Reassessment under Sections 148A and 148 quashed for violating mandatory faceless procedure under Section 151A scheme

HC held that reassessment proceedings initiated under Sections 148A(b), 148A(d) and 148 were invalid due to non-compliance with Section 151A and the faceless reassessment scheme notified thereunder. The court found that the Scheme, being subordinate legislation laid before Parliament, mandatorily governs proceedings under Sections 148A and 148, and the use of the Jurisdictional Assessing Officer instead of the Faceless Assessing Officer vitiated the process. Relying on Hexaware and Abhin Anilkumar Shah, HC rejected Revenue's contention that "central charges" cases are excluded from the Scheme. The impugned notice and consequential proceedings were quashed and the writ petition allowed.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether reassessment proceedings initiated under Sections 148A(b), 148A(d) and 148 of the Income Tax Act, 1961, by the Jurisdictional Assessing Officer instead of a Faceless Assessing Officer are invalid for non-compliance with Section 151A and the faceless reassessment Scheme notified on 29 March 2022.

1.2 Whether cases pertaining to "central charges" are excluded from the applicability of the faceless procedure mandated under Section 151A and the Notification dated 29 March 2022 for proceedings under Sections 148A and 148.

1.3 Whether an assessee is required to establish separate prejudice where reassessment proceedings are initiated contrary to the mandatory provisions of the statute and the faceless reassessment Scheme.

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2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of notices under Sections 148A(b), 148A(d) and 148 issued by the Jurisdictional Assessing Officer instead of Faceless Assessing Officer

Legal framework

2.1 The Court considered Section 151A of the Income Tax Act, 1961, which empowers the Central Government to make a Scheme for assessment, reassessment or recomputation under Section 147 and for issuance of notice under Section 148, with the object of achieving efficiency, transparency and accountability, including through faceless procedures.

2.2 The Court took note of the Central Government Notification dated 29 March 2022 issued pursuant to Section 151A(2), introducing a faceless mechanism and mandating that issuance of notice shall be through "automated allocation", as defined to mean randomised allocation using technological tools.

2.3 The Court relied on the binding Division Bench judgment in "Hexaware", which interpreted Section 151A and the Scheme dated 29 March 2022 and held that: (i) there is no concurrent jurisdiction between the Jurisdictional Assessing Officer and the Faceless Assessing Officer for issuance of notice under Section 148; (ii) issuance of notice under Section 148 must be in a faceless manner in accordance with the Scheme; and (iii) only the Faceless Assessing Officer can issue such notice under Section 148.

Interpretation and reasoning

2.4 On facts, the Court found that the notice under Section 148A(b) dated 07 March 2024, the order under Section 148A(d) dated 18 March 2024, and the consequent notice under Section 148 dated 18 March 2024 were all issued by the Jurisdictional Assessing Officer and not by a Faceless Assessing Officer.

2.5 Applying "Hexaware", the Court reiterated that the Scheme notified on 29 March 2022 is mandatory, leaves no discretion with the Department, and excludes any concept of concurrent jurisdiction between the Jurisdictional Assessing Officer and the Faceless Assessing Officer for issuance of notice under Section 148.

2.6 The Court noted that the Scheme framed pursuant to Section 151A has been laid before Parliament, has the character of subordinate legislation, and governs proceedings under Sections 148A and 148. Therefore, compliance with the Scheme is a condition for valid initiation of reassessment.

2.7 The Court further relied on "Kairos Properties", where it was held that the Scheme notified under the Notification dated 29 March 2022, particularly paragraph 3, covers steps taken in issuing notice under Section 148A(b) and passing orders under Section 148A(d) as falling within the ambit of Section 151A, and that these pre-notice procedures are also required to be undertaken in a faceless manner.

2.8 In light of these authorities, the Court held that the Revenue, having initiated and conducted the proceedings under Sections 148A and 148 through the Jurisdictional Assessing Officer in a non-faceless mode, acted contrary to Section 151A and the Scheme, thereby vitiating the very initiation of reassessment proceedings.

2.9 Learned counsel for both parties agreed before the Court that, in view of "Hexaware", the proceedings initiated under Section 148 were not sustainable.

Conclusions

2.10 The Court concluded that the impugned notice under Section 148A(b), the order under Section 148A(d), and the notice under Section 148, having been issued by the Jurisdictional Assessing Officer and not in compliance with Section 151A and the Notification dated 29 March 2022, are invalid and liable to be quashed.

2.11 The writ petition was allowed and the said notices and order under Sections 148A(b), 148A(d) and 148 were quashed and set aside.

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Issue 2: Applicability of faceless scheme to "central charges" cases

Legal framework

3.1 The Court examined the argument of the Revenue that cases pertaining to "central charges" stand excluded from the provisions of Section 144B read with Section 151A and the Scheme under Notification dated 29 March 2022.

3.2 The Court referred to its own prior decision in "Abhin Anilkumar Shah", which in turn considered earlier orders dated 31 March 2021 and 6 September 2021 issued under Sections 144B(2) and 119 of the Act, as well as the Scheme notified under Section 151A by Notification dated 29 March 2022.

Interpretation and reasoning

3.3 In "Abhin Anilkumar Shah", the Court held that the exclusion of cases assigned to central and international tax charges under the orders dated 31 March 2021 and 6 September 2021 applied only to "assessment orders to be passed" and not to proceedings covered under the faceless reassessment Scheme framed under Section 151A.

3.4 It was held that the Scheme notified under Section 151A by Notification dated 29 March 2022, which applies the faceless mechanism to proceedings under Sections 148A and 148, is independent and not subject to, nor expressly linked with, the earlier orders dated 31 March 2021 and 6 September 2021.

3.5 The Court in "Abhin Anilkumar Shah" reasoned that reading the earlier orders into the Scheme under Section 151A would amount to rewriting the Scheme and importing into Section 151A something not provided by the legislature. Section 151A stands on its own and is not made subject to other provisions of the Act in this regard.

3.6 The Court further noted that both in "Hexaware" and "CapitalG LP", as well as in the decision of the Telangana High Court in "Sri Venkataramana Reddy Patloola", it has been consistently held that in respect of central charges and international taxation charges, proceedings under Section 148A read with Section 148 must be conducted in a faceless manner, applying Section 144B as effectuated through Section 151A and the Notification dated 29 March 2022.

3.7 Relying on this reasoning, the Court rejected the Revenue's contention that the present case, being a central charges matter, is excluded from the applicability of Section 151A and the Scheme.

Conclusions

3.8 The Court held that even for cases pertaining to central charges, proceedings under Sections 148A and 148 are required to be conducted in a faceless manner in accordance with Section 151A and the Scheme notified on 29 March 2022.

3.9 The argument that the present case is excluded from the Scheme on account of being a central charges case was expressly rejected.

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Issue 3: Necessity of showing prejudice where statutory procedure and faceless scheme are violated

Legal framework

4.1 The Court referred to the principle articulated in "Hexaware" that when an authority acts contrary to law, its act is required to be quashed as invalid and bad in law, and the person challenging such action is not required to establish separate prejudice.

Interpretation and reasoning

4.2 The Court reiterated the reasoning from "Hexaware" that an act performed by an authority contrary to the provisions of the statute itself causes prejudice to the assessee, since every assessee is entitled to be assessed strictly in accordance with law and prescribed procedure.

4.3 The Court accepted that where the Income Tax Authority proposes to take action without following due process of law as mandated by the statute and the Scheme, such non-compliance itself results in prejudice, and the assessee need not prove any further or additional prejudice.

Conclusions

4.4 The Court held that, in the present case, once it is established that the proceedings under Sections 148A and 148 were initiated and conducted contrary to Section 151A and the faceless Scheme, the proceedings stand vitiated without the need for the petitioner to demonstrate separate prejudice.

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Overall disposition and limitation of ruling

5.1 The Court allowed the writ petition and issued a writ quashing and setting aside: (i) the notice dated 07 March 2024 under Section 148A(b); (ii) the order dated 18 March 2024 under Section 148A(d); and (iii) the notice dated 18 March 2024 under Section 148.

5.2 The Court clarified that the petition was disposed of solely on the ground of non-compliance with Section 151A of the Act and the faceless reassessment Scheme, and no opinion was expressed or decision rendered on any other issues raised in the writ petition.

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