO - HELD THAT:- Hon’ble Bombay High Court in the case of Hexaware Technologies Ltd. [2024 (5) TMI 302 - BOMBAY HIGH COURT] has even dealt with the decision rendered by the Hon’ble Calcutta High Court in favour of the Revenue, but concurred with the view of Sri Venkataramana Reddy Patloola [2024 (9) TMI 100 - TELANGANA HIGH COURT] and held that in view of the provisions of Sec.151A of the Act read with Faceless Scheme dated 29.03.2022, notices issued by the JAO u/s.148A(d)/148 of the Act was invalid and bad in law. Aforesaid decision of the Hon’ble Telangana High Court has been followed not only by the Hon’ble Bombay High Court, but also by the Hon’ble Gauhati High Court in the case of Ram Narayan Sah [2024 (6) TMI 219 - GAUHATI HIGH COURT] and Jatinder Singh Bhangu [2024 (7) TMI 1191 - PUNJAB AND HARYANA HIGH COURT] We find that since the JAO has issued notice u/s.148A(b) followed by order u/s.148A(d) and followed by notice u/s.148 which impugned notices have been issued despite faceless scheme was notified by Central Government on 29.03.2022 pursuant to section 151A of the Act, making it mandatory for the issuance of notice u/s.148A(b), 148A(d) as well as 148 of the Act by the Faceless Mechanism, the impugned notices especially issued u/s.148 dated 31.03.2022 is found to be invalid and bad in law, since it has been issued contrary to law and is against the ‘Rule of Law’; which vitiates the impugned notice dated 31.03.2022 u/s.148 of the Act, so is held to be illegal and bad in law and therefore, assessment order dated 03.03.2023 is also null in eyes of law; and the assessee succeeds, and the legal issue is held in favour of the assessee and therefore, we are inclined not to go into the merits of the addition made by the AO. Penalty is levied u/s.271AAC(1) - Since the basis of levy of penalty order is the quantum/assessment order dated 03.03.2023 which was a result of the assessment being framed after reopening by issuance of notice u/s.148 of the Act dated 31.03.2022 for AY 2018-19; and since it has been held by us supra that notice u/s 148 dated 31.03.2022 itself as bad in law and ab initio void, the resultant assessment order dated 03.03.2023 is null in eyes of law; and the consequent levy of penalty can’t survive on the principle/legal maxim “sublato Fundmento Credit opus” meaning in case a foundation is removed, the super-structure fall. ISSUES PRESENTED AND CONSIDERED 1. Whether a notice issued under section 148 (and antecedent actions under section 148A(b) and 148A(d)) by the Jurisdictional Assessing Officer (JAO) after notification of the Scheme under section 151A (dated 29.03.2022) is valid where the Scheme mandates issuance by automated allocation/faceless mechanism (NFAC/FAO). 2. Whether the department can rely upon internal guidelines, office memoranda or IT-system manuals to justify issuance of notices by JAO contrary to the Scheme framed under section 151A. 3. Whether an assessee is required to demonstrate actual prejudice before challenging the validity of a notice issued contrary to statutory procedure. 4. Consequence: Whether consequential reassessment order and penalty under section 271AAC(1) survive where the foundational notice under section 148 is held void ab initio. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Validity of notices issued by JAO after Scheme dated 29.03.2022 Legal framework: Section 151A empowers Central Government/CBDT to notify a Scheme for assessment/reassessment under section 147 and issuance of notice under section 148, including elimination of interface and introduction of automated allocation/faceless procedures; Scheme dated 29.03.2022 requires issuance of notice under section 148 through automated allocation and faceless mechanism to the extent provided in section 144B. Precedent treatment: Divergent High Court decisions exist - several High Courts (Bombay, Telangana, Punjab & Haryana, Gauhati) held notices by JAO invalid where Scheme applies; other High Courts (Delhi, Calcutta) upheld Revenue view. No binding jurisdictional High Court ruling here; Supreme Court authority (Vegetable Products) permits following High Court decisions favorable to the assessee in case of conflict among High Courts. Interpretation and reasoning: The Scheme's mandatory language that issuance 'shall be through automated allocation' and 'in a faceless manner' assigns jurisdiction by algorithmic allocation (randomized allocation of officers) and contemplates NFAC/FAO as the competent faceless functionaries. Allowing JAO to issue such notices would defeat the Scheme, render its clauses otiose and reintroduce non-faceless interface contradicted by section 151A objectives. The phrase 'to the extent provided in section 144B' is read as limiting faceless assessment aspects (e.g., exceptions) but not negating the Scheme's explicit provision that notices under section 148 are to be issued by automated allocation/faceless process. Concurrent jurisdiction of JAO and FAO is rejected where Scheme specifically allocates issuance to faceless mechanism; permitting concurrent jurisdiction would frustrate the faceless scheme and create procedural chaos (cross-filings, duplicative submissions). Ratio vs. Obiter: Ratio - Where a statutory Scheme under section 151A prescribes mandatory automated allocation and faceless issuance of notices under section 148, a notice issued by JAO (outside such automated/faceless allocation) is invalid. Obiter - Observations on the precise meaning of 'randomized' vis-à-vis risk management selection vs officer allocation are explanatory supporting the ratio. Conclusion: The Tribunal holds that notices dated 17.03.2022 (148A(b)), 31.03.2022 (148A(d)) and 31.03.2022 (148) issued by the JAO contrary to the Scheme of 29.03.2022 are illegal and void ab initio; consequential reassessment order based on such notices is null and cannot be sustained. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Reliance on internal guidelines/office memoranda/IT manuals to override the Scheme Legal framework: Scheme framed under section 151A(1)-(3) is required to be notified and laid before Parliament; statutory Scheme prevails over subordinate internal guidelines or departmental manuals which are not issued under section 119 and lack binding statutory force. Precedent treatment: Courts have held that departmental guidelines cannot override explicit statutory provisions or Schemes laid before Parliament; internal documents cannot supersede the Scheme and cannot be relied upon to justify departmental departures from statutory procedure. Interpretation and reasoning: Internal guidance (confidential guidelines, ITBA manuals, office memoranda) not issued under a statutory provision cannot contravene the Scheme's clear requirements. Where such internal documents attempt to reinterpret or limit the Scheme (for example, by asserting administrative discretion to decide whether JAO or NFAC issues notice), they are contrary to the statutory Scheme and are of no avail to validate notices issued in breach of the Scheme. Ratio vs. Obiter: Ratio - Departmental guidelines/OM/manuals inconsistent with the statutory Scheme cannot validate actions taken contrary to the Scheme. Obiter - Detailed critique of specific wording in the Office Memorandum re 'random' selection and 'flagging' is explanatory. Conclusion: Internal guidelines/OMs/IT manuals relied upon by Revenue do not validate the JAO's issuance of notices where the statutory Scheme mandates automated/faceless issuance; such subordinate instruments cannot be invoked to cure non-compliance with section 151A Scheme. ISSUE-WISE DETAILED ANALYSIS - Issue 3: Requirement of proof of prejudice when statutory procedure breached Legal framework: Administrative actions contrary to statute are subject to quashing; principle that action taken contrary to statutory procedure prejudices the person affected because lawful procedure is a substantive entitlement. Precedent treatment: Authorities recognize that an act done contrary to statutory command is void and aggrieved parties need not additionally prove prejudice; procedural non-compliance that defeats statutory mandate is itself prejudicial. Interpretation and reasoning: When the issuing authority acts contrary to the Scheme (a statutory product under section 151A), the breach itself causes prejudice because the assessee is not assessed in accordance with law and prescribed procedure; requiring separate proof of prejudice would nullify procedural protections afforded by the Scheme. Ratio vs. Obiter: Ratio - No independent proof of prejudice is necessary where the notice/act is ultra vires the statutory Scheme; the void act itself constitutes prejudice. Obiter - Discussion of fairness and rule of law principles supporting the holding. Conclusion: The Tribunal rejects any requirement that the assessee prove actual prejudice beyond demonstrating the statutory breach; invalidity of the notice suffices. ISSUE-WISE DETAILED ANALYSIS - Issue 4: Consequences for reassessment and penalty (section 271AAC) when foundational notice is void Legal framework: Consequential orders dependent on a void foundational action fall with it (principle sublato fundamento cadit opus); penalties founded on void assessments cannot subsist. Precedent treatment: Supreme Court authority establishes that once the basis of proceedings is gone, consequential orders and acts fall automatically; judicial/quasi-judicial orders predicated on void foundations are themselves null. Interpretation and reasoning: The reassessment order dated 03.03.2023 and the penalty order under section 271AAC(1) flow from and depend upon the section 148 notice dated 31.03.2022. As that notice is void ab initio for being issued in breach of the Scheme under section 151A, the reassessment and penalty lack legal foundation and must be quashed. Ratio vs. Obiter: Ratio - Where an assessment/penalty is consequential on and derived from a notice void ab initio for non-compliance with the statutory Scheme, the assessment and penalty are null and quashable. Obiter - Reference to equitable and public law principles underlying the result. Conclusion: The Tribunal holds that the reassessment order and the penalty under section 271AAC(1) are invalid and are quashed as they stand on a void foundation. Cross-references and final operative stance All points interrelate: the mandatory Scheme under section 151A (29.03.2022) governs issuance of notices under section 148; internal guidelines cannot displace that Scheme; a statutory breach obviates need to prove prejudice; and consequential assessment/penalty founded on a void notice are themselves void. Having reached these conclusions, the Tribunal declines to examine merits of additions in the assessment.
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