Reopening under s.147 invalid when ss.148A/148 notices not issued via faceless procedure under Section 151A and Notification 18/2022

TELANGANA HC held that reopening of assessment under s.147 was invalid because notices under ss.148A and 148 were not issued through the faceless procedure mandated by the Finance Act, 2021 and Section 151A read with Notification 18/2022. The court followed earlier HC decisions granting relief to the assessee and noted subsequent High Court rulings in other jurisdictions reaching the same conclusion. Consequential relief was granted to the taxpayer, quashing the impugned proceedings.

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ISSUES PRESENTED AND CONSIDERED

1. Whether notices issued under Section 148A and Section 148 of the Income Tax Act, 1961, and consequential assessments under Section 147, are liable to be quashed for not being issued/initiated in a faceless manner contrary to amendments effected by the Finance Acts of 2020 and 2021 and the statutory scheme (including Section 151A) and associated notifications.

2. Whether, in light of multiple coordinate High Court decisions holding similar proceedings to be in violation of the amended Act and notifications, the writ petition that raises the same issue should be disposed of on the basis of those precedents notwithstanding pending Special Leave Petitions before the Supreme Court.

3. Whether the departmental practice of continuing to issue notices under Sections 148A/148 by jurisdictional Assessing Officers, despite binding High Court precedents, violates principles of judicial discipline and causes undue hardship to assessees; and whether relief in individual petitions should be subject to the outcome of pending SLPs.

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of notices under Sections 148A and 148 when not issued in a faceless manner

Legal framework: The amendments effected by the Finance Acts of 2020 and 2021, as read with Section 151A and the relevant Notification (Notification No.18/2022 dated 29.03.2022), require certain proceedings under Sections 148A and 148 to be conducted in a faceless manner. The power to initiate reassessment (Section 147) and to issue notices (Sections 148A/148) is subject to compliance with the statutory procedure.

Precedent treatment: This Court in a prior decision on the same legal question held that initiation of proceedings and issuance of notices under Sections 148A/148 in contravention of the amended statutory/faceless scheme is invalid. Several other High Courts have followed the same view, applying the amended statutory scheme and related notifications to quash such notices and consequential orders.

Interpretation and reasoning: The Court reasoned that when the statute and the notified machinery require faceless issuance and processing, initiation or continuation of jurisdictional, non-faceless proceedings constitutes a procedural infirmity going to jurisdiction. When initiation itself is procedurally flawed, subsequent orders founded on such initiation are nullified. The Court observed that the Department's issuance of non-faceless notices after the amendments undermines the statutory scheme and violates Section 151A/notifications.

Ratio vs. Obiter: Ratio - Notices and proceedings under Sections 148A/148 initiated otherwise than in the faceless manner required by the amendments/notification are procedurally non-tenable and liable to be set aside; consequential assessment orders based on such flawed initiation also fall. Obiter - Observations criticizing administrative conduct and urging remedial pan-India steps are persuasive but ancillary.

Conclusion: The impugned notices under Sections 148A and 148 and consequential orders under Section 147 were quashed for being issued/initiated in contravention of the statutory faceless procedure; the initiation-stage procedural defect nullifies subsequent orders.

Issue 2: Disposition of repetitive writ petitions in view of existing High Court precedents and pending SLPs

Legal framework: Principles of judicial precedent and judicial discipline require subordinate authorities to follow binding High Court decisions unless stayed or set aside by a competent court. The Court may dispose of petitions covered by earlier decisions, subject to appropriate safeguards for parties pending higher court consideration.

Precedent treatment: Multiple High Courts (including this Court) have decided the faceless-procedure issue consistently, leading to a substantial body of coordinate decisions in favour of assessees. The Department has filed Special Leave Petitions in the Supreme Court but no interim stay has been granted by the Supreme Court in those SLPs.

Interpretation and reasoning: The Court emphasized that continued filing and acceptance of identical petitions wastes judicial time and increases pendency when the point is already settled by coordinate benches. The Court noted that absent any interim order from the Supreme Court, the Department's reliance on pending SLPs is not a valid reason to withhold compliance with binding High Court orders. The Court further balanced interests by recalling that prior decisions had preserved the Revenue's right to initiate fresh proceedings in a faceless manner in compliance with the amended law; thus, final disposal need not prejudice the Department's statutory rights should higher courts rule otherwise.

Ratio vs. Obiter: Ratio - Where a writ petition raises an issue squarely covered by binding decisions of the High Court (and a series of co-ordinate High Court decisions), the petition may be disposed of in accordance with that precedent; disposition can be made while making allowance for revival if the Supreme Court alters the law. Obiter - Comments on administrative reluctance and suggestions for CBDT-level action are advisory.

Conclusion: The writ petition was disposed of by quashing the impugned notices/orders in line with existing High Court precedent, subject to revival if the Supreme Court ultimately decides otherwise on the pending SLPs. Parties may seek revival consistent with the Supreme Court's eventual ruling.

Issue 3: Duty of the Revenue to follow High Court precedents and administrative consequences of non-compliance

Legal framework: Principles of judicial discipline require subordinate revenue authorities to follow the decisions of higher appellate authorities and coordinate High Court decisions unless operation is suspended by a competent court. Failure to do so can cause harassment and administrative chaos; the rule is supported by Supreme Court authority emphasizing binding force of High Court orders until set aside.

Precedent treatment: The Court relied on judicial authority stating that departmental officials must give effect to binding appellate/High Court decisions and cannot refuse on grounds of non-acceptance or pending appeals, absent suspension.

Interpretation and reasoning: The Court censured the Department's continued issuance of non-faceless notices despite numerous adverse High Court rulings and no interim stay from the Supreme Court. It observed that such conduct leads to docket explosion, harassment of assessees, and inefficient use of judicial resources. The Court noted the Department's contention that policy action must be taken at the CBDT level but held that such an explanation does not justify continued contravention of binding orders; moreover, the Court recognized the Department's liberty reserved by earlier decisions to initiate fresh proceedings in compliance with amended law but found no justification for the present conduct.

Ratio vs. Obiter: Ratio - Revenue officers must follow binding High Court decisions and cannot continue practices inconsistent with those decisions absent a suspension by a higher court; continued contravention warrants quashing of notices and orders. Obiter - Strongly worded administrative criticisms and recommendations for remedial pan-India measures are persuasive comments rather than operative holdings.

Conclusion: The Department's continued issuance of non-faceless notices despite binding High Court precedent is impermissible; the Court set aside such notices/orders and emphasized the obligation of revenue authorities to follow binding judicial pronouncements, while preserving the Department's statutory rights to initiate fresh proceedings in proper faceless form if permitted by higher courts or in accordance with law.

Overall Disposition

The Court allowed the writ petition on the jurisdictional point, quashed the impugned notices under Sections 148A and 148 and consequential assessment orders under Section 147 for failure to comply with the faceless procedure mandated by the amended statutory scheme; disposal is subject to the outcome of pending SLPs before the Supreme Court, with liberty to revive the petition if the higher court's decision warrants.

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