2025 (11) TMI 418 - HC - Income Tax

Assessing officer lacked jurisdiction to start reassessment after Faceless Scheme; proceedings under Sections 148A and 148 quashed

The HC held that the assessing officer (JAO) lacked jurisdiction to initiate reassessment proceedings after implementation of the Faceless Scheme, ... Validity of reopening of assessment - Lack of jurisdiction on the part of JAO to initiate the proceedings post implementation of the Faceless Scheme - HELD THAT:- The legal issue as regards the lack of jurisdiction on the part of JAO to initiate the proceedings post implementation of the Faceless Scheme is no longer res integra as it has been held in the case of Kankanala Ravindra Reddy [2023 (9) TMI 951 - TELANGANA HIGH COURT] and by other jurisdictional High Courts. As a matter of fact, several orders following the ratio rendered in the above cases have been passed one after the other. Therefore, we are of the considered view that the present batch of writ petitions also stand covered by the decision rendered by this Court in the case of Kankanala Ravindra Reddy [Supra] The impugned proceedings u/s 148A and 148 of the Act assailed in these writ petitions are set aside. ISSUES PRESENTED AND CONSIDERED 1. Whether a Jurisdictional Assessing Officer (JAO) has jurisdiction to initiate proceedings under Section 148A and issue notice under Section 148 of the Income Tax Act after implementation of the Faceless Assessment Scheme with effect from 29.03.2022. 2. Whether notices and consequential assessment orders made pursuant to proceedings initiated by a JAO (post-29.03.2022) are vitiated for lack of jurisdiction and require quashing. 3. Whether the revenue retains any remedial or procedural remedy after quashing of notices/orders on jurisdictional grounds, and whether revival of proceedings is permissible pending outcome of challenges in higher fora. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Jurisdiction of JAO to initiate proceedings post-implementation of Faceless Scheme Legal framework: The Faceless Assessment Scheme as notified with effect from 29.03.2022 operates together with provisions of the Income Tax Act (notably Sections 148A and 148, and related provisions such as Section 151/151A and Section 144B) governing the initiation of reassessment proceedings for income escaping assessment. The Scheme centralizes assessment functions to Faceless Assessing Officers (FAO) and prescribes procedure for issuance of notices and initiation of reassessment. Precedent Treatment: A coordinate Bench decision of this Court and a number of other High Courts have held that post-implementation of the Faceless Scheme the power to initiate reassessment proceedings vests in the FAO (or the mechanism provided under the Scheme) and not in the JAO; several High Court decisions were followed to this effect. Contrasting decisions of certain High Courts have taken a different view; those contrary views are noted but not adopted here. Interpretation and reasoning: The Court reviewed the chronology showing initiation of proceedings by JAOs after 29.03.2022 and found the initiation inconsistent with the Scheme's allocation of functions. The core reasoning is that where the statutory scheme and executive notifications vest initiation and conduct of faceless reassessment in the FAO/centralized mechanism, the JAO lacks jurisdiction to issue notices under Section 148A/148 in matters governed by the Scheme. The Court relied on settled coordinate-bench jurisprudence and consistent High Court rulings which interpret the Faceless Scheme and relevant statutory provisions as ousting JAO's power to commence reassessment post-notification. Ratio vs. Obiter: The holding that JAOs lack jurisdiction to initiate proceedings under Section 148A/148 after the Faceless Scheme took effect is ratio decidendi. Observations about the body of conflicting High Court decisions are explanatory; reliance on the coordinate-bench line of authorities is operative ratio in these matters. Conclusions: Initiation of reassessment proceedings by JAOs post-29.03.2022 is procedurally impermissible; such initiation is without jurisdiction and therefore legally invalid. Issue 2 - Validity of notices and consequential assessment orders issued pursuant to such JAO-initiated proceedings Legal framework: Where the initiation of proceedings is jurisdictionally flawed, principles of procedure and statutory competence govern whether subsequent orders survive or fall. Precedent Treatment: The Court followed the coordinate-bench approach and decisions of other High Courts which have held that when the initiation itself is procedurally invalid, consequential notices and orders flowing therefrom must be quashed. Interpretation and reasoning: The Court applied the principle that a chain of authority dependent on an invalid starting act collapses - if the notice/assessment initiation is void for want of jurisdiction, consequential orders (including assessments) made pursuant thereto cannot stand. The Court therefore set aside both the impugned notices under Section 148A/148 and any consequential orders passed in reliance upon them. Ratio vs. Obiter: The quashing of notices and consequential orders on the ground of want of jurisdiction is ratio decidendi for these petitions. Conclusions: Notices issued and assessment orders passed pursuant to JAO-initiated proceedings after the Faceless Scheme came into force are quashed; consequential orders are similarly set aside. Issue 3 - Preservation of revenue's remedial rights and possibility of revival of proceedings Legal framework: Principles permitting revival or recommencement of proceedings where a higher forum or statutory power authorizes a substitute procedure (including the exercise of powers by apex courts or by statutory provisions enabling substituted procedure) and subject to outcomes of pending appellate/leave proceedings. Precedent Treatment: The Court followed prior orders which protected the substantive rights of the revenue by permitting revival/re-initiation of proceedings in accordance with law, where such remedy is available, subject to pending higher court adjudication. The Court noted earlier higher-court authority where the revenue was permitted, in specified circumstances, to proceed under substituted provisions as a one-time remedial measure. Interpretation and reasoning: While quashing the impugned proceedings for procedural infirmity, the Court balanced the interests of both parties by granting the revenue liberty to proceed afresh in accordance with law and subject to the outcome of pending challenges before the Supreme Court. The Court explicitly allowed either party to seek revival of the writ petitions in light of any adverse or favorable higher-court decision, thereby preserving the revenue's substantive remedy without endorsing the procedural act already struck down. Ratio vs. Obiter: The core direction quashing notices is ratio; the grant of liberty to the revenue to revive or re-initiate proceedings in accordance with law and subject to higher-court outcomes is an operative direction (binding in these matters) but contains procedural latitude that is ancillary to the principal ratio and may be treated as prospective guidance rather than expansion of jurisdictional doctrine. Conclusions: Revenue is permitted liberty to pursue reassessment by appropriate lawful route consistent with the Faceless Scheme and statutory provisions; revival of these writ petitions to contend effects of subsequent higher-court outcomes is allowed. Ancillary Observations and Cross-References 1. The present conclusions are premised on the factual finding that initiation of reassessment proceedings by JAOs occurred after the Faceless Scheme became operative (post-29.03.2022); see Issue 1 above. 2. The Court's decision follows and applies the reasoning of the coordinate-bench precedent which held the initiation by JAO to be invalid; this Court expressly follows that line of authority and similar High Court precedents (see Issue 1 - Precedent Treatment). Conflicting High Court decisions exist and are noted, but those contrary views were not followed in these matters. 3. Because the quashing is founded on jurisdictional/ procedural infirmity, the Court declined to adjudicate other substantive objections raised in the petitions, leaving them open to be raised in appropriate proceedings if lawfully revived (cross-reference to Issue 3). 4. No order as to costs was made; miscellaneous ancillary applications were closed.