Section 148 Notice Issued by JAO is Non-Est, Should Have Been Issued by FAO: Bombay HC

Paras Mahendra Shah Vs Union of India (Bombay High Court)

The petitioner is an individual. It filed return for assessment year 2020-2021. It was issued notice under section 148 of the Income Tax Act on 31.03.2024, pursuant to order passed under section 148A(d). came to passed. The same was challenged in writ petition. The challenge, amongst other grounds, was on the ground that the notice is issued by the jurisdictional assessing officer (JAO) and not by the faceless assessing officer (FAO) in terms of section 151A of the Act and hence, without jurisdiction.

The Hon’ble Bombay High Court allows the petition and quashed the notice and order passed under section 148A(d) of the Act. It held: (i) the notice issued by the JAO is non est and ought to have been issued by the FAO;(ii) in as much as the procedure under section 151A(2) of the Act has not been followed the entire proceedings are without jurisdiction; (iii) follows Bombay High Court ruling in Hexaware Technologies Limited and Nainraj Enterprises Pvt. Ltd., case; allows the petition without going into other issues.

The matter was argued by Ld. Counsel Bharat Raichandani

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

1. Rule. Rule made returnable forthwith. Learned Counsel for the Respondents waives service. By consent of the parties, heard finally.

2. This Writ Petition under Article 226 of the Constitution of India has been filed to challenge a notice dated 31 March 2024 issued to the Petitioner under Section 148 of the Income Tax Act, 1961 (“the Act”), and also the underlying prior notice and order under Section 148A(b) and Section 148(A)(d) of the Act, respectively. The reassessment under Section 148 of the Act has been initiated in respect of returns filed by the Petitioner-Assessee for the Assessment Year 2020-21.

3. From a plain reading of the record, it is apparent that the notice dated 31 March 2024 issued under Section 148 of the Act and indeed the underlying order of the same date under Section 148A(d) of the Act are issued by the Jurisdictional Assessing Officer (“JAO”) and not by a Faceless Assessing Officer (“FAO”), as is required by the provisions of Section 151A of the Act.

4. It is now well settled that for a notice to be validly issued for reassessment under Section 148 of the Act, the Respondent-Revenue would need to be compliant with Section 151A, which has been interpreted and analysed in detail by a Division Bench of this Court in the case of Hexaware Technologies Limited Vs. Assistant Commissioner of Income Tax & 4 Ors. ¹ (“Hexaware”). The Division Bench has clearly declared the law as follows :

35 Further, in our view, there is no question of concurrent jurisdiction of the JAO and the FAO for issuance of notice under  Section 148 of the Act or even for passing assessment or reassessment order. When specific jurisdiction has been assigned to either the JAO or the FAO in the Scheme dated 29^th March, 2022, then it is to the exclusion of the other. To take any other view in the  matter, would not only result in chaos but also render the whole  faceless proceedings redundant. If the argument of Revenue is to be accepted, then even when notices are issued by the FAO, it would be open to an assessee to make submission before the JAO and vice versa, which is clearly not contemplated in the Act. Therefore, there is no question of concurrent jurisdiction of both FAO or the JAO with respect to the issuance of notice under Section 148 of the Act. The Scheme dated 29 ^th March 2022 in paragraph 3 clearly provides  that the issuance of notice “shall be through automated allocation  ” which means that the same is mandatory and is required to be  followed by the Department and does not give any discretion to the  Department to choose whether to follow it or not. That automated allocation is defined in paragraph 2(b) of the Scheme to mean an algorithm for randomised allocation of cases by using suitable technological tools including artificial intelligence and machine learning with a view to optimise the use of resources. Therefore, it means that the case can be allocated randomly to any officer who would then have jurisdiction to issue the notice under Section 148 of the Act. It is not the case of respondent no.1 that respondent no.1 was the random officer who had been allocated jurisdiction.

36 With respect to the arguments of the Revenue, i.e., the notification dated 29^th March 2022 provides that the Scheme so framed is applicable only ‘to the extent’ provided in Section 144B of the Act and Section 144B of the Act does not refer to issuance of notice under Section 148 of the Act and hence, the notice cannot be issued by the FAO as per the said Scheme, we express our view as follows:-

Section 151A of the Act itself contemplates formulation  of Scheme for both assessment, reassessment or recomputation under Section 147 as well as for issuance of notice under Section 148 of the Act.  Therefore, the Scheme framed by the CBDT, which covers both the aforesaid aspect of the provisions of Section 151A of the Act cannot be said to be applicable only for one aspect, i.e., proceedings post the issue of notice under Section 148 of the Act being assessment, reassessment or recomputation under Section 147 of the Act and inapplicable to the issuance of notice under Section 148 of the Act. The Scheme is clearly applicable  for issuance of notice under Section 148 of the Act and accordingly, it is only the FAO which can issue the  notice under Section 148 of the Act and not the JAO. The argument advanced by respondent would render clause 3(b) of the Scheme otiose and to be ignored or contravened, as according to respondent, even though the Scheme specifically provides for issuance of notice under Section 148 of the Act in a faceless manner, no notice is required to be issued under Section 148 of the Act in a faceless manner. In such a situation, not only clause 3(b) but also the first two lines below clause 3(b) would be otiose, as it deals with the aspect of issuance of notice under Section 148 of the Act. Respondents,  being an authority subordinate to the CBDT, cannot argue that the Scheme framed by the CBDT, and which  has been laid before both House of Parliament is partly  otiose and inapplicable. ……..”

37 When an authority acts contrary to law, the said act of the  Authority is required to be quashed and set aside as invalid and bad in law and the person seeking to quash such an action is not  required to establish prejudice from the said Act. An act which is done by an authority contrary to the provisions of the statue, itself causes prejudice to assessee. All assessees are entitled to be assessed as per law and by following the procedure prescribed by law. Therefore, when the Income Tax Authority proposes to take  action against an assessee without following the due process of law, the said action itself results in a prejudice to assessee.  Therefore, there is no question of petitioner having to prove further prejudice before arguing the invalidity of the notice.

[Emphasis Supplied]

5. Therefore, it is apparent that the Respondent-Revenue is not in compliance with the Scheme notified by the Central Government pursuant to Section 151A(2) of the Act. The Scheme has also been tabled in Parliament and is in the character of subordinate legislation, which governs the conduct of proceedings under Section 148A as well as Section 148 of the Act. In view of the explicit declaration of the law in Hexaware, the grievance of the Petitioner-Assessee insofar as it relates to an invalid issuance of a notice is sustainable and consequently, the very manner in which the proceedings have been initiated, vitiates the proceedings.

6. Learned Counsel for both the parties agree that the proceedings initiated under Section 148 of the Act would not be sustainable in view of the judgment rendered in Learned Counsel for the Respondents-Revenue has also drawn our attention to a recent decision of this Court in Nainraj Enterprises Pvt. Ltd. Vs. The Deputy Commissioner of Income Tax, Circle-4(3)(1), Mumbai & Ors.², whereby in similar circumstances, this Court has allowed the petition considering the provisions of Section 151A of the Act.

7. In the light of the above discussion, and as there is no dispute that the JAO had no jurisdiction to issue the impugned notice, the Writ Petition is accordingly allowed and the impugned notice as well as order are hereby quashed and set aside.

8. We make it clear that having disposed of this petition on the ground of non-compliance with Section 151A of the Act, we have not expressed any opinion on the other issues raised in the Writ Petition. The other questions raised in this petition are not being answered since it is not necessary to do so.

9. Rule is made absolute in the aforesaid terms and the Writ Petition is hereby disposed of. No costs.

Notes:

1 (2024) 464 ITR 430

2 Writ Petition (L.) No. 16918 of 2024 dt. 2-07-2024