Reopening notice under section 148 issued after Finance Act 2021 by Junior assessing officer held invalid under binding higher-court precedent

ITAT Delhi (AT) held that following a binding decision of the jurisdictional HC, a reopening notice under section 148 issued by the Junior Assessing Officer after Finance Act, 2021 is invalid. The Tribunal quashed the section 148 notice, finding the JAO's assumption of jurisdiction unlawful, which vitiates the reassessment proceedings. The ITAT proceeded in conformity with the HC precedent and directed that reassessment initiated on the basis of the JAO's notice cannot stand.

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ISSUES PRESENTED AND CONSIDERED

1. Whether a notice under section 148 of the Income Tax Act could validly be issued by the Jurisdictional Assessing Officer (JAO) after introduction of the faceless assessment scheme under section 151A and related notifications, or whether such notice must be issued by the Faceless Assessing Officer (FAO) / in faceless manner.

2. Whether issuance of a section 148 notice by the JAO (instead of as mandated by the faceless scheme) vitiates the assumption of jurisdiction by the Assessing Officer and consequently the entire reassessment proceedings.

3. Whether reliance on departmental Office Memoranda / circulars or internal instructions can justify issuance of section 148 notices by JAO contrary to the statutory scheme under section 151A and the e-Assessment Scheme (notification).

ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of issuance of section 148 notice by JAO versus requirement of faceless issuance under section 151A and the e-Assessment Scheme

Legal framework: Section 148 provides for issuance of notice where income has escaped assessment, subject to prior approval of specified authority. Section 151A empowers the Central Government to make a scheme for faceless assessment, reassessment or recomputation under section 147 and for issuance of notice under section 148; the scheme may modify application of other provisions. The e-Assessment of Income Escaping Assessment Scheme, 2022 (notification) explicitly provides that issuance of notice under section 148 shall be through automated allocation and in a faceless manner (clause 3(b)), "to the extent provided in section 144B". Section 144B prescribes faceless assessment procedure and contains specified exceptions.

Precedent treatment: Multiple High Courts have considered the question. Several (including the Jurisdictional High Court) have held that section 151A and the Scheme require notices under section 148 to be issued in a faceless manner and therefore JAO issuance is invalid; other High Courts have taken contrary views relying on departmental memoranda or interpreting the Scheme differently.

Interpretation and reasoning: The Court emphasized the plain statutory language of section 151A read with the Scheme, noting clause 3(b) expressly covers issuance of notice under section 148 in a faceless manner. The phrase "to the extent provided in section 144B" relates to scope and exceptions of faceless procedure (e.g., international tax jurisdiction exceptions) but does not exclude notice issuance from the Scheme's scope. Allowing JAO to issue notices would defeat the object of faceless assessment-elimination of direct interface and team-based, automated allocation-thus contravening the statutory purpose. Departmental Office Memoranda and internal letters cannot override the statutory mandate; circulars cannot supplant or override clear legislative provisions. The Court followed the binding precedent of the Jurisdictional High Court, which aligned with other High Courts holding notices issued by JAOs post-Scheme are bad in law, while distinguishing contrary decisions that relied on departmental memoranda or did not consider the Scheme.

Ratio vs. Obiter: Ratio - A notice under section 148, after enactment of section 151A and issuance of the Scheme, must be issued in faceless manner in accordance with the Scheme; JAOs are divested of authority to issue section 148 notices except to the extent permitted by section 144B and the Scheme. Obiter - discussion of specific High Court decisions elsewhere and commentary on office memoranda are supportive but subsidiary.

Conclusion: The Court holds that issuance of notice under section 148 must comply with section 151A and the e-Assessment Scheme; JAOs cannot issue such notices where the Scheme requires faceless issuance, subject to exceptions expressly preserved by section 144B.

Issue 2: Effect of invalid section 148 notice on assumption of jurisdiction and ensuing reassessment proceedings

Legal framework: Section 148 is the threshold step that commences reassessment; validity of subsequent actions depends on proper initiation. Procedural validity of initiation is a condition precedent to lawful reassessment under sections 147/148 and related provisions.

Precedent treatment: High Court precedents (including the Jurisdictional High Court followed by this Tribunal) have held that where initiation itself is procedurally invalid (e.g., notice issued contrary to mandatory statutory scheme), consequent reassessment orders are vitiated; prejudice need not be separately established.

Interpretation and reasoning: The Court reasoned that when the initiation (issuance of section 148 notice) is contrary to the statutory faceless scheme, the AO's assumption of jurisdiction is invalid. Procedural illegality at the very inception of proceedings nullifies subsequent acts because assessment proceedings are founded on legally valid initiation; an act by authority contrary to statute causes prejudice by depriving the assessee of statutory protections. Reliance on departmental memoranda cannot cure the defect. Consequently, the draft/final orders passed pursuant to the invalid initiation cannot stand.

Ratio vs. Obiter: Ratio - Invalid issuance of the section 148 notice (contrary to statutory scheme) invalidates the AO's assumption of jurisdiction and vitiates the entire reassessment proceedings; no further proof of prejudice is required. Obiter - references to particular consequences in different factual permutations (e.g., where exceptions under section 144B apply) are illustrative.

Conclusion: The section 148 notice issued by the JAO being invalid, the AO's assumption of jurisdiction was invalid and the reassessment proceedings are quashed.

Issue 3: Validity of reliance on departmental Office Memoranda / circulars to sustain JAO issuance

Legal framework: Statutory provisions and notifications issued under a statute prevail over departmental circulars or office memoranda. Circulars may guide administration but cannot override or contravene clear statutory or notified scheme provisions.

Precedent treatment: Courts have held departmental memoranda / office instructions cannot supplant statutory mandates; some courts have nonetheless relied on such memoranda where they interpreted interplay between scheme and practice, but such reliance is treated as subordinate to statutory interpretation.

Interpretation and reasoning: The Court examined departmental Office Memoranda relied upon by Revenue and concluded they cannot displace or override the clear statutory text of section 151A and the Scheme. Where the Scheme plainly covers issuance of section 148 notices in a faceless manner, internal instructions cannot validate issuance by the JAO. The Court distinguished decisions that gave weight to memoranda or interpreted the Scheme narrowly, and reiterated the principle that instructions cannot contravene statute.

Ratio vs. Obiter: Ratio - Office memoranda and departmental instructions cannot justify acts contrary to statutory provisions and cannot validate issuance of section 148 notices by JAO where the Scheme mandates faceless issuance. Obiter - critical treatment of particular memoranda relied on in other decisions.

Conclusion: Reliance on departmental memoranda does not cure procedural invalidity; such memoranda cannot validate a section 148 notice issued by JAO contrary to the Scheme.

Cross-references and consequential rulings

1. The holding on Issue 1 (mandatory faceless issuance under section 151A and the Scheme) is treated as binding for purposes of this appeal following the Jurisdictional High Court precedent; where jurisdictional High Court decisions exist, they are followed by the Tribunal.

2. Following the quashing of the section 148 notice and reassessment proceedings (Issue 2), the Tribunal did not adjudicate on merits of the substantive addition; those grounds were left open for future consideration if proceedings are validly re-initiated in accordance with law.

Final disposition (operative conclusions)

1. The notice under section 148 issued by the JAO, being inconsistent with the faceless procedure mandated by section 151A and the e-Assessment Scheme, is quashed.

2. The Assessing Officer's assumption of jurisdiction pursuant to that notice is invalid and the entire reassessment proceedings are quashed.

3. Departmental Office Memoranda cannot validate or cure the statutory defect; consequential challenges on merits were not adjudicated due to quashing of reassessment and are left open.

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