2024 (10) TMI 1586 - HC - Income Tax

Validity of Section 148 reassessment notices upheld; JAO may form opinion using RMS, search, audit, and orders

HC upheld validity of reassessment notices under Section 148, holding that a JAO may form the requisite opinion based on RMS data and other specified ... Validity of notices of reassessment - Compliance of reassessment notices with the Faceless Scheme of Assessment - whether a notice u/s 148, if issued by the JAO, would sustain in light of the scheme formulated in accordance with Section 151A ? - whether the Section 148 notice was rendered invalid on the ground of having been issued by the JAO? - HELD THAT:- As we view Explanation 1 of Section 148 of the Act, it becomes apparent that an assessing officer could form an opinion that income chargeable to tax had escaped assessment on the basis of (a) information which comes to light through the RMS (b) an audit objection (c) information received under agreements with nations (d) information made available to the JAO in terms of a scheme notified under Section 135A or (e) information on which further action is warranted in consequence to an order of a Tribunal or a Court. It is thus manifest that apart from information which is made available to the JAO pursuant to the RMS, the Act contemplates a decision to commence reassessment also being founded or based upon other inputs which are noticed in clauses (a) to (e) of Explanation 1. In essence, the Act permits reassessment not only on RMS data but also on a variety of other specified inputs ensuring a broader foundation for initiating reassessment. In terms of Explanation 2 to Section 148, information that may come to the fore consequent to a search or survey, is also, by virtue of the legal fiction incorporated therein, deemed to be that which would constitute “information” and be viewed as suggestive of income chargeable to income having escaped assessment. The material that may be gathered in the course of a search or survey also thus constitutes information which comes to be placed in the hands of the JAO and which may form the basis for formation of opinion of whether reassessment is merited. 'Information' relevant for assessment - In cases where questions of capital gains are at issue, the AO stands conferred with the power to make a reference to a Valuation Officer for an estimation of value, including the fair market value of any asset, property or investment. This power which stands individually conferred upon the AO stands enshrined in Section 142A of the Act. TOLA also introduced Section 142B and which in turn empowered the Union Government to frame a scheme for the purposes of faceless inquiry or valuation. In exercise of that power, the Union Government has framed a scheme which came to be notified on 30 March 2022. Origins of faceless assessment - A careful reading of that clause shows that the draftsman has used a comma immediately after the phrase “shall be through automated allocation”. Yet another comma appears after the phrase “for issuance of notice”. It thus appears to have been the clear intent of the author to separate and segregate the phases of initiation of action in accordance with RMS, the formation of opinion whether circumstances warrant action under Section 148 of the Act being undertaken by issuance of notice and the actual undertaking of assessment itself. Beyond the specific use of punctuation within Clause 3, a comprehensive reading of the Faceless Reassessment Scheme 2022, supported by the extensive material presented by the respondents, bolsters the clear intent underlying each phase of the faceless assessment process. As we had noticed in the preceding parts of this decision, the RMS and the Insight Portal pushes information to the JAO and is principally not concerned with faceless assessment at all. The RMS essentially enables the JAO to firstly examine the veracity of disclosures made and examine the return against various parameters and information which has been collated by the Directorate of Systems. It thus provides the JAO with an insight in respect of various transactions to which the assessee may be connected as well as data pertaining to that assessee which has otherwise been aggregated and mapped on the basis of material existing on the system of the respondents. The respondents would, therefore, appear to be correct in their submission that when material comes to be placed in the hands of the JAO by the RMS, it would consequently be entitled to initiate the process of reassessment by following the procedure prescribed under Section 148A. If after consideration of the objections that are preferred, it stands firm in its opinion that income was likely to have escaped assessment, it would transmit the relevant record to the NFAC. It is at that stage and on receipt of the said material by NFAC that the concepts of automated allocation and faceless distribution would come into play. The actual assessment would thus be conducted in a faceless manner and in accordance with an allocation that the NFAC would make. This, in our considered opinion, would be the only legally sustainable construction liable to be accorded to the scheme. Our conclusion would thus strike a harmonious balance between the evaluation of information made available to an AO, the preliminary consideration of information for the purposes of formation of opinion and its ultimate assessment in a faceless manner. We are also, in this regard, guided by the principles of beneficial construction and thus avoiding an interpretation that would render portions of the Act or the Faceless Assessment Scheme superfluous or ineffective should be avoided. To assert that the JAO’s powers become redundant under the faceless assessment framework would conflict with beneficial construction, as it would undermine provisions specifically established to support comprehensive data analysis and informed decision-making, such as the JAO’s access to RMS and Insight Portal information. We are fully cognizant of the contrarian view which was expressed in this respect in Hexaware Technologies and which stands reflected in para 36 of the report which has been extracted hereinabove. However, for reasons assigned in the preceding parts of this decision, we find ourselves unable to concur with the interpretation accorded by the Bombay High Court upon Clause 3 of the Faceless Reassessment Scheme 2022. As was noted by us earlier, Clause 3 clearly contemplates the initial enquiry and formation of opinion to reassess being part of one defined process followed by actual assessment in a faceless manner. It thus divides the process of reassessment into two stages and when viewed in that light it is manifest that it strikes a just balance between the obligation of the JAO to scrutinise information and the conduct of assessment itself through a faceless allocation. The distribution of functions between the JAO and NFAC is complimentary and concurrent as contemplated under the various schemes and the statutory provisions. This balanced distribution underscores the legislative intent to create a seamless integration of traditional and faceless assessment mechanisms within a unified statutory framework. This we so hold and observe since we have, principally, been unable to countenance a situation where the JAO stands completely deprived of the jurisdiction to evaluate data and material that may be placed in its hands. We, accordingly and for all the aforesaid reasons find ourselves unable to sustain the challenge as addressed. The contention that the impugned notices are liable be quashed merely on the ground of the same having been issued by the JAO is thus negated. Accordingly, while we dismiss these writ petitions Issues Involved:1. Validity of reassessment action under Section 148 of the Income Tax Act, 1961.2. Compliance of reassessment notices with the Faceless Scheme of Assessment.3. Jurisdiction of the Jurisdictional Assessing Officer (JAO) under the Faceless Reassessment Scheme.Comprehensive, Issue-Wise Detailed Analysis:1. Validity of Reassessment Action Under Section 148:The judgment addresses the validity of reassessment notices issued under Section 148 of the Income Tax Act, 1961, particularly after the introduction of the Faceless Scheme of Assessment. The petitioners challenged the notices on the grounds of jurisdiction and compliance with the faceless assessment procedures. The Court examined whether the notices issued by the JAO were valid under the new faceless regime, emphasizing that the JAO retains jurisdiction under certain circumstances as per the statutory framework.2. Compliance of Reassessment Notices with the Faceless Scheme:The Court analyzed the statutory provisions related to the faceless assessment, particularly Sections 144B and 151A, which govern the faceless assessment and reassessment processes. It was noted that the Faceless Reassessment Scheme, 2022, mandates that notices under Section 148 should be issued through automated allocation and in a faceless manner, but this does not entirely exclude the JAO's role. The Court highlighted that the Faceless Scheme is designed to enhance transparency and reduce human interface, but it does not completely eliminate the JAO's authority to issue notices.3. Jurisdiction of the JAO Under the Faceless Reassessment Scheme:The judgment extensively discusses the concurrent jurisdiction of the JAO and the Faceless Assessment Units. The Court clarified that the JAO retains jurisdiction to initiate reassessment proceedings based on information available through the Risk Management Strategy (RMS) and other sources. The Court emphasized that the faceless assessment framework does not entirely replace the JAO's role but operates alongside it to ensure comprehensive and balanced assessments. The judgment also referenced previous decisions, including Sanjay Gandhi Memorial Trust, which supported the view of concurrent jurisdiction.Disposition:The Court dismissed the writ petitions, upholding the validity of the reassessment notices issued by the JAO. It concluded that the notices were not invalid merely because they were issued by the JAO, as the statutory framework allows for concurrent jurisdiction and the initial stages of reassessment may involve the JAO. The Court allowed the petitioners to raise any other objections to the reassessment proceedings in separate, independent proceedings.