Reassessment notice under Section 148 held invalid for not being issued by faceless authority; assessee appeal allowed

ITAT Hyderabad held that the reassessment notice issued u/s 148 by the Jurisdictional Assessing Officer after the CBDT notification, instead of by the designated faceless authority, was invalid following the binding view of the Telangana HC. The notice dated 07.04.2022 was quashed and the reassessment set aside, resulting in the assessee's appeal being allowed. Noting that the issue is pending before the SC in the Hexaware Technology matter, ITAT granted liberty to both parties to seek revival or modification of the order depending on the eventual SC decision.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether a notice under section 148 and order under section 148A(d) issued by the jurisdictional Assessing Officer, after the coming into force of CBDT Notification No. 18/2022 dated 29.03.2022, are valid in law when the Scheme mandates faceless reassessment.

1.2 Whether the pendency of Special Leave Petitions before the Supreme Court on the same legal question justifies keeping the appeal pending or declining to follow binding decisions of the jurisdictional High Court.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of notice under section 148 and order under section 148A(d) issued by the jurisdictional Assessing Officer after 29.03.2022

Legal framework (as discussed in the judgment)

2.1 The reassessment proceedings were initiated under sections 147, 148, 148A(b) and 148A(d) of the Income-tax Act, 1961.

2.2 Section 149(1)(b) and its Explanation defining "asset" (including deposits in bank accounts) were quoted and applied to justify reopening on the ground that income represented in the form of assets exceeding fifty lakh rupees had allegedly escaped assessment.

2.3 CBDT Notification No. 18/2022 dated 29.03.2022 ("e-Assessment of Income Escaping Assessment Scheme, 2022"), issued under section 151A(1) and (2), was reproduced. In particular, para 3(b) provides that "issuance of notice under section 148 of the Act shall be through automated allocation ... and in a faceless manner, to the extent provided in section 144B."

Interpretation and reasoning

2.4 The Tribunal found, on facts, that:

(a) The show-cause notice under section 148A(b) was issued by the jurisdictional Assessing Officer (JAO) on 23.03.2022, i.e., prior to the CBDT Notification coming into force.

(b) The order under section 148A(d) and the notice under section 148 were both issued on 07.04.2022 by the same JAO, after the CBDT Notification dated 29.03.2022 had become effective.

2.5 On a conjoint reading of para 3(b) of Notification No. 18/2022 and section 151A, the Tribunal held that, with effect from 29.03.2022, issuance of notice under section 148 must be through automated allocation and in a faceless manner, i.e., by the Faceless Assessing Officer (FAO), and not by the local JAO.

2.6 The Tribunal held that by virtue of this Notification the JAO ceased to have authority, with effect from 29.03.2022, to issue notices under section 148 or to pass orders under section 148A(d) in the conventional (non-faceless) manner.

2.7 The Tribunal relied on a prior decision of a Coordinate Bench in a similar fact situation, where notices under sections 148A(b) and 148 had been issued by the JAO after the commencement of the faceless reassessment scheme, and the Tribunal had followed the law laid down by the jurisdictional High Court holding such proceedings to be without jurisdiction and void.

2.8 The Tribunal noted that the jurisdictional High Court has consistently held that reassessment proceedings initiated through the JAO, instead of in a faceless manner as required under section 151A read with Notification No. 18/2022, are procedurally illegal and the notices under sections 148A and 148, as well as consequential orders, are liable to be quashed for want of jurisdiction.

Conclusions

2.9 Since the order under section 148A(d) and the notice under section 148, both dated 07.04.2022, were issued by the JAO after 29.03.2022 and not through the faceless mechanism mandated by Notification No. 18/2022, the Tribunal held that the JAO lacked the authority to issue such notice and pass such order.

2.10 The notice under section 148 dated 07.04.2022, issued by the JAO, was held to be invalid in law and quashed. As the initiation of reassessment proceedings was found to be without jurisdiction, the consequential assessment order under section 147 read with section 144B was rendered unsustainable and stood vitiated.

2.11 On this ground alone, the appeal was allowed, without examining the merits of the additions or the sufficiency of the assessee's explanation for bank deposits.

Issue 2: Effect of pendency of Supreme Court proceedings on following jurisdictional High Court decisions and disposal of the appeal

Legal framework (as discussed in the judgment)

2.12 The Tribunal recorded the Revenue's submission that the legal issue is pending before the Supreme Court in an SLP against a judgment of the Bombay High Court (Hexaware Technologies Ltd.) and that the matter should be kept open until the outcome of the SLP.

2.13 The Tribunal referred to the jurisdictional High Court's reasoning in a recent judgment on the same issue, where:

(a) It was held that High Court and Tribunal authorities are bound by existing High Court decisions unless stayed or set aside by a superior court.

(b) The High Court, while quashing such reassessment proceedings on jurisdictional grounds, expressly preserved the Revenue's right to act afresh in accordance with law, keeping in view the Supreme Court's decision in an earlier leading case and any future Supreme Court pronouncement on the same issue.

Interpretation and reasoning

2.14 The Tribunal recognised that the jurisdictional High Court, as well as several other High Courts, have already decided the same legal question against the Revenue, holding that issuance of notices under sections 148A and 148 by the JAO, instead of in a faceless manner post-Notification No. 18/2022, is contrary to the statutory scheme and void.

2.15 The Tribunal observed that the jurisdictional High Court has expressly directed that its quashing of such notices and proceedings is subject to the outcome of the pending SLPs before the Supreme Court and has granted liberty to the parties to seek revival of matters depending on the Supreme Court's final decision.

2.16 Following this approach, the Tribunal held that the mere pendency of SLPs does not justify declining to follow binding jurisdictional High Court precedent or keeping the matter indefinitely pending. Instead, relief must be granted in accordance with the existing law declared by the High Court, while safeguarding the effect of any subsequent Supreme Court judgment by reserving liberty to seek revival or modification.

Conclusions

2.17 The Tribunal declined the Revenue's request to keep the issue open till disposal of the SLPs and proceeded to follow the jurisdictional High Court's binding decisions and its own Coordinate Bench ruling.

2.18 While allowing the appeal and quashing the impugned notice and consequential proceedings, the Tribunal granted liberty to both parties to seek revival of the appeal if the Supreme Court's eventual decision on the same issue necessitates any modification of this order.

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