2025 (12) TMI 799 - AT - Income Tax

Reassessment quashed as Section 148 notice bypassed NFAC automated allocation under 2022 e-Assessment Scheme, jurisdictional defect fatal

ITAT held that the reassessment proceedings initiated against the assessee were invalid as the notice under s.148 was issued by the jurisdictional ... JAO jurisdiction to issue notice u/s 148 - notice to be issued by JAO or FAO - E-assessment of income assessment scheme, 2022 - HELD THAT:- We find that the CBDT issued a Notification dated 29.03.2022 formulating “the e-assessment of income assessment Scheme, 2022”. The Scheme provides that (a) the assessment/re-assessment are re-computation u/s.147 of the Act and (b) issuance of notice u/s.148 of the Act shall be through automated allocation, in accordance with risk management strategy formulated by the Board as referred u/s.148 of the Act for issuance of notice and in a faceless manner to the extent providing in Section 144B of the Act with reference to making assessment/re-assessment of total income or loss of the assessee. We find that the impugned notice u/s.148 dated 28.03.2024 has been issued by the Income Tax Officer, Ward 1, Tiruvarur i.e; (JAO) and not by the NFAC which is not in accordance with the aforesaid Scheme. We also find that the impugned notice u/s 148 has been issued after CBDT Notification dated 29.03.2022. Hence, the aforesaid CBDT Notification dated 29.03.2022 is directly applicable in this case. Hon’ble Telangana High Court in Kankanala Ravindra Reddy [2023 (9) TMI 951 - TELANGANA HIGH COURT] and Hon’ble Bombay High Court in Hexaware Technologies Ltd [2024 (5) TMI 302 - BOMBAY HIGH COURT] has decided the controversy in favour of the assessee. Appeal filed by the assessee is allowed 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether, after issuance of the CBDT Notification dated 29.03.2022 introducing the 'e-assessment of income assessment Scheme, 2022', a notice under section 148 of the Income-tax Act, 1961 can validly be issued by the Jurisdictional Assessing Officer (JAO), or whether it is mandatory that such notice be issued only by the Faceless Assessing Officer (FAO). 1.2 Whether the notice under section 148 dated 28.03.2024, issued by the JAO and not by the FAO/NFAC, is invalid for non-compliance with the said CBDT Scheme and the law laid down by the jurisdictional High Court. 1.3 What is the effect, if any, of dismissal of Special Leave Petitions by the Supreme Court, including in related matters, on (a) the applicability of the doctrine of merger and (b) the binding nature of High Court decisions under Article 141 of the Constitution, in relation to the jurisdictional issue under section 148. 1.4 Whether the Tribunal is bound to follow the jurisdictional High Court's decision holding that notices under section 148 issued by the JAO, instead of the FAO, are invalid, and whether similar liberty for revival should be preserved if the Supreme Court reverses that view. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Validity of section 148 notice issued by JAO after CBDT 'e-assessment of income assessment Scheme, 2022' (a) Legal framework (as discussed) 2.1 The Tribunal noted CBDT Notification dated 29.03.2022 formulating the 'e-assessment of income assessment Scheme, 2022'. As recorded in the order, the Scheme provides inter alia that: (i) assessment/re-assessment or re-computation under section 147, and (ii) issuance of notice under section 148 shall be through automated allocation, in accordance with the risk management strategy formulated by the Board, and in a faceless manner to the extent provided in section 144B of the Act. 2.2 The Tribunal also referred to multiple High Court decisions (Telangana, Bombay, and Delhi) which have examined the post-29.03.2022 regime and the requirement that notices under section 148 be issued by FAO/NFAC in a faceless manner, including decisions setting aside notices issued by JAO in violation of the Scheme. 2.3 The jurisdictional High Court's Division Bench decision was specifically relied upon, wherein, following the Bombay High Court judgment in 'Hexaware Technologies Ltd', it was held that it is mandatory for the FAO to issue the concerned notices and that issuance by the JAO would render the notice invalid. (b) Interpretation and reasoning 2.4 The Tribunal recorded that the impugned notice under section 148 dated 28.03.2024 was issued by the Income Tax Officer, Ward 1, Tiruvarur (JAO) and not by NFAC/FAO. 2.5 Since the notice was issued after the CBDT Notification dated 29.03.2022, the Tribunal held that the Scheme of 29.03.2022 squarely applied, requiring automated allocation and faceless issuance of notices under section 148. 2.6 Relying on the decisions of the Telangana High Court (including Kankanala Ravindra Reddy, Ta Infra Projects, Sri Venkatramana Reddy Patloola, and Deepanjan Roy) and the Bombay High Court (Hexaware Technologies Ltd), the Tribunal noted that the consistent judicial view in those cases was that non-compliance with the mandatory faceless procedure and issuance of notices by JAO instead of FAO under the Scheme vitiates the notices and consequential assessments. 2.7 The Tribunal particularly noted the finding of the Telangana High Court that failure to issue section 148 notices in a faceless manner in accordance with the Scheme renders 'the entire further proceeding founded upon it and assessment orders' vitiated and liable to be set aside. 2.8 The Tribunal then turned to the jurisdictional High Court's Division Bench order, which (a) recognised divergent single-judge views, (b) followed the Bombay High Court's decision in Hexaware Technologies Ltd, and (c) expressly held that it is mandatory for the FAO to issue the notices and that issuance by JAO makes the notices invalid, quashing such notices while reserving liberty to Revenue to seek revival if the Supreme Court reverses Hexaware. 2.9 The Tribunal also noted the Departmental Representative's argument that the CBDT Notification dated 29.03.2022 is not applicable; however, in light of the wording of the Scheme, the timing of the notice (post-Notification), and the jurisdictional High Court's adoption of the Hexaware ratio, the Tribunal rejected this contention and treated the Scheme as directly applicable. (c) Conclusions 2.10 The Tribunal held that, post-CBDT Notification dated 29.03.2022, issuance of notices under section 148 is required to be done through automated allocation and in a faceless manner by FAO/NFAC as per the Scheme and section 144B, and that a JAO-initiated notice is contrary to this mandatory framework. 2.11 Following the binding jurisdictional High Court decision, which in turn followed Hexaware, the Tribunal concluded that the impugned section 148 notice dated 28.03.2024 issued by the JAO is invalid and not sustainable in law. 2.12 Consequently, the Tribunal set aside the notice under section 148 dated 28.03.2024 and all consequential orders/proceedings, thereby allowing the assessee's jurisdictional ground. Issue 3: Effect of Supreme Court's dismissal of SLPs - doctrine of merger and Article 141 (a) Legal framework (as discussed) 3.1 The Tribunal discussed the doctrine of merger and the effect of dismissal of Special Leave Petitions, with reference to the Supreme Court decisions in Kunhayammed v. State of Kerala and S. Shanmugavel Nadar v. State of Tamil Nadu, and reiterated the settled principles, namely: - Merger occurs when a superior forum, in appellate or revisional jurisdiction, modifies, reverses or affirms the order under challenge; in such a case, the subordinate forum's decision merges into the superior forum's order. - Jurisdiction under Article 136 has two stages; the doctrine of merger applies only after leave is granted and appellate jurisdiction is exercised, not at the stage of dismissal of an SLP. - An order refusing special leave (speaking or non-speaking) does not attract the doctrine of merger and does not substitute the High Court's order. - A speaking order refusing special leave may constitute a 'declaration of law' under Article 141, but still does not result in merger of the High Court's order into the Supreme Court's order. 3.2 The Tribunal further noted Supreme Court reiteration of these principles in Khoday Distilleries Ltd. and other cases, and the distinction between dismissal of SLP at the threshold and decisions rendered after grant of leave. (b) Interpretation and reasoning 3.3 The Tribunal examined the Supreme Court order dated 16.07.2025 dismissing the Revenue's SLP (Civil) against the Telangana High Court's decision in Deepanjan Roy, and observed that the SLP was dismissed at the admission stage, with the Supreme Court stating that it found no good reason to interfere with the impugned order. 3.4 Applying Kunhayammed and related authorities, the Tribunal reasoned that such dismissal of SLP at the threshold does not result in merger of the High Court's judgment into the Supreme Court's order and does not, by itself, constitute a binding declaration of law under Article 141 beyond what is explicitly stated as law in the Supreme Court's own order. 3.5 On that basis, the Tribunal held that simplicitor dismissal of the Revenue's SLP in Deepanjan Roy does not create an independent binding precedent under Article 141 and does not alter the legal position beyond affirming that the Supreme Court did not see any reason to interfere in that particular matter. 3.6 The Tribunal also noted that the Revenue's SLP against the Bombay High Court judgment in Hexaware Technologies Ltd is still pending, and hence no merger or final Supreme Court pronouncement exists thereon as yet. (c) Conclusions 3.7 The Tribunal concluded that the doctrine of merger is not attracted to the mere dismissal of SLPs at the threshold and that such dismissal does not, by itself, operate as a binding declaration of law under Article 141 except to the limited extent of any law expressly stated in a speaking order. 3.8 Accordingly, while the Tribunal noted the Supreme Court's refusal to interfere in Deepanjan Roy, it grounded its decision primarily on the binding jurisdictional High Court judgment and the statutory Scheme, not on any supposed merger or Article 141 effect of the SLP dismissal. Issue 4: Binding effect of jurisdictional High Court decision and liberty to revive in event of Supreme Court reversal (a) Interpretation and reasoning 4.1 The Tribunal recognised that the jurisdictional High Court, faced with conflicting single-judge views on whether JAO or FAO can issue section 148 notices post-Scheme, constituted a Division Bench, which then followed the Bombay High Court's decision in Hexaware Technologies Ltd and held that it is mandatory for FAO to issue the notices and that JAO-issued notices are invalid. 4.2 The Tribunal noted that the jurisdictional High Court, while quashing such JAO-issued notices, expressly kept open all rights and contentions of parties and granted liberty to apply for revival of the petitions if the Supreme Court were to reverse Hexaware Technologies Ltd, thereby recognising the possibility of a change in law pursuant to a future Supreme Court decision. 4.3 Being subordinate to the jurisdictional High Court, the Tribunal held itself bound to apply the law as laid down therein, namely that only FAO has jurisdiction to issue section 148 notices under the post-29.03.2022 faceless scheme, and that JAO-issued notices are invalid. (b) Conclusions 4.4 Respectfully following the jurisdictional High Court's decision, the Tribunal set aside the impugned notice under section 148 dated 28.03.2024 and the consequential assessment orders, allowing the assessee's jurisdictional ground. 4.5 In line with paragraph 8 of the jurisdictional High Court's judgment, the Tribunal expressly kept open the rights and contentions of both parties and reserved liberty to either party to approach the Tribunal for revival of the present appeal in case the Revenue succeeds before the Supreme Court. In the event of such revival, the assessee would retain the right to argue all grounds originally raised in the appeal. 4.6 On this basis, the appeal was allowed 'in terms above', solely on the jurisdictional ground relating to the invalidity of the section 148 notice issued by the JAO under the post-Scheme regime.