Faceless Assessment: Validity of Notices Issued by Jurisdictional Assessing Officer

Reported as:

2024 (8) TMI 567 - BOMBAY HIGH COURT

Introduction

This article provides a comprehensive analysis of a recent judgment delivered by the High Court (HC) concerning the validity of faceless assessment proceedings initiated by the Jurisdictional Assessing Officer (JAO) instead of the Faceless Assessment Officer (FAO). The court's decision highlights the importance of adhering to the statutory provisions and procedures prescribed for faceless assessment under the Income Tax Act, 1961 (the Act).

Arguments Presented

The petitioner, a limited partnership incorporated under the laws of the United States of America, challenged the validity of the notices issued u/ss 148A and 148 of the Act by the JAO, contending that the notices were issued in violation of Section 151A of the Act and the notification dated March 29, 2022, issued by the Central Government, which mandated the faceless assessment mechanism.

The petitioner argued that the JAO lacked jurisdiction to issue the impugned notices, particularly in light of the clear provisions of Section 151A read with the notification dated March 29, 2022. Additionally, the petitioner contended that the impugned notices were issued without following the lawful procedure, as the petitioner had not earned any income for the assessment year in question but had merely invested in Compulsory Convertible Preference Shares (CCPS) issued by an Indian company.

Discussions and Findings of the Court

The court observed that the respondents had failed to comply with the court's earlier order dated May 9, 2024, which directed the filing of a reply affidavit. The respondents neither filed a reply affidavit nor sought an extension of time to do so, indicating their lack of intention to file a reply.

The court noted that the respondents sought to rely on the order dated March 31, 2021, issued by the Central Board of Direct Taxes (CBDT) u/s 144B(2) of the Act, which specified certain classes of cases that would be exempted from the faceless assessment mechanism. However, the court rejected this contention, citing the decision of the Division Bench in HEXAWARE TECHNOLOGIES LIMITED VERSUS ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 15 (1) (2) , MUMBAI, PRINCIPAL COMMISSIONER OF INCOME TAX, MUMBAI – 6, PRINCIPAL CHIEF COMMISSIONER OF INCOME TAX, MUMBAI, CENTRAL BOARD OF DIRECT TAXES, UNION OF INDIA. - 2024 (5) TMI 302 - BOMBAY HIGH COURT,, which held that the order dated March 31, 2021, could not be interpreted as excluding the applicability of Section 151A(1) read with Section 144B to proceedings u/ss 148A and 148 of the Act.

Analysis and Decision by the Court

The court allowed the petition, quashing the impugned show cause notices dated March 16, 2023, and March 29, 2023, issued u/ss 148A(b) and 148 of the Act, respectively. The court also quashed the draft assessment order dated March 13, 2024, u/s 144C(1), the assessment order dated April 18, 2024, u/s 147 read with Section 144, the demand notice dated April 18, 2024, u/s 156, and the penalty notices dated April 18, 2024, and April 19, 2024, u/ss 274 read with 270A and 272A(1)(d), respectively.

The court held that the JAO would not have jurisdiction to issue the impugned notices, particularly in view of the clear provisions of Section 151A read with the notification dated March 29, 2022, issued by the Central Government. The court relied on the decision in Hexaware Technologies Limited and concurred with the petitioner's contention that the challenge in the present proceedings was covered by the said decision.

Doctrine or Legal Principle Discussed

The judgment primarily dealt with the doctrine of adherence to statutory provisions and procedures prescribed for faceless assessment under the Income Tax Act, 1961. The court emphasized the importance of following the faceless assessment mechanism as mandated by Section 151A of the Act and the relevant notifications issued by the Central Government.

Relied Upon or Followed Judgments

The court extensively relied upon and followed the decision of the Bombay High Court in HEXAWARE TECHNOLOGIES LIMITED VERSUS ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 15 (1) (2) , MUMBAI, PRINCIPAL COMMISSIONER OF INCOME TAX, MUMBAI – 6, PRINCIPAL CHIEF COMMISSIONER OF INCOME TAX, MUMBAI, CENTRAL BOARD OF DIRECT TAXES, UNION OF INDIA. - 2024 (5) TMI 302 - BOMBAY HIGH COURT,, which dealt with the applicability of the faceless assessment mechanism u/s 151A read with Section 144B of the Act.

Comprehensive Summary

The High Court, in this judgment, upheld the principle of adherence to statutory provisions and procedures prescribed for faceless assessment under the Income Tax Act, 1961. The court quashed the notices issued by the Jurisdictional Assessing Officer (JAO) u/ss 148A and 148 of the Act, as well as the subsequent assessment orders and demand notices, on the ground that the JAO lacked jurisdiction to issue such notices, particularly in light of the clear provisions of Section 151A read with the notification dated March 29, 2022, issued by the Central Government.

The court relied heavily on the decision of the Bombay High Court in HEXAWARE TECHNOLOGIES LIMITED VERSUS ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 15 (1) (2) , MUMBAI, PRINCIPAL COMMISSIONER OF INCOME TAX, MUMBAI – 6, PRINCIPAL CHIEF COMMISSIONER OF INCOME TAX, MUMBAI, CENTRAL BOARD OF DIRECT TAXES, UNION OF INDIA. - 2024 (5) TMI 302 - BOMBAY HIGH COURT, which had clarified the applicability of the faceless assessment mechanism u/s 151A read with Section 144B of the Act. The court rejected the respondents' contention that the order dated March 31, 2021, issued by the CBDT u/s 144B(2) of the Act, exempted certain classes of cases from the faceless assessment mechanism, as this argument was contrary to the view taken by the Division Bench in Hexaware Technologies Limited.

The judgment reinforces the importance of adhering to statutory provisions and procedures prescribed for faceless assessment, ensuring that the assessment proceedings are conducted in a fair and transparent manner, in line with the principles of natural justice.

 

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Full Text:

2024 (8) TMI 567 - BOMBAY HIGH COURT

Faceless assessment jurisdiction: JAO lacked authority under the statutory faceless procedure, invalidating improperly issued notices. The court determined that reassessment notices and related proceedings were inconsistent with the statutory faceless assessment framework because they were issued without following the prescribed allocation of jurisdiction and procedural sequence under the faceless mechanism; administrative orders purportedly exempting cases were not read to displace the statutory requirements and earlier precedent interpreting the faceless provisions was applied.