2024 (8) TMI 1642 - HC - Income Tax

Reassessment notices under Section 148 invalid for ignoring faceless procedure under Section 151A and related notification

HC held reassessment notices issued under Section 148 invalid for failure to follow the faceless scheme mandated by Section 151A and the Central ... Reopening of assessment u/s 147 - all notices issued by the Jurisdictional Assessing Officer (“JAO”) OR Faceless Assessing Officer (“FAO”) as is required by the provisions of Section 151A - HELD THAT:- To give effect to the provisions of Section 151A, the Central Government has issued a Notification dated 29 March 2022 whereby a faceless mechanism has been introduced. Thus, necessarily in resorting to a procedure under Section 148A and the consequent notice to be issued under Section 148 of the Act, the Assessing Officer is required to adhere to the provisions of Section 151 read with the Notification. Thus, for a notice to be validly issued for reassessment under Section 148 of the Act, the Respondent-Revenue would need to be compliant with Section 151A, which has been interpreted and analysed in detail by a Division Bench of this Court in the case of Hexaware Technologies Limited [2024 (5) TMI 302 - BOMBAY HIGH COURT] In the present case, it is apparent that the Respondent-Revenue has not complied with the Scheme notified by the Central Government pursuant to Section 151A(2) of the Act. The Scheme has also been tabled before the Parliament and is in the character of subordinate legislation, which governs the conduct of proceedings u/s 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. Valid satisfaction accorded from competent authority - In Siemens Financial Services Pvt. Ltd., [2023 (9) TMI 552 - BOMBAY HIGH COURT] this Court held that the sanction as granted by the authority would be rendered invalid in the case it is not issued by the authorities specified in Clause (ii) in the event reassessment proceedings were initiated well after the expiry of three years from the end of the relevant assessment year. JAO had no jurisdiction to issue the impugned notice, the Writ Petition is accordingly allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether notices and orders under Section 148A(b), Section 148A(d) and Section 148 of the Income Tax Act are valid if issued by the Jurisdictional Assessing Officer (JAO) rather than by a Faceless Assessing Officer (FAO) in contravention of Section 151A and the Central Government's Scheme/Notification implementing a faceless mechanism. 2. Whether the Scheme/Notification dated 29 March 2022 (framing a faceless mechanism under Section 151A) applies to the issuance of notices under Section 148 as well as to proceedings under Section 148A and Section 147, and whether the Department may treat issuance by FAO and JAO as concurrent. 3. Whether reassessment proceedings initiated after the expiry of three years from the end of the relevant assessment year require sanction by the specified authority under Section 151(ii) (higher-rank authority) and whether sanction given by a lower authority under Section 151(i) is valid in such cases. 4. Whether an assessee is required to demonstrate actual prejudice caused by non-compliance with statutory procedure (such as contravention of Section 151A / Scheme) in order to obtain judicial relief. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of notices issued by JAO instead of FAO (Section 151A / Scheme compliance) Legal framework: Section 148 (reassessment notice), Section 148A (prior notice and related steps), Section 151A (mandate to frame Scheme for faceless proceedings), and the Notification/Scheme dated 29 March 2022 prescribing faceless mechanism and automated allocation for issuance of notices and conduct of proceedings. Precedent Treatment: The Court follows the detailed analysis and declaration of law in Hexaware Technologies (Division Bench) that the Scheme is mandatory and that jurisdiction to issue notices under Section 148 vests exclusively in the officer allocated by the automated faceless scheme (FAO), not concurrently in the JAO. Interpretation and reasoning: The Scheme's language (mandatory issuance 'through automated allocation') and its definition of automated allocation (randomised allocation using technological tools) demonstrate that the allocation is determinative of jurisdiction. Allowing JAO issuance alongside FAO would frustrate the Scheme and permit parallel or inconsistent proceedings, contrary to the legislative design under Section 151A. The Scheme, having been issued under statutory mandate and tabled before Parliament, governs the procedure for issuance of notices under Section 148 and related steps under Section 148A. Ratio vs. Obiter: The conclusion that notices under Section 148/148A must be issued only in conformity with the faceless Scheme (i.e., by the FAO where allocated) is treated as ratio by the Court and is dispositive of the petition on this ground. Conclusion: Notices and orders issued by the JAO in breach of Section 151A and the Scheme are invalid; such non-compliance vitiates reassessment proceedings and warrants quashing of the notices/orders issued in that manner. Issue 2 - Applicability of the Scheme/Notification to Section 148A steps and notices under Section 148 Legal framework: Section 151A contemplates formulation of a Scheme for assessment, reassessment, recomputation under Section 147 and for issuance of notice under Section 148; the Notification dated 29 March 2022 implements a faceless scheme covering procedure for these steps. Precedent Treatment: The Court relies on Hexaware and subsequent decisions (Kairos Properties; Nainraj Enterprises) recognizing that the Scheme encompasses both issuance of notices under Section 148 and intermediary steps under Section 148A. Interpretation and reasoning: Section 151A expressly contemplates a Scheme for issuance of notices under Section 148 as well as for proceedings that follow. Construing the Scheme as applying only to post-notice proceedings but not to the issuance of notices would render scheme provisions (including clause mandating faceless issuance of notices) otiose. The Scheme therefore governs issuance under Section 148 and steps under Section 148A; compliance with the Scheme is mandatory for validity. Ratio vs. Obiter: The holding that the Scheme applies to Section 148A steps and notices under Section 148 is treated as ratio, underpinning the decision to quash proceedings initiated in non-compliance. Conclusion: The Scheme/Notification applies to issuance of notices under Section 148 and to actions under Section 148A; non-adherence to the Scheme in issuing those notices renders such actions invalid. Issue 3 - Requirement of sanction by specified authority where reassessment is initiated after three years (Section 151(ii) vs 151(i)) Legal framework: Section 151 specifies the authority who must grant sanction for initiation of reassessment; distinction between clause (i) (lower authorities) and clause (ii) (specified higher authorities such as Principal Chief Commissioner / Principal Director General, when more than three years have elapsed). Precedent Treatment: The Court follows Siemens Financial Services, which held that when reassessment is initiated after the expiry of three years, sanction must be granted in accordance with Section 151(ii) and that sanction from a lower-ranked authority under Section 151(i) is invalid. Interpretation and reasoning: The statutory amendment and scheme of Section 151 mandate that the rank of the authority granting prior approval must conform to the period elapsed since the assessment year. Time-extension measures (e.g., TOLA) do not alter the requisite authority under Section 151; subordinate measures cannot override the statutory allocation of sanctioning authority. Sanction obtained contrary to Section 151(ii) requirements is bad in law. Ratio vs. Obiter: The proposition that sanction must be from the authority specified in Section 151(ii) where more than three years have elapsed is treated as ratio in the cited precedent and adopted by the Court as applicable law to the present facts. Conclusion: Where reassessment is initiated beyond three years from the end of the relevant assessment year, sanction must be obtained from the authority specified in Section 151(ii); sanction from a lower authority under Section 151(i) is invalid and vitiates the reassessment notice. Issue 4 - Requirement of proof of prejudice from procedural non-compliance Legal framework: Principle that acts done by authority in contravention of statutory provisions are invalid; right to be assessed according to law and prescribed procedure. Precedent Treatment: The Court endorses Hexaware's holding that when an authority acts contrary to statutory procedure, the act is to be quashed without the assessee having to establish further prejudice. Interpretation and reasoning: Non-compliance with statutory procedural mandates (e.g., Section 151A/Scheme) itself causes prejudice because the assessee is entitled to assessments conducted in accordance with law. Requiring an assessee to additionally demonstrate prejudice would undermine procedural safeguards and enable validation of unlawful actions by demanding evidentiary burden beyond the statutory breach. Ratio vs. Obiter: The rule that prejudice need not be separately proved where an authority acts contrary to statute is treated as ratio and applied to invalidate the impugned actions. Conclusion: The petitioner is not required to prove actual prejudice resulting from the Department's non-compliance with Section 151A/Scheme; the statutory breach alone suffices to quash the notices and related orders. Remedial and consequential conclusions Because the JAO lacked jurisdiction to issue the impugned notices and orders in non-compliance with Section 151A and the Scheme, the impugned Section 148A(b) notice, the Section 148A(d) order, the Section 148 notice, and consequential assessment/reassessment orders are invalid and have been quashed. The Court limits its decision to the ground of non-compliance with Section 151A and expressly refrains from adjudicating other substantive issues raised in the petition.