2025 (4) TMI 1727 - HC - Income Tax

Writ allowed for assessee; notices under sections 148A and 148 quashed for lack of jurisdiction and non-faceless procedure

Writ petition allowed in favour of the assessee on jurisdictional grounds; impugned notices issued under sections 148A and 148 of the Act quashed. The HC ... Validity of reopening of assessment - scope of new regime - contention of the petitioner is that the issue of proceedings being in violation of the Finance Act, 2021 i.e., the impugned notices under Section 148A and Section 148 of the Act not being issued in a faceless manner - HELD THAT:- To a query being put to the learned counsel for the Revenue, they have categorically accepted the fact that there is no interim order granted by the Hon’ble Supreme Court in any of these matters pending before it. Meanwhile, fresh writ petitions of identical nature are being piled up before this Bench on daily basis and the pendency is getting increased on matter which otherwise has already been dealt and decided by this very High Court itself. On the one hand, even though the order of this Court that was passed as early as on 14.09.2023 and more 16 months have lapsed, till date, we do not find any remedial steps having been taken by the Income Tax Department to take appropriate steps to either hold back issuance of notice under Section 148A and under Section 148 of the Act by the jurisdictional Assessing Officer, rather the authorities concerned in the teeth of series of decisions by all the major High Courts in India are continuously still initiating proceedings under Section 148A of the Act and also initiating proceedings under Section 148 of the Act in contravention to the amendments brought into the Income Tax Act pursuant to the Finance Act, 2020 as also the Finance Act 2021. Upon a query being put as to why can’t this writ petition be disposed of in the teeth of the decision rendered by this Court in the case of Kanakala Ravindra Reddy [2023 (9) TMI 951 - TELANGANA HIGH COURT] Income Tax Department contends that those would unnecessarily burden the Income Tax Department where they would be required to file equal number of SLPs before the Hon’ble Supreme Court and it would be further burdening the exchequer of the Union of India. It was also the contention of the learned Standing Counsel that no prejudice would be caused to the interest of the petitioners in case if this writ petition is kept pending till the finalization of the SLPs pending before the Hon’ble Supreme Court and the fact that the petitioner is already enjoying the benefit of interim protection. Nonetheless, on the earlier query of this Court as to why the Income Tax Department have not come out with a mechanism to issue appropriate instructions or to take appropriate steps in ensuring that proceedings under Section 148A of the Act as also the assessment orders under Section 148 of the Act are kept in a hold in the light of the decisions decided by the various High Courts, it was submitted by the learned Standing Counsel that the said steps can only be taken at the level of CBDT as any such steps would have to be taken Pan India and cannot be limited to any of these jurisdictional High Courts. As a result of which, what we are facing is steep increase of litigation day in and day out even though various orders have been passed by this High Court allowing writ petitions on the very same issue. The Income Tax authorities concerned are still even now in 2025 also initiating proceedings in contravention to the provisions of Section 151A of the Act and as a result by now, more than 600 to 700 petitions have been already got piled up before this High Court on an issue which otherwise stands squarely covered by the judgment of this Court in the case of Kanakala Ravindra Reddy. Another aspect which needs to be considered is that in fact it should have been realized by the Income Tax Department itself and should have found out via media in ensuring that proceedings under Sections 148-A and 148 should not have been issued in a faceless manner, at least till the Hon’ble Supreme Court decide the twelve hundred (1200) odd SLPs which it is already seized of or, at least the Income Tax Department should have found out some remedial steps to ensure that wherever the authorities intend to initiate proceedings under Sections 148-A and 148, other than in a faceless manner, the proceedings should have been deferred without precipitating the matter further intimating the assessee that they shall initiate appropriate proceedings only after the SLP’s are decided by the Hon’ble Supreme Court on the very same issue. This again, the Income Tax Department, has not been able to give a convincing reply, except for the fact that such a decision if at all has to be taken, has to be taken for the whole of India, and which otherwise has to be by way of a policy decision and that too at the level of Central Board of Direct Taxes. Yet, the authorities concerned at the State level are not ready to accept the verdict passed by a majority of High Courts of different States on the same issue; and to make things further worse, the Income Tax Department is showing audacity by issuing notices continuously under Sections 148-A and 148 through the jurisdictional Assessing Officer whereas it ought to have been only in the faceless manner. In the given facts and circumstances, this Bench is of the considered opinion that unless and until we do not timely dispose of matters which are squarely covered by the decision of this Court and which stands fortified by the decisions of the various other High Courts on the very same issue, the pendency of this High Court would further be burdened which otherwise can be decided and disposed of as a covered matter. We would only further like to make observations that since we are inclined to dispose of the instant writ petition, conscious of the fact that the earlier order of this High Court in the case of Kanakala Ravindra Reddy (supra) is subjected to challenge before the Hon’ble Supreme Court preferred by the Income Tax Department, we make it clear that allowing of the instant writ petition is subject to outcome of the aforesaid SLP preferred by the Revenue against the decision of this High Court in the case of Kanakala Ravindra Reddy (1 supra). This, in other words, would mean that either of the parties, if they so want, may move an appropriate petition seeking revival of this writ petition in the light of the decision of the Hon’ble Supreme Court in the pending SLP on the very same issue. Accordingly, the instant writ petition stands allowed in favour of the assessee so far as the issue of jurisdiction is concerned. As a consequence, the impugned notice under challenge under Sections 148-A and 148 stands set aside/quashed. ISSUES PRESENTED AND CONSIDERED 1. Whether notices issued under Section 148A and Section 148 of the Income Tax Act, 1961 and assessments completed under Section 147 are valid where such proceedings were not initiated and conducted in a faceless manner contrary to amendments effected by the Finance Acts of 2020 and 2021 and applicable faceless-framework notifications. 2. Whether subordinate revenue authorities are bound to follow consistent judicial pronouncements of High Courts holding that non-faceless issuance of notices under Sections 148A/148 is procedurally invalid, and whether continued issuance of such notices despite those decisions amounts to abuse, causes undue litigation and violates principles of judicial discipline. 3. Whether disposal of a writ petition that is squarely covered by an existing High Court decision should be deferred merely because Special Leave Petitions (SLPs) are pending in the Supreme Court, and what protection / reservation of rights should be afforded to the Revenue when disposing such covered matters. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of notices under Sections 148A/148 where proceedings were not faceless Legal framework: The amended Income Tax regime (post Finance Acts 2020/2021) prescribes that specified reassessment-related processes must be conducted in accordance with the faceless assessment framework and applicable notifications (including Notification 18/2022 and provisions such as Section 151A as referenced by the Court). The statutory scheme determines the mode and procedure for initiation of reassessment notices and related proceedings, and non-compliance with mandated procedure vitiates jurisdiction. Precedent treatment: Multiple High Courts have ruled that initiation of proceedings under Sections 148A and 148 in a non-faceless manner after the amendments is procedurally impermissible and therefore invalid; the Court adopts and follows that consistent line of High Court authorities. Interpretation and reasoning: The Court reasoned that the legislative amendments and notifications alter the procedural modalities for reassessment proceedings; where those modalities require faceless issuance and processing, any initiation by the jurisdictional Assessing Officer outside the faceless framework is procedurally flawed. Procedural illegality in the initiation stage renders subsequent assessment orders unsustainable because jurisdiction itself is vitiated. The Court emphasized that initiation of proceedings in contravention of the faceless regime undermines the statutory procedure and therefore strikes at the root of the proceedings. Ratio vs. Obiter: Ratio - Notices and consequent orders under Sections 148A/148/147 issued without adherence to the faceless procedure mandated by the amended statute and notifications are invalid and liable to be set aside. Obiter - Observations on wider administrative practices and recommended remedial measures (e.g., pan-India instructions) and commentary on media-awareness are ancillary. Conclusions: The notices under Sections 148A and 148 and the consequential assessment orders are set aside/quashed for want of compliance with the faceless-procedure mandated by the statutory amendments and corresponding notifications; when initiation is procedurally wrong, subsequent orders automatically fall. Issue 2 - Duty of revenue authorities to follow High Court precedent and consequences of non-compliance Legal framework: Principles of judicial discipline require that subordinate authorities give effect to binding decisions of superior courts; an appellate court's judgment remains binding unless suspended by a competent court. Administrative conduct that persists in disregarding settled judicial pronouncements invites judicial intervention to curb harassment and chaos in tax administration. Precedent treatment: The Court relies on established jurisprudence stressing that revenue officers cannot refuse to follow High Court decisions on the ground that they are 'not acceptable' or because appeals are pending; such an approach is impermissible unless operation of the decision has been stayed. Interpretation and reasoning: The Court found that despite repeated High Court rulings declaring non-faceless initiation unlawful, the Income Tax Department continued to issue such notices, thereby generating voluminous identical litigation and undermining judicial precedent. The Court characterized the Department's conduct as calculated to prolong initiation and exploit limitation periods and observed that mere pendency of SLPs in the Supreme Court, without any interim order staying the High Court decisions, does not permit continuation of the offending practice. Ratio vs. Obiter: Ratio - Revenue authorities must abide by binding High Court decisions and cannot persist in a practice declared unlawful absent a stay; continued issuance of non-faceless notices contrary to settled High Court adjudication is unsustainable. Obiter - Critical remarks about administrative malaise, media-awareness and policy-level inaction are supplementary observations. Conclusions: The persistent initiation of non-faceless proceedings despite binding High Court authority is improper; the Court quashes such notices and reiterates the requirement of judicial discipline while noting the remedial liberty previously reserved to the Revenue. Issue 3 - Disposal of writ petitions covered by existing High Court rulings while SLPs are pending; protection of Revenue's rights Legal framework: A High Court can dispose of matters covered by its prior decisions; where the Revenue has a reserved liberty to initiate fresh proceedings in compliance with amended law (as previously recognized), the Court must balance finality and protection of revenue interest. Pending SLPs in the Supreme Court do not automatically preclude disposal unless the Supreme Court has granted interim relief or stay. Precedent treatment: The Court treated its earlier decision (and consistent High Court authorities) as binding for purposes of disposing covered writ petitions; it noted that the Revenue's recourse to the Supreme Court (SLPs) does not suspend the High Court's authority or justify continued contravention of High Court rulings absent an operative stay. Interpretation and reasoning: Faced with large-scale repetition of identical petitions and heavy docket explosion, the Court held that leaving matters undecided merely because SLPs are pending would needlessly perpetuate litigation and prejudice petitioners. Simultaneously, the Court recognized the legitimate interest of the Revenue and observed that its previous orders had expressly preserved the Revenue's right to initiate fresh proceedings strictly in accordance with amended provisions and faceless procedure. Consequently, the Court disposed the instant petition subject to the outcome of pending SLPs, and allowed revival if any party so desires in light of the Supreme Court's eventual decision. Ratio vs. Obiter: Ratio - Where a writ petition is squarely covered by binding High Court precedent and no stay from the Supreme Court exists, the High Court should dispose of the petition rather than keep it pending; disposal may be made subject to the eventual outcome of SLPs to protect both parties' rights. Obiter - Observations about docket-management, administrative motivations for delay, and suggestions for CBDT-level pan-India policy are illustrative and not essential to the holding. Conclusions: The Court disposed of the writ petition in favour of the assessee on the jurisdictional point, quashed the impugned notices under Sections 148A and 148 and consequential orders, while making the allowance subject to the outcome of any SLPs pending before the Supreme Court and preserving the parties' rights to seek revival or further proceedings as appropriate.