2025 (9) TMI 794 - HC - Income Tax

Notice under Section 148 issued by Jurisdictional AO invalid; Faceless Assessing Officer required, reopening held defective

Emirates Versus Dy. Commissioner of Income Tax & Ors.

HC held that a notice under Section 148 issued by the Jurisdictional Assessing Officer instead of the mandated Faceless Assessing Officer is invalid. The ... Validity of reopening of assessment - Notice has been issued by the Jurisdictional Assessing Officer when the law mandates that it has to be issued by the Faceless Assessing Officer HELD THAT:- In the facts of the present case, there is no dispute that the Notice u/s 148 has been issued by the Jurisdictional Assessing Officer instead of the Faceless Assessing Officer. This, as per the decision in the case of Hexaware Technologies Ltd [2024 (5) TMI 302 - BOMBAY HIGH COURT] would be fatal to the Notice. We find no force in the argument of the Revenue that the judgment in Hexaware Technologies Ltd (supra) would not apply to the present case because it is the matter regarding international taxation. This issue is also covered by another Division Bench judgment of this Court in the case of Abhin Anilkumar Shah [2024 (9) TMI 219 - BOMBAY HIGH COURT]. In this decision, the Division Bench has clearly opined that even in cases on international taxation, the Notice would have to be issued under the faceless procedure, namely, the Faceless Assessing Officer. We find that the contention of the Revenue that in the present case the Jurisdictional Assessing Officer could have issued Notice under Section 148 is contrary to the law. Assessee appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether a notice under Section 148 of the Income Tax Act, 1961 issued by the Jurisdictional Assessing Officer is valid where the statutory scheme mandates issuance by the Faceless Assessing Officer (faceless procedure) under the notified faceless scheme. 2. Whether the mandatory faceless procedure for issuance of notice under Section 148 applies to assessments/charges relating to international taxation and Central charges. 3. Whether a notice under Section 148 issued in breach of the faceless procedure is a fatal defect warranting quashing of the notice and consequential proceedings. 4. Whether the Court should stay or keep the writ petition pending in light of an appeal pending before the Supreme Court against a Division Bench decision on the same point, and what procedural liberty should be afforded to the Revenue if higher court reverses the controlling precedent. ISSUE-WISE DETAILED ANALYSIS Issue 1: Mandatoriness of faceless procedure for issuance of Section 148 notices Legal framework: The faceless assessment scheme as notified by the Central Government (notification dated 29 March 2022) and the statutory provisions incorporating the faceless mechanism into the Income Tax Act (notably sections read with the notification and provisions such as section 144B read with section 151A) govern the procedure for issuance of notices including under Section 148. Precedent treatment: The Court relied on a recent Division Bench decision holding that issuance of Section 148 notices must comply with the faceless procedure; that decision treated the requirement as mandatory. The present Court follows that precedent. Interpretation and reasoning: The Court found no dispute of fact that the impugned Section 148 notice was issued by the Jurisdictional Assessing Officer rather than the Faceless Assessing Officer. Applying the faceless scheme and the binding Division Bench precedent, the Court concluded that issuance by the jurisdictional officer contravenes the mandatory faceless procedure and is therefore invalid. The Court rejected Revenue's submission that the precedent was inapplicable on the ground that the present matter involves international taxation. Ratio vs. Obiter: The holding that the faceless procedure is mandatory for issuance of Section 148 notices (and that a notice issued otherwise is invalid) constitutes the ratio applicable to the facts and is followed by the Court. Conclusion: Notice under Section 148 issued by the Jurisdictional Assessing Officer is invalid where the faceless scheme applies; the impugned notice was set aside on that ground. Issue 2: Applicability of faceless procedure to international taxation and Central charges Legal framework: The faceless mechanism as notified and the statutory scheme do not contain an express exclusion of international taxation charges or Central charges from the faceless procedure; the relevant notification and statutory scheme govern the scope. Precedent treatment: The Court relied on a Division Bench decision expressly holding that the faceless procedure applies to Central charges and international taxation charges, concluding they are not excluded from the faceless mechanism. Interpretation and reasoning: The Court examined the precedential pronouncement that the faceless mechanism, as notified, covers notices under Section 148 falling within the purview of the scheme, including those relating to international taxation. The Revenue's contrary contention was rejected as inconsistent with the cited Division Bench authority. Ratio vs. Obiter: The ruling that international taxation and Central charges fall within the faceless mechanism is treated as binding ratio by the Court in disposing of the present petition. Conclusion: The faceless procedure applies to notices relating to international taxation; issuance by the Jurisdictional Assessing Officer in such matters is contrary to law. Issue 3: Consequences of non-compliance with the faceless issuance requirement Legal framework: Principles of validity of administrative/assessment notices require conformity with mandatory procedural requirements prescribed by statute or statutory scheme; failure to comply can render the action void. Precedent treatment: The Court followed Division Bench authority holding that non-compliance with the mandatory faceless procedure is fatal to the notice and justifies quashing. Interpretation and reasoning: Given the mandatory nature of the faceless scheme as interpreted by controlling authority, issuance of a Section 148 notice by an unauthorized officer (jurisdictional AO instead of Faceless AO) constitutes a jurisdictional/mandatory defect. The Court held that such defect invalidates the notice and any proceedings/orders emanating from it. Ratio vs. Obiter: The decision to set aside the impugned notice and resultant proceedings is the operative ratio applied to the facts. Conclusion: The defect was fatal; the impugned Section 148 notice and consequential proceedings were set aside. Issue 4: Impact of pending challenge to precedent before the Supreme Court and procedural liberty to revive proceedings Legal framework: Courts may grant relief while permitting revival if controlling precedent is overturned by a higher forum; procedural directions govern revival, stays and timelines. Precedent treatment: The Court noted an SLP challenging the Division Bench decision is pending before the Supreme Court but applied existing binding precedent until and unless overturned. Interpretation and reasoning: The Court declined the Revenue's request to keep the writ pending simply because an appeal to the Supreme Court is listed; instead it disposed the petition in accordance with current binding authority but granted express procedural liberty to revive the petition if the Supreme Court sets aside the controlling Division Bench decision. Practical and procedural safeguards were specified: revival may be sought by filing a praecipe (no separate interim application required), and if revived the Court will grant a two-week interim stay on implementation of the notice from date of revival, subject to further orders. The Court clarified that revival would not be available if the Supreme Court dismisses the challenge to the precedent. Ratio vs. Obiter: The procedural directions as to revival, praecipe, and the two-week interim stay are operative procedural orders within the Court's discretion and were applied to balance finality and the possibility of reversal by the higher court. Conclusion: Petition disposed and notice quashed under existing precedent; liberty granted to revive the petition without formal interim application should higher court overturn controlling precedent, with specified procedural consequences including a limited interim stay upon revival. Miscellaneous procedural conclusions 1. The writ petition was disposed on merits in terms of the Rule made absolute; there was no order as to costs. 2. Upon revival, the petition must be decided on its own merits as other issues challenging the Section 148 notice remain open for consideration.