Deciphering Legal Judgments: A Comprehensive Analysis of Judgment

Reported as:

2024 (10) TMI 1586 - DELHI HIGH COURT

Introduction

This judgment examines the validity of reassessment notices issued u/s 148 of the Income-tax Act after the statutory and administrative architecture for "faceless" assessment (notably sections 144B and 151A and the Faceless Reassessment Scheme, 2022) was brought into force. The petitions challenged notices issued by jurisdictional assessing officers (JAOs) on the ground that, once the faceless scheme was adopted, only the faceless machinery could validly initiate or issue notices for reassessment. The court confined its inquiry to whether notices issued by JAOs complied with the faceless framework and whether the JAO was thereby denuded of jurisdiction to commence proceedings u/s 148 read with section 148A.

Key Legal Issues

1. Whether the Faceless Reassessment Scheme, 2022 and section 144B of the Act oust the jurisdiction of the JAO to issue notices u/s 148 (and to initiate proceedings u/s 148A).
2. Whether the statutory scheme contemplates exclusive/faceless initiation of reassessment or concurrent jurisdiction (JAO and faceless authorities) in the pre- and post-notice stages.
3. How to harmonise Explanation 1 and 2 to section 148 (sources of "information" amounting to escapement) with the scope and mechanics of automated allocation and RMS (Risk Management Strategy).
4. Consequences of non-adherence to faceless procedure - whether such non-compliance renders reassessment void or merely reviewable (in light of deletion of sub-section (9) of section 144B).

Detailed Issue-wise Analysis

Statutory framework and scheme construction

The faceless assessment architecture developed in layers: initial pilot/e-assessment schemes (2019, 2020), statutory insertion of section 144B (faceless assessment) and section 151A (power to notify faceless scheme for reassessment/notice issuance), and the Faceless Reassessment Scheme notified 29 March 2022. Section 144B prescribes detailed procedural steps for faceless assessment and defines an "automated allocation system". Section 151A authorises the Government to notify a scheme for assessment/reassessment and issuance of notice u/s 148. Clause 3 of the Faceless Reassessment Scheme states that "assessment, reassessment or recomputation u/s 147" and "issuance of notice u/s 148" "shall be through automated allocation ... and in a faceless manner, to the extent provided in section 144B."

Meaning of "information" and relevance of RMS

Explanation 1 to section 148 enumerates multiple sources of "information" that can justify reopening, including information "in accordance with the risk management strategy formulated by the Board" and information made available under schemes framed u/s 135A. The RMS and Insight Portal aggregate third-party, AIR, CIB and other data and make that aggregated information visible to the JAO. The court emphasised that many sources of information contemplated by section 148 are received or viewable by the JAO directly and are not initially pushed to the National Faceless Assessment Centre (NFAC).

Concurrent jurisdiction versus exclusive faceless jurisdiction

A central debate is whether the faceless scheme ousts the JAO entirely. The revenue maintained that cases are selected by Directorate of Systems (RMS), flagged to JAOs, and JAOs conduct the inquiries u/s 148A; assessment is then allocated facelessly u/s 144B. Petitioners and several High Courts held that issuance of notices must follow the automated allocation/faceless route, rendering JAO-issued notices invalid. The court analysed notifications u/s 120, the design of NFAC, and the concurrent jurisdiction language used in CBDT instruments, concluding that the Act contemplates concurrent jurisdiction: faceless units and designated NFAC officers operate alongside JAOs rather than wholly supplanting them.

Proper reading of Clause 3 of the Faceless Reassessment Scheme

The court undertook a textual and functional reading of Clause 3. It observed careful punctuation and structure: the scheme envisages discrete phases - identification/selection in accordance with RMS; formation of opinion/148A inquiry (often functioning via JAO); and, if reassessment is warranted, transmission of records to NFAC for faceless assessment/allocation. The court found this two-stage conception consistent with statutory text and with the practical reality that RMS data is surfaced to JAOs for preliminary evaluation.

Deletion of sub-section (9) of section 144B and effect of procedural non-compliance

Earlier sub-section (9) declared faceless assessments non est if procedure was not followed; it was subsequently deleted retroactively. The court relied on the deletion and accompanying CBDT circular to reject an automatic nullity approach to technical non-compliance with faceless procedural steps, and favoured a harmonious construction that preserves statutory aims without rendering numerous administrative actions void on technical IT grounds.

Key Holdings and Reasoning

• Main holding: The JAO is not completely divested of jurisdiction to initiate reassessment proceedings. Notices issued by the JAO are not per se invalid merely because a faceless scheme exists; the statutory framework contemplates concurrent and complementary roles of JAO and NFAC.
• Reasoning: The court relied on (a) the plain language of sections 144B and 151A and their scheme; (b) the role of RMS and Insight Portal which disseminate information to JAOs; (c) notifications u/s 120 conferring "concurrent" jurisdiction; (d) sub-section (7)/(8) of section 144B which envisage transfer back to the JAO; and (e) legislative choice to delete sub-section (9) to avoid automatic nullity.
• Ratio: Where RMS or other sources make information available to the JAO, the JAO may conduct the pre-notice inquiry u/s 148A; if, post-objection, the JAO forms satisfaction and issues notice u/s 148, NFAC may thereafter undertake faceless assessment u/s 144B. This two-stage division (pre-notice evaluation by JAO; assessment by NFAC) harmonises statutory text and purpose.
• Obiter: The judgment observes that faceless and jurisdictional modes must operate together to keep data-driven selection mechanisms viable; it critiques certain earlier High Court decisions that concluded absolute ouster of JAO without full contextual record.

Quoted Reasoning

Illustrative excerpt emphasises the staged approach: "Clause 3 clearly contemplates the initial enquiry and formation of opinion to reassess being part of one defined process followed by actual assessment in a faceless manner. It thus divides the process of reassessment into two stages ..."

Implications and Practical Consequences

• Operational clarity: The decision affirms that RMS outputs and administrative intelligence surfacing to JAOs can be acted upon by JAOs u/s 148A; these preliminary steps need not await NFAC allocation.
• Preservation of administrative utility: The Insight Portal/RMS investments retain practical value - the JAO remains the statutory node for certain sources of information (audit objections, search/survey material, e-verification outputs, etc.).
• Reduction of litigation on technical non-compliance: Deletion of automatic non est provision and the court's approach lessen risk that numerous notices become void for IT-portal technicalities; challenges remain available on other legal grounds.
• Need for procedural consistency: Departments should document and follow clear processes (flagging, recording dates/times, approvals u/s 148A) to reduce disputes about issuance dates and compliance with Ashish Agarwal and subsequent directions.
• Scope for future litigation: The decision does not close all avenues; assessees remain free to challenge reassessment on other grounds (e.g., lack of 'information', mala fide formation of opinion, procedural irregularities in 148A exercise).

Conclusion

The court construes the faceless reassessment architecture as complementary rather than absolute in relation to traditional jurisdictional mechanisms. The statutory scheme, notification practice (including concurrent jurisdiction u/s 120), and the operational design of RMS/Insight Portal collectively support a two-stage model: the JAO evaluates information and may lawfully initiate proceedings u/s 148A/148 where appropriate; the NFAC then carries out faceless assessment through automated allocation u/s 144B. The ruling preserves the utility of both modes, avoids doctrinally rigid outcomes that would void significant administrative action, and leaves room for assessees to pursue specific legal objections in independent proceedings.

Full Text:

2024 (10) TMI 1586 - DELHI HIGH COURT