Faceless Assessment Mechanism: A Critical Analysis of the High Court Judgment

Reported as:

2024 (8) TMI 559 - BOMBAY HIGH COURT

Introduction

In a recent judgment, the High Court delved into the intricacies of the faceless assessment mechanism introduced by the Income Tax Department. The case revolved around the validity of a notice issued u/s 148 of the Income Tax Act, 1961 (the Act), for income escaping assessment. The court's decision shed light on the proper implementation of the faceless assessment scheme and the jurisdictional boundaries of assessing officers.

Arguments Presented

The petitioner challenged the notice issued u/s 148 of the Act, along with the underlying prior notice and order u/ss 148A(b) and 148A(d), respectively. The primary contention was that these notices and orders were issued by the Jurisdictional Assessing Officer (JAO) instead of the Faceless Assessing Officer (FAO), as mandated by Section 151A of the Act and the relevant notification.

The Revenue contended that while the notice u/s 148 might be quashed, the order passed u/s 148A(d) and the notice issued u/s 148A(b) should not be set aside, as the requirement to issue notices in the faceless mode is specific to Section 148 and not applicable to Section 148A.

Discussions and Findings of the Court

Jurisdictional Aspect

The court relied on the Division Bench judgment 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 established that the JAO and FAO cannot have concurrent jurisdiction for issuing notices u/s 148 or passing assessment/reassessment orders. The specific jurisdiction assigned to either the JAO or the FAO in the Scheme is exclusive, and accepting concurrent jurisdiction would render the faceless proceedings redundant.

Scope of the Faceless Assessment Scheme

The court examined the scope of the "E-Assessment of Income Escaping Assessment Scheme, 2022" (the Scheme) notified u/s 151A of the Act. It observed that the Scheme's scope encompasses not only the issuance of notices u/s 148 but also the proceedings u/s 148A, which are inextricably linked to the reassessment process.

The court noted that Section 151A(1) empowers the Central Government to make a scheme for the purposes of assessment, reassessment, or recomputation u/s 147 or issuance of notice u/s 148, among other things. The court reasoned that excluding Section 148A from the Scheme's ambit would lead to an absurdity and defeat the objectives outlined in Section 151A(1).

Analysis and Decision by the Court

The court analyzed the provisions of Section 151A and the Scheme in detail. It concluded that the Central Government did not exercise its power u/s 151A(2) to exclude the applicability of Section 148A from the Scheme's scope. Therefore, the entire process, including the steps u/s 148A culminating in the issuance of a notice u/s 148, must adhere to the faceless mechanism.

Consequently, the court held that the JAO lacked jurisdiction to issue the impugned notices and orders, rendering them illegal and invalid. The court allowed the petition and quashed the impugned notices and orders, emphasizing the importance of following the due process prescribed by law.

Doctrine or Legal Principle

The judgment reinforces the principle that statutory provisions must be interpreted harmoniously and in a manner that upholds the legislative intent. It also underscores the importance of adhering to the prescribed procedures and jurisdictional boundaries established by law, particularly in the context of the faceless assessment mechanism.

Relied Upon or Followed Judgments

The court heavily relied on the Division Bench judgment 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 clarified the jurisdictional aspects of the JAO and FAO under the faceless assessment scheme.

Comprehensive Summary

The High Court's judgment emphasizes the importance of strictly adhering to the faceless assessment mechanism introduced by the Income Tax Department. The court held that the Jurisdictional Assessing Officer (JAO) lacked the jurisdiction to issue notices and orders u/ss 148, 148A(b), and 148A(d) of the Income Tax Act, 1961. These actions should have been undertaken by the Faceless Assessing Officer (FAO) in accordance with the "E-Assessment of Income Escaping Assessment Scheme, 2022" notified u/s 151A of the Act.

The court's analysis focused on the scope of the Scheme, which encompasses not only the issuance of notices u/s 148 but also the proceedings u/s 148A, as they are inextricably linked to the reassessment process. The court rejected the Revenue's contention that Section 148A falls outside the Scheme's ambit, reasoning that such an interpretation would defeat the objectives outlined in Section 151A(1).

The judgment reinforces the principle of harmonious interpretation of statutory provisions and the importance of adhering to prescribed procedures and jurisdictional boundaries. It also highlights the court's reliance on the Division Bench judgment 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 clarified the jurisdictional aspects of the JAO and FAO under the faceless assessment scheme.

By quashing the impugned notices and orders, the court upheld the sanctity of the faceless assessment mechanism and emphasized the need for tax authorities to strictly comply with the statutory framework and prescribed procedures.

Full Text:

2024 (8) TMI 559 - BOMBAY HIGH COURT