2024 (9) TMI 100 - HC - Income Tax

Section 144B and CBDT order limit faceless exemption; Section 148 notices must be issued faceless, failure voids assessments

Sri Venkataramana Reddy Patloola Versus Deputy Commissioner of Income Tax, Circle 1 (1), Hyderabad and Others

HC held that Section 144B and the CBDT order of 06.09.2021 exempt faceless procedure only for passing assessment orders in central or international tax ... Validity of reassessment proceedings - show cause notices issued u/s 148 in matters relating to international tax charges as exempted to follow the statutory faceless procedure - scope of National Faceless Assessment Centre u/s 144B - HELD THAT:- There is no cavil of doubt that Section 144B of the Act and order of CBDT dated 06.09.2021 give exemption from following the mandatory faceless procedure only in relation to passing of assessment orders in cases of central charges and international tax charges. Any other interpretation would amount to doing violence with the language employed in the scheme/notification dated 29.03.2022, Section 144B(2) of the Act and order dated 06.09.2021. Since in our view, the plain and unambiguous language used in the scheme and order dated 06.09.2021 shows that the notice u/s 148 does not fall within the ‘exception’, the judgments cited by the learned Senior Standing Counsel for Income Tax Department are of no assistance. Taxpayer is nowhere distinguished between NRIs and Indian Citizens. The notice issued under Section 148 must comply with the requirement of the Scheme whether or not the Taxpayer is NRI/Indian Citizen. Thus, the second limb of argument of the learned Senior Standing Counsel for Income Tax Department deserves to be rejected. In interpreting a section in a taxing statute, according to LORD SIMONDS, “the question is not at what transaction the section is according to some alleged general purpose aimed, but what transaction its language according to its natural meaning fairly and squarely hits. LORD SIMONDS call this “the one and only proper test”. This principle is followed by the Indian Supreme Court in catena of judgments. Thus, in our view, no such exemption from faceless procedure can be read by combined reading of aforesaid provisions for the purpose of issuance of notice u/s 148 of the Act. Thus, it is clear that the respondents have erred in not following the mandatory faceless procedure as prescribed in the scheme dated 29.03.2022. Since notices under Section 148 of the Act were not issued in a faceless manner, the entire further proceeding founded upon it and assessment orders stand vitiated. Thus, the impugned notices u/s 148 and all consequential assessment orders based thereupon are set aside. Decided in favour of assessee. Issues Involved:1. Whether show cause notices issued under Section 148 of the Income Tax Act, 1961, in matters relating to international tax charges are exempted from following the statutory faceless procedure.Detailed Analysis:Issue 1: Exemption from Faceless Procedure for Notices under Section 148The central issue in these writ petitions was whether the show cause notices issued under Section 148 of the Income Tax Act, 1961, in matters relating to international tax charges are exempt from the statutory faceless procedure.Arguments by Petitioners:- The petitioners argued that the notices under Section 148 were issued in violation of the prescribed faceless assessment procedure.- They contended that Section 151A of the Act permits the Central Government to frame a scheme for issuing notices under Section 148 to ensure efficiency, transparency, and accountability, eliminating direct interaction between the income tax authority and the assessee.- They cited a gazette notification dated 29.03.2022, which mandates that notices under Section 148 must follow the faceless procedure.- The petitioners relied on judgments from the Telangana High Court in Kankanala Ravindra Reddy v. Income-tax Officer and the Bombay High Court in Hexaware Technologies Ltd. v. Assistant Commissioner of Income-Tax, which held that the faceless procedure must be followed for issuing notices under Section 148.Arguments by Respondents:- The respondents argued that international tax charges are exempt from the faceless procedure based on a combined reading of Section 144B, Section 151A, and the CBDT's order dated 06.09.2021.- They contended that the faceless assessment procedure is applicable only for the completion of assessment/reassessment and not for the issuance of notices under Section 148.- The respondents also argued that the faceless scheme is applicable only to residents and not to Non-resident Indians (NRIs).Court's Analysis:- The court examined Section 151A, which allows the Central Government to create a scheme for assessment, reassessment, or re-computation under Section 147, issuance of notice under Section 148, and conducting enquiries or issuance of show-cause notices under Section 148A.- The court noted that the notification dated 29.03.2022 mandates that notices under Section 148 must be issued through automated allocation and in a faceless manner.- The court rejected the respondents' argument that international tax charges are exempt from the faceless procedure, noting that the CBDT's order dated 06.09.2021 provides exemptions only for assessment orders, not for the issuance of notices under Section 148.- The court emphasized that the faceless procedure for issuing notices under Section 148 is mandatory, and any deviation from this procedure would render the notices and subsequent proceedings invalid.Judgments Referenced:- The court referred to the judgments in Kankanala Ravindra Reddy and Hexaware Technologies Ltd., which supported the view that the faceless procedure must be followed for issuing notices under Section 148.- The court agreed with the Bombay High Court's interpretation in Hexaware Technologies Ltd. that the phrase 'to the extent provided in Section 144B of the Act' does not exempt the issuance of notices under Section 148 from the faceless procedure.Conclusion:- The court concluded that the respondents erred in not following the mandatory faceless procedure as prescribed in the scheme dated 29.03.2022.- Consequently, the notices issued under Section 148 and all subsequent assessment orders based on these notices were set aside.- The court allowed the writ petitions and reserved the liberty for the respondents to proceed against the petitioners in accordance with the law.Final Order:The writ petitions were allowed, and the impugned notices under Section 148 of the Income Tax Act, along with all consequential assessment orders, were set aside due to non-compliance with the mandatory faceless procedure. The court reserved the liberty for the respondents to take appropriate actions as per the law. No order as to costs was made, and all miscellaneous applications were closed.