2025 (9) TMI 1317 - HC - Income Tax

Final assessment, demand notice under s.156 set aside; DRP objections revived for fresh adjudication; AO's final order upheld for non-notification

Vibhavari Bharat Bhatt Versus The Income Tax Officer (Intl.) Tax Ward - 1 (2) (1), Mumbai and Ors.

HC set aside the final assessment order, the demand notice under s.156, the issue letter and the DRP order, and directed revival of the objections filed ... Validity of reopening of assessment - notice issued u/s 148A(b), the order passed u/s 148A(d), and the notice issued u/s 148 - notice issued by the Jurisdictional Assessing Officer instead of Faceless Assessing Officer - HELD THAT:- It is not in dispute that the Petitioner, in the earlier Writ Petition filed by him, namely Writ Petition [2025 (4) TMI 1699 - BOMBAY HIGH COURT] had in fact challenged the notice issued u/s 148A(b), the order passed u/s 148A(d) and notice issued u/s 148, on the ground that they have been issued by the Jurisdictional Assessing Officer instead of Faceless Assessing Officer and was covered by the judgment in the case of Hexaware Technologies Ltd. [2024 (5) TMI 302 - BOMBAY HIGH COURT] Despite this, this Court was of the opinion that in the facts of the present case, the Petitioner be relegated to raise all those issues before the DRP. Acting upon this order, the Petitioner in fact did approach the DRP and filed its objections. Since the Petitioner did not inform the Assessing Officer that their objections to the draft assessment order were filed before the DRP, the Assessing Officer, in terms of the relevant provisions of Section 144C, passed a final assessment order. Once these are the facts, we are in agreement with the learned Advocate appearing for the Revenue that this Petition cannot once again challenge the notice issued under Section 148A(b), the order passed under Section 148A(d), and the notice issued under Section 148. All this would have to be agitated before the DRP. Since the DRP has passed its order rejecting objections of the Petitioner on the ground that the final assessment order is passed by the Assessing Officer, we are of the view that the limited relief that can be granted in the present Petition is to set aside the final assessment order and revive the objections filed by the Petitioner before the DRP. We must state that we do not find any fault on the part of the Assessing Officer in passing the final assessment order, as he was obliged to do so if the Petitioner did not intimate him about the objections filed before the DRP. As in light of the decisions of this Court in Sulzer Pumps India Private Limited [2024 (5) TMI 302 - BOMBAY HIGH COURT], Zarah Rafique Malik [2025 (3) TMI 234 - BOMBAY HIGH COURT] and Saleri India Pvt. Ltd. [2025 (7) TMI 1597 - BOMBAY HIGH COURT] we are of the view that the interest of justice would be served if the final assessment order is set aside and the matter is revived before the DRP to decide the objections of the Petitioner on merits. We accordingly set aside the final assessment order as well as the demand notice issued under Section 156 read with the issue letter and the order passed by the DRP. ISSUES PRESENTED AND CONSIDERED 1. Whether notices and orders under Sections 147/148/148A of the Income Tax Act are vitiated for lack of jurisdiction where they are issued by the Jurisdictional Assessing Officer instead of the Faceless Assessing Officer. 2. Whether issues concerning jurisdictional competence of the issuing authority (Faceless Assessing Officer v. Jurisdictional Assessing Officer) can be re-agitated in a fresh writ petition after the petitioner had earlier been directed to pursue objections before the Dispute Resolution Panel (DRP) and had, in fact, filed objections with the DRP. 3. Whether a final assessment order passed by the Assessing Officer under Section 144C(3)/(4) (after the taxpayer failed to intimate the Assessing Officer that objections were filed before the DRP) can be set aside and the taxpayer's DRP objections revived for fresh consideration. 4. The remedial scope of the High Court when earlier interlocutory relief directed the taxpayer to approach the DRP and the DRP later declined to decide objections on the ground that the final assessment order had been passed. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Jurisdictional competence: Faceless Assessing Officer v. Jurisdictional Assessing Officer Legal framework: Sections 147, 148 and 148A prescribe initiation and notice procedures for reopening assessments; the faceless assessment scheme assigns certain functions to a Faceless Assessing Officer. Section 144C procedure governs draft assessment, DRP objections and final assessment. Precedent Treatment: The Court acknowledged a prior Division Bench decision of this Court holding that notices/orders under Sections 147/148 must be issued by the Faceless Assessing Officer where the scheme requires; that precedent was relied upon by the petitioner as supporting the jurisdictional objection. Interpretation and reasoning: The Court accepted that, on its face, the jurisdictional objection (that notices/orders were issued by the Jurisdictional Assessing Officer instead of the Faceless Assessing Officer) is an arguable point covered by earlier authority. However, where statutory DRP remedies arise under Section 144C, the procedural route mandated by statute (i.e., raising objections before the DRP and following statutory steps) governs how and when such jurisdictional objections should be tested. Ratio vs. Obiter: The principle that notices issued by an inappropriate assessing authority are liable to be vitiated is treated as a substantive point of law (ratio) insofar as it has been recognized in prior authority; but the Court treated its applicability in the present factual/posture context as subject to procedural sequencing under Section 144C (reasoning specific to facts is ratio for this case). Conclusion: The jurisdictional objection is legally available but, given the statutory scheme and the earlier direction to pursue DRP objections, it had to be advanced and adjudicated in the DRP process; it cannot be re-opened in a fresh writ petition to bypass the DRP sequencing unless relief of the kind ultimately granted (setting aside the final order and reviving DRP objections) is appropriate in the interests of justice. Issue 2 - Res judicata/Appropriate forum: Effect of earlier order directing approach to DRP Legal framework: Section 144C mandates that objections to a draft assessment order be taken to the DRP; the interplay between judicial review and statutory dispute resolution requires the court to respect statutory remedial processes unless exceptional circumstances justify judicial intervention. Precedent Treatment: The Court relied on earlier decisions of this Court which emphasize relegation to DRP and adjudication of objections within the statutory framework; these precedents were followed in treating the DRP as the appropriate forum for certain objections. Interpretation and reasoning: The petitioner had earlier challenged preliminary notices/orders in a prior writ, and this Court had directed the petitioner to raise objections before the DRP. The petitioner did so, but failed to intimate the Assessing Officer as contemplated by Section 144C(2)(b)(ii). Because the statutory precondition for the Assessing Officer to withhold final assessment was not satisfied, the Assessing Officer lawfully passed the final assessment order under Section 144C(3)/(4). The Court reasoned that the earlier direction to approach the DRP and the statutory scheme meant that the DRP was the correct forum to decide the jurisdictional objection in the first instance. Ratio vs. Obiter: The Court treats as ratio that where a court directs a taxpayer to pursue DRP remedies and the taxpayer follows that direction, the DRP remains the appropriate initial forum for adjudication of objections (including jurisdictional objections), subject to later judicial review; this principle governs the disposition. Conclusion: The petitioner could not simply relitigate the same preliminary notices in a fresh writ while having been previously directed to approach the DRP; the correct course was DRP adjudication, and procedural non-compliance before the Assessing Officer led to a valid final order, absent further equitable intervention. Issue 3 - Power to set aside the final assessment order and revive DRP objections Legal framework: Section 144C(2) requires intimation to the Assessing Officer of DRP objections; Section 144C(3)/(4) permits the Assessing Officer to pass a final assessment if the statutory preconditions are unmet; Section 144C(5) deals with DRP disposal. Judicial review can set aside orders where justice and legal precedent justify doing so. Precedent Treatment: The Court relied on earlier decisions of this Court (three identified) which supported setting aside final assessments in comparable circumstances and reviving DRP proceedings to allow objections to be decided on merits; those authorities were followed. Interpretation and reasoning: Although the Assessing Officer complied with statutory obligation when passing the final assessment (since the taxpayer did not intimate the filing of DRP objections to the Assessing Officer), the Court assessed the broader interests of justice and relevant precedents, concluding that setting aside the final assessment and reviving the DRP objections would allow adjudication of substantive contentions (including jurisdictional competence) on merits. The Court distinguished routine enforcement of procedural default from cases where judicial intervention would permit resolution of significant legal questions before the DRP. Ratio vs. Obiter: The decision to set aside the final assessment and revive DRP objections is the operative ratio of the judgment in these facts - an exercise of remedial discretion to ensure adjudication on merits where prior judicial direction and statutory scheme intersected and where precedent favors such revival. Conclusion: The Court set aside the final assessment order and the associated demand notice, and revived the objections filed before the DRP; the DRP is directed to decide those objections in accordance with law and to take into account all contentions, including the jurisdictional objection regarding issuance by the Jurisdictional Assessing Officer. Issue 4 - Scope and limits of DRP reconsideration and Court's supervisory role Legal framework: Section 144C establishes DRP's role in considering objections to draft assessments; the Court retains supervisory jurisdiction to ensure statutory processes are observed and to grant equitable relief where warranted. Precedent Treatment: The Court followed prior authorities that permitted judicial intervention to revive DRP proceedings and required the DRP to adjudicate objections on merits, including issues of jurisdictional competence. Interpretation and reasoning: The Court clarified that, while deciding revived objections the DRP must examine all contentions raised by the taxpayer, including those previously raised in court and in the writ petition. The DRP's reconsideration is to be in accordance with law, without fettering, and with attention to the precedents invoked by the taxpayer. Ratio vs. Obiter: The direction that the DRP must consider all contentions (including jurisdictional objections) is part of the operative relief (ratio) in this case; the broader observation that courts should respect statutory dispute-resolution mechanisms unless equity requires intervention is consistent with established principles (authoritative guidance). Conclusion: DRP shall decide the revived objections on merits in accordance with law and shall take into account all contentions and precedents urged by the taxpayer; the Court retained supervisory power but limited relief to setting aside the final order and restoring DRP consideration, with no order as to costs.