Reopening under s.148 invalid where notice issued by JAO not FAO; consequent s.263 revision held void

ITAT CHENNAI - AT held the reassessment for AY 2018-19 void because the notice under s.148 was issued by the JAO instead of the FAO, rendering the reopening and the order dated 09.03.2023 a nullity. Consequently the PCIT's revision u/s.263 treating that order as erroneous and prejudicial was also invalid. The tribunal set aside the revision action and allowed the assessee's appeal.

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1. ISSUES PRESENTED AND CONSIDERED

1. Whether an assessee, in an appeal against an order passed under section 263 of the Income Tax Act (revisional/collateral proceedings), may challenge the validity of the primary reassessment proceedings initiated under section 147/148 (i.e., whether jurisdictional defects in the reopening can be examined in such collateral proceedings).

2. Whether issuance of a notice under section 148 by the Jurisdictional Assessing Officer (JAO) on or after the date of a statutory Scheme/notification requiring faceless issuance (i.e., issuance by the Faceless Assessing Officer (FAO) or NFAC in accordance with section 151A/151 and the Scheme) is valid, and if not, whether the consequent reassessment order is a nullity.

3. Whether the Principal Commissioner/Commissioner (invoking section 263) can validly revise/interdict an assessment order that is void for want of jurisdiction (i.e., can a revisional authority revise a non-est order) and what are the consequences if the primary assessment is held to be void.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Admissibility of challenging validity of section 147/148 proceedings in an appeal against a section 263 order

Legal framework: Section 263 authorises the Commissioner to call for and examine records of any proceeding and if satisfied that any order passed by an Assessing Officer is erroneous in so far as it is prejudicial to the interests of the Revenue, to revise it. Jurisdictional defects in primary proceedings (assumption of jurisdiction) go to the root of the authority to act.

Precedent treatment: The Court relied on settled principles that a decree or order passed without jurisdiction is a nullity and its invalidity may be set up whenever it is sought to be enforced or relied upon, including in collateral proceedings. The Tribunal's prior decisions treating primary proceeding as open to challenge in collateral forum were followed.

Interpretation and reasoning: The Court analysed the distinction between primary proceedings (reopening and reassessment under section 147/148) and collateral/revisional proceedings under section 263. It held that where primary proceedings are alleged to be void for lack of jurisdiction, that defect can be examined in collateral proceedings because jurisdictional defects strike at the very authority of the officer to pass the order and cannot be cured by subsequent action.

Ratio vs. Obiter: Ratio - A jurisdictional challenge to the validity of reassessment proceedings under section 147/148 can be raised and adjudicated in appeal against a section 263 order which seeks to revise that reassessment; obiter - ancillary references to procedural strategy (e.g., alternative remedy before first appellate authority) are explanatory.

Conclusion: The assessee is entitled to challenge the validity of the reopening and reassessment proceedings in an appeal against a section 263 order; the Tribunal will examine whether the AO/JAO had requisite jurisdiction to initiate proceedings under section 147/148.

Issue 2: Validity of notice under section 148 issued by JAO after the effective date of the faceless Scheme/notification and legal consequence

Legal framework: Section 148 empowers the AO to issue notice for reopening; section 151/151A and the statutory Scheme/notification prescribe the manner of issuance and allocation (faceless automated allocation/NFAC/FAO) for notices and reassessments to the extent provided. Administrative Scheme issued under statutory power binds the process to prescribed allocation/competence.

Precedent treatment: The Tribunal relied on binding High Court decisions holding that after the Scheme/notification came into force, issuance of a section 148 notice by the JAO (rather than by the FAO/NFAC as required) rendered the notice invalid. The Tribunal also referred to decisions holding that defects in service/competence can be raised even for the first time in collateral proceedings.

Interpretation and reasoning: Applying the Scheme and the statutory mandate, the Tribunal found that the JAO issued the section 148 notice after the Scheme date and the faceless allocation requirements were not followed. The notice therefore contravened the statutory/Scheme prescription and vitiated the reopening. The Tribunal treated the absence of compliance with the Scheme as a jurisdictional defect - the AO had not validly assumed jurisdiction to reopen.

Ratio vs. Obiter: Ratio - Issuance of notice under section 148 by a JAO in contravention of a statutory faceless Scheme/notification (mandating FAO/NFAC issuance/allocation) is invalid and renders subsequent reassessment proceedings void; obiter - discussion of concurrent jurisdiction contentions and prejudice arguments were ancillary and not determinative.

Conclusion: The notice issued by the JAO on the date in question was invalid for non-compliance with the Scheme/notification and statutory provisions; the reassessment/order passed pursuant to that notice is void (non-est in law).

Issue 3: Power of revisional authority under section 263 to revise an assessment that is void for lack of jurisdiction and consequential effect

Legal framework: Section 263 empowers revision of orders which are erroneous and prejudicial to Revenue. However, where the underlying order is a nullity for lack of jurisdiction, the revisional power cannot be validly exercised to revise a non-existent/void order; principles governing limitation and finality of orders also apply.

Precedent treatment: The Tribunal applied the legal maxim that removal of foundation causes collapse of superstructure and relied on Supreme Court authority holding that once the basis of proceedings is gone, consequential orders fall. It followed earlier tribunal and High Court rulings which held that a Commissioner cannot revise a non-est order and that validity of reassessment may be examined in collateral proceedings.

Interpretation and reasoning: Having held the primary reassessment void for jurisdictional non-compliance, the Tribunal reasoned that the revisional order which purported to interdict and revise that reassessment also lacked a valid substrate and thus was itself a nullity. The revisional power cannot be exercised to resurrect or re-characterise an order that never validly existed; to do so would improperly extend limitation and undermine the rule of law.

Ratio vs. Obiter: Ratio - If the primary assessment/reassessment order is void for lack of jurisdiction, any revisional order under section 263 directed at that void order is itself null and must be quashed; obiter - observations on policy and competing High Court views were explanatory.

Conclusion: The revisional order under section 263 impugning an assessment found to be void was also void; consequentially the impugned revisional order was quashed and the appeal allowed.

Cross-reference

The conclusions on Issues 1-3 are interdependent: the admissibility to challenge jurisdiction in collateral proceedings (Issue 1) permitted examination of the faceless Scheme compliance (Issue 2); finding of invalidity of the primary order (Issue 2) determined the fate of the revisional order (Issue 3) by operation of the principle that a void foundation invalidates consequential orders.

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