Notice under s.148 for AY 2017-18 invalid as barred by first proviso to s.149(1) and for s.151A non-compliance

The HC held the notice under s.148 for AY 2017-18, issued on 1 May 2024, was barred by limitation under the first proviso to s.149(1) and therefore invalid; the fifth and sixth provisos cannot extend the restriction period once the notice falls outside the first proviso. The court also ruled the notice invalid for non-compliance with s.151A because it was issued by the Jurisdictional Assessing Officer instead of a Faceless Assessing Officer. Decisions of the Bombay HC on the same issue were applied.

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1. ISSUES PRESENTED and CONSIDERED

1. Whether the notice dated 1st May 2024 issued under Section 148 of the Income Tax Act, 1961 is barred by limitation as per the first proviso to Section 149 of the Act.

2. Whether the impugned notice dated 1st May 2024 is invalid and bad in law for being issued by the Jurisdictional Assessing Officer (JAO) instead of the Faceless Assessing Officer (FAO) in contravention of Section 151A of the Act and the Scheme notified thereunder.

3. Whether the issues raised in the impugned order disclose escapement of income represented in the form of an asset, expenditure in relation to a transaction or event, or entries in the books of accounts as required under Section 149(1)(b) of the Act.

4. Whether the reopening of assessment is based on a change of opinion.

5. Whether the Assessing Officer can form a belief of escapement of income when the claim of deduction under Section 80IA has been consistently allowed by Assessing Officer and appellate authorities in earlier years.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Limitation on issuance of notice under Section 148 of the Act

- Relevant Legal Framework and Precedents:

Section 149 of the Income Tax Act prescribes the time limits for issuance of notice under Section 148. Sub-section (1)(a) restricts issuance beyond three years from the end of the relevant assessment year unless clause (b) applies. Clause (b) allows issuance up to ten years if the Assessing Officer possesses books of account or other documents revealing escaped income represented as an asset, expenditure, or entry in books of account, amounting to Rs. 50 lakh or more.

The first proviso to Section 149 restricts issuance of notices for assessment years beginning on or before 1st April 2021 if such notice could not have been issued at that time under the erstwhile provisions.

It is settled law that validity of notice under Section 148 must be judged as per the law existing on the date of issuance.

Precedents establish that the first proviso to Section 149 applies to assessment years up to 2021-22 and cannot be circumvented by invoking extended limitation periods or subsequent amendments.

- Court's Interpretation and Reasoning:

The Court relied on the decision in Hexaware Technologies Ltd. which held that for assessment years beginning on or before 1st April 2021, the limitation period under the erstwhile Section 149(1)(b) applies. The notice issued beyond such period is barred by limitation as per the first proviso.

The Court rejected Revenue's contention that fifth and sixth provisos to Section 149(1)(b) extend the limitation period beyond the first proviso. The first proviso is an exception and restriction that cannot be overridden by these provisos.

The Court further held that the original notice dated 8th April 2021, initially issued under Section 148 but treated as a Section 148A(b) notice, is not relevant for limitation calculation under Section 149 for the impugned notice dated 1st May 2024.

For Assessment Year 2017-18, the six-year limitation expired on 31st March 2024, and the impugned notice dated 1st May 2024 was issued beyond this period, hence barred by limitation.

- Key Evidence and Findings:

The impugned notice was issued on 1st May 2024 for AY 2017-18. The six-year limitation period ended on 31st March 2024.

The petitioner's detailed reply to the notice raised limitation as a ground.

- Application of Law to Facts:

The Court applied the statutory provisions and binding precedents to hold that the impugned notice was issued beyond the permissible period.

- Treatment of Competing Arguments:

The Revenue's arguments regarding applicability of fifth and sixth provisos and reliance on the original notice dated 8th April 2021 were rejected as inconsistent with the statutory scheme and judicial precedents.

- Conclusion:

The notice dated 1st May 2024 under Section 148 is barred by limitation under the first proviso to Section 149 of the Act and is invalid.

Issue 2: Validity of notice issued by Jurisdictional Assessing Officer instead of Faceless Assessing Officer

- Relevant Legal Framework and Precedents:

Section 151A of the Act empowers the Central Board of Direct Taxes (CBDT) to notify a Scheme for faceless assessment, reassessment, issuance of notices under Section 148, and related proceedings to enhance efficiency and transparency by eliminating physical interface.

CBDT issued a Scheme dated 29th March 2022 mandating issuance of notice under Section 148 through automated allocation and in a faceless manner by the Faceless Assessing Officer (FAO).

Judicial precedents including the decision in Hexaware Technologies Ltd. and subsequent rulings by Bombay and Rajasthan High Courts have held that notices issued by Jurisdictional Assessing Officers (JAO) instead of FAO under this Scheme are invalid and bad in law.

- Court's Interpretation and Reasoning:

The Court observed that the Scheme under Section 151A is binding on the Revenue and overrides any internal guidelines or office memoranda inconsistent with it.

The Scheme requires automated allocation of cases to Assessing Officers for issuance of notices under Section 148, precluding discretionary issuance by the JAO.

The Revenue's reliance on internal guidelines and office memoranda not issued under Section 119 of the Act was rejected as these cannot override statutory provisions or the Scheme laid before Parliament.

The Court clarified that "random allocation" refers to random assignment of cases to officers, not random selection of cases for reopening, ensuring compliance with Article 14 of the Constitution against arbitrary action.

The Court held that concurrent jurisdiction of JAO and FAO for issuance of notice under Section 148 is impermissible, as it would defeat the faceless assessment regime and cause procedural chaos.

- Key Evidence and Findings:

The impugned notice dated 1st May 2024 was issued by the JAO and not by the FAO as mandated by the Scheme.

The Revenue failed to demonstrate that the notice was issued through automated allocation or faceless manner as prescribed.

- Application of Law to Facts:

The Court applied the Scheme and statutory provisions to find the issuance of notice by JAO contrary to the mandatory procedure under Section 151A.

- Treatment of Competing Arguments:

The Revenue's contentions that the Scheme applies only "to the extent" of Section 144B and that issuance by JAO was justified for natural justice or administrative reasons were rejected as contrary to the Scheme's clear mandate.

The Court also rejected reliance on judgments that did not consider the Scheme or were based on office memoranda inconsistent with the Scheme.

- Conclusion:

The notice dated 1st May 2024 issued by JAO is invalid and bad in law for non-compliance with Section 151A and the Scheme dated 29th March 2022.

Issue 3: Whether the impugned order discloses escapement of income as required under Section 149(1)(b)

- Relevant Legal Framework and Precedents:

Section 149(1)(b) requires that for issuance of notice beyond three years, the Assessing Officer must possess books of account or other documents or evidence revealing escaped income represented in the form of an asset, expenditure in relation to a transaction or event, or entries in the books of account.

- Court's Interpretation and Reasoning:

The Court noted that the Revenue alleged escapement of income on account of inadmissible deductions under Section 80IA related to profits from Solid Waste Management, Water Treatment System, and Power Generation.

However, the Court did not proceed to analyze this issue in detail as the notice was quashed on limitation and jurisdictional grounds.

- Key Evidence and Findings:

The Revenue based its reopening on survey proceedings under Section 133A and alleged new facts.

The petitioner contended that the claim under Section 80IA had been scrutinized and allowed in earlier assessments and appeals.

- Application of Law to Facts:

Since the notice was invalid on limitation and procedural grounds, the Court refrained from adjudicating this issue.

- Treatment of Competing Arguments:

Arguments on merits of escapement of income and admissibility of deduction were not addressed due to prior findings.

- Conclusion:

This issue was not decided in the present judgment.

Issue 4: Whether the reopening is based on change of opinion

- Relevant Legal Framework and Precedents:

Reopening of assessment cannot be based merely on change of opinion; there must be tangible material indicating escapement of income.

- Court's Interpretation and Reasoning:

The petitioner argued that the reopening was based on change of opinion as the claim under Section 80IA had been consistently allowed by assessing and appellate authorities.

The Court did not decide this issue on merits as the notice was quashed on limitation and jurisdictional grounds.

- Conclusion:

Not decided in this judgment.

Issue 5: Whether Assessing Officer can form belief of escapement despite consistent allowance of deduction in earlier years

- Relevant Legal Framework and Precedents:

Consistent allowance of a claim in earlier years and by appellate authorities ordinarily militates against reopening unless new tangible material is found.

- Court's Interpretation and Reasoning:

The petitioner submitted that consistent allowance of deduction under Section 80IA and appellate rulings negate escapement of income.

The Court did not decide this issue on merits due to prior findings on limitation and jurisdiction.

- Conclusion:

Not decided in this judgment.

3. FINAL CONCLUSIONS

- The notice dated 1st May 2024 issued under Section 148 of the Income Tax Act, 1961 is barred by limitation under the first proviso to Section 149 and is invalid.

- The notice dated 1st May 2024 issued by the Jurisdictional Assessing Officer instead of the Faceless Assessing Officer contravenes Section 151A and the Scheme dated 29th March 2022, rendering it invalid and bad in law.

- Consequently, the impugned notice and order dated 1st May 2024 are quashed and set aside.

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