T.K.S. Builders Pvt. Ltd Vs ITO (Delhi High Court)
Delhi High Court in T.K.S. Builders Pvt. Ltd vs ITO examined the scope and functioning of the faceless assessment and reassessment regimes under the Income Tax Act, particularly under Sections 144B, 147, 148, and 148A. The case highlighted the procedural and substantive interplay between the National Faceless Assessment Centre (NFAC) and the Jurisdictional Assessing Officer (JAO), clarifying misconceptions regarding the ouster of JAO jurisdiction in reassessment proceedings.
Faceless Assessment: Procedural Framework
Faceless assessment, introduced under Section 144B, was conceived as a transformative mechanism to reduce human interaction, enhance objectivity, and mitigate arbitrariness in income tax assessments. Section 144B originally applied to assessments under Sections 143(3) and 144 and was later amended by the Finance Act, 2022 to include reassessment and recomputation under Section 147. The statutory provisions detail procedural steps including random allocation of cases to Assessment Units, issuance of notices, internal review of draft orders, and the use of technological tools such as artificial intelligence to ensure impartiality.
Importantly, Section 144B prescribes procedural mechanisms but does not itself constitute a substantive basis for reassessment. The Court emphasized that reassessment under Sections 147/148 may be triggered by multiple sources of information—including audit objections, data collected through the Risk Management Strategy (RMS), and material gathered under Sections 132 and 132A—independent of faceless assessment mechanisms. Therefore, Section 144B is primarily procedural and should not be interpreted as the sole route for reassessment.
Concurrent Jurisdiction of the JAO
A central issue was whether the JAO’s authority is completely superseded by the NFAC. The Court reiterated that Section 144B’s procedural role does not nullify the JAO’s statutory powers. Concurrent jurisdiction exists: while NFAC may conduct assessments in a faceless manner, the JAO retains the authority to evaluate information, form preliminary opinions, and initiate reassessment proceedings under Section 148A. The Court cited Sanjay Gandhi Memorial Trust v. Commissioner of Income Tax to underline that faceless assessment does not oust the JAO; rather, it complements it. NFAC can transfer cases back to the JAO for assessment if warranted, reflecting a system of integrated, complementary authority.
The Court further distinguished between two types of information: (i) information suitable for automated allocation under faceless assessment, and (ii) material obtained via search or seizure under Section 132, which requires human judgment by the JAO. In these circumstances, faceless mechanisms cannot replace the JAO’s assessment responsibilities.
Critique of High Court Decisions
The Court engaged with decisions such as Hexaware Technologies (Bombay HC) and Kairos Properties, which held that faceless reassessment nullifies JAO jurisdiction. The Delhi High Court found these judgments unpersuasive, noting they did not fully consider notifications conferring concurrent powers on NFAC officers or the multi-source nature of information used for reassessment. Similarly, the Gauhati HC (Ram Narayan Sah) and Punjab & Haryana HC (Jatinder Singh Bhangu) failed to account for the full statutory and procedural context.
Talati and Talati LLP Precedent
The Court relied on Talati and Talati LLP v. ACIT (Gujarat HC, 2024), which clarified that Section 148 notices issued by the JAO in cases arising from search and seizure or requisition under Section 132/132A are valid. The court emphasized that faceless reassessment notifications apply only to cases under Explanation 1 of Section 148 and not to situations requiring human satisfaction under Explanation 2. The separation of duties—formation of opinion by JAO and faceless assessment by NFAC—was highlighted as the legislative intent, allowing for a balanced system integrating both procedural efficiency and human oversight.
Risk Management Strategy and RMS
The Risk Management Strategy (RMS) serves as a tool to collect and channel information to the JAO. The RMS does not constitute faceless assessment per se; rather, it supports the JAO’s evaluation of potential escaped income. The JAO can then initiate reassessment under Section 148A, after which the case may be assigned to NFAC for faceless assessment. This dual-phase process ensures that human scrutiny complements automated allocation and algorithm-driven assessment.
Judicial Principles and Beneficial Construction
The Court emphasized beneficial construction: interpreting Section 144B to entirely remove JAO jurisdiction would render multiple statutory provisions ineffective. By maintaining concurrent authority, the system ensures comprehensive assessment while retaining procedural transparency and accountability. The judgment underscores that faceless and jurisdictional assessments are complementary, not mutually exclusive, and reinforces the principle of concurrent jurisdiction as envisaged by the Income Tax Act, NFAC notifications, and supporting regulations.
Disposition
The Delhi High Court dismissed the writ petitions challenging Section 148 notices solely on the basis of JAO issuance. It held that faceless assessment does not oust JAO jurisdiction and that reassessment under Section 148 remains valid even when NFAC conducts faceless proceedings. However, the Court clarified that petitioners remain free to challenge reassessment on independent grounds, not related to the procedural interaction between JAO and NFAC.
Key Takeaways
