Section 148 notices issued by JAO instead of FAO declared invalid for lack of jurisdiction

The Bombay HC held that notices issued under Section 148 by JAO instead of FAO were invalid due to lack of jurisdiction. The court found non-compliance with Section 151A provisions and the Central Government notification dated 29 March 2022, which mandated FAO to issue such notices in faceless assessment proceedings. Following the precedent in Hexaware Technologies Ltd., the court declared the impugned notices illegal and invalid, allowing the petition in favor of the assessee and quashing the reassessment notices.

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Issues:
Challenge to notice under Section 148 of the Income Tax Act, 1961; Compliance with provisions of Section 151A and faceless mechanism; Validity of notice issued by Jurisdictional Assessing Officer (JAO) instead of Faceless Assessing Officer (FAO); Interpretation of the Scheme framed by CBDT; Prejudice caused by authority acting contrary to law; Legal requirement of a three months notice under Section 148 as per Finance Act, 2023.

Analysis:

The High Court of Bombay heard a Writ Petition challenging a notice issued under Section 148 of the Income Tax Act, 1961, for reassessment of returns filed by the Petitioner for the Assessment Year 2020-21. The Court noted that the impugned notice and orders were issued by the Jurisdictional Assessing Officer (JAO) instead of a Faceless Assessing Officer (FAO) as required by Section 151A of the Act. The Court referred to a Division Bench judgment in the case of Hexaware Technologies Limited, emphasizing the exclusive jurisdiction of either the JAO or FAO for issuing notices under Section 148, as per the faceless mechanism introduced by the Central Government. The Court held that non-compliance with the faceless mechanism vitiates the proceedings, rendering the notice invalid.

The Court observed that the Respondent-Revenue failed to adhere to the Scheme framed under Section 151A, which governs proceedings under Section 148A and 148 of the Act. Citing the judgment in Hexaware and a recent decision, the Court concluded that the notice issued by the JAO was unsustainable and allowed the Writ Petition, quashing the impugned notice and order. The Court highlighted that actions by the authority contrary to law cause prejudice to the assessee, and such actions are required to be set aside without the need for the assessee to establish further prejudice.

Regarding the legal requirement of a three-month notice under Section 148 as per the Finance Act, 2023, the Court found merit in the argument that the impugned notice did not comply with the statutory provision. The Court noted that the notice provided for a period of only 30 days, contrary to the three-month requirement stipulated by the amendment. Consequently, the Court held the notice under Section 148 as illegal due to non-compliance with the three-month notice period mandated by the Finance Act, 2023.

The Court clarified that the judgment was based on the non-compliance with Section 151A and did not address other issues raised in the Writ Petition. The Rule was made absolute in favor of the Petitioner, with no costs awarded.

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