Faceless Assessment: Provisions, Litigation and Judicial Precedents

Assessment, reassessment or recomputation in Faceless Manner – Provisions, Litigation and Judicial Precedents

Summary: The introduction of faceless assessment, reassessment, and recomputation under the Income Tax Act, 1961, is a step towards making tax processes more efficient and transparent. As outlined in the Finance Act, 2021, the government has digitized many tax-related proceedings, allowing taxpayers and authorities to interact primarily through automated systems. Section 151A of the Act allows for the creation of a scheme to handle assessments, reassessments, and the issuance of notices without the need for direct interaction between taxpayers and tax officers. The e-Assessment of Income Escaping Assessment Scheme, 2022, introduced on 29th March 2022, further implements these changes by providing a structured, faceless process. It aims to reduce corruption, streamline procedures, and enhance resource utilization. Under this scheme, notices under Sections 147 and 148 are to be issued in a faceless and automated manner, eliminating the direct involvement of the Jurisdictional Assessing Officer (JAO). However, certain discrepancies have arisen, with some notices still being issued by JAOs despite the shift to a faceless system. Several court rulings, such as Hexaware Technologies Ltd. v. ACIT and Kankanala Ravindra Reddy v. Income-tax Officer, have invalidated such notices, reaffirming the mandatory nature of the faceless approach. The courts have emphasized that failure to comply with these faceless procedures undermines the objectives of the new framework.

Introduction

With the growing focus on transparency and digital technology all over the globe, the Government of India has also taken important steps to enhance its tax administration with a view to make it more efficient and clearer. By adopting new digital tools and technologies, the government is working to make tax processes more accessible and easier to understand. This reflects a wider push towards modernizing public services and improving overall government operations.

In light of the above, the Government has made significant changes in how the tax proceedings should be initiated and dealt with. From serving notices to filing the appeals before Hon’ble CIT(A), everything is made possible through technology. This change has been incorporated through various Finance Acts but the major Act which we should give credit to is Finance Act, 2021 which came into effective from 01.04.2021.

Finance Act, 2021 inserted new sections to further make tax proceedings easier and more accessible to the users as well as the Income Tax Department. One such example of such sections is Section 151A of the Income Tax Act, 1961.

Section 151A, with effective from 01.04.2021, provides the following:

• Central Government may make a scheme, by notification in the Official Gazette, for the purposes of
• assessment, reassessment or recomputation under section 147 or
• issuance of notice under section 148 or
• conducting of enquiries or issuance of show-cause notice or passing of order under section 148A or
• sanction for issue of such notice under section 151

This purpose of this section is to eliminate direct interaction between income-tax authorities and taxpayers as much as possible and improve resource use through economies of scale and specialized functions.

Pursuant to the power conferred by Section 151A, Central Board of Direct Taxes (CBDT) made and implemented a scheme by virtue of notification dated 29^th March 2022 called e-Assessment of Income Escaping Assessment Scheme, 2022.

e-Assessment of Income Escaping Assessment Scheme, 2022

The purpose of this scheme is same as the purpose of Section 151A of the Act. This scheme aims to provide the manner in which the proceedings should be initiated and notices should be served are provided. This scheme has majorly resolved the issue of corruption and direct dealing between Assessing Officers and taxpayers. To tackle the issues relating to corruption, discrepancy, hidden under-the-table settlements, the Government has implemented the aforesaid scheme.

This scheme provided that:

• assessment, reassessment or recomputation under section 147 of the Act,
• issuance of notice under section 148 of the Act,

shall be through automated allocation, in accordance with risk management strategy formulated by the Board as referred to in section 148 of the Act for issuance of notice, and in a faceless manner, to the extent provided in section 144B of the Act with reference to making assessment or reassessment of total income or loss of assessee.

This scheme establishes a clear distinction between the Jurisdictional Assessing Officer (JAO) and the Faceless Assessing Officer (FAO) for the purposes of Sections 147 and 148 of the Income Tax Act. In the traditional approach to tax assessment, notices that carry the name of a specific Assessing Officer are identified as being issued by the Jurisdictional Assessing Officer (JAO). Such notices reflect a direct connection with a particular officer who is accountable for the case and its administrative procedures. In contrast, notices that are issued by the Income Tax Department but do not specify the name of any particular Assessing Officer are classified as being issued by the FAO. This faceless approach aims to streamline the process by reducing direct interaction between the taxpayer and specific officers, thereby enhancing efficiency and impartiality in the assessment process.

Practical Implications of Scheme dated 29th March 2022

Prior to the implementation of the aforementioned scheme, Jurisdictional Assessing Officers (JAOs) were responsible for issuing notices and managing interactions with taxpayers regarding assessments, reassessments, or recomputation under Section 147, as well as issuing notices under Section 148 of the Act. However, with the introduction of the new scheme, this responsibility has been transferred from JAOs to Faceless Assessing Officers (FAOs), effectively removing the JAOs’ previous role in these processes.

Despite the clear directive that, from 29^th March, 2022, all assessments, reassessments, and recomputation under Section 147, as well as the issuance of notices under Section 148, should be conducted in a faceless and automated manner, there are still instances where notices under Section 148 are being issued by JAOs.

Judicial Precedents

In addressing this issue, several courts have issued rulings that favour the assessees, establishing a pattern of judicial support. The relevant judicial precedents are outlined hereunder:

1. Hexaware Technologies Ltd. v. ACIT [2024] 162 taxmann.com 225 (Bombay) wherein the Hon’ble High Court of Bombay held that “when specific jurisdiction has been assigned to either the JAO or 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.” Therefore, the impugned notice under Section 148 of the Act issued by JAO was held to be in contrary to the scheme dated 29^th March, 2022 and thus invalid and bad in law.

2. Kankanala Ravindra Reddy v. Income-tax Officer [2023] 156 taxmann.com 178 (Telangana) wherein the Hon’ble High Court of Telangana held that “the Central Board of Direct Taxes was very clear in its mind when it framed the aforesaid two schemes with respect to the proceedings to be drawn under Section 148A, that is to have it in a a faceless manner”. [para 25] … “After the introduction of the above two schemes, it becomes mandatory for the Revenue to conduct/initiate proceedings pertaining to reassessment under Section 147, 148 & 148A of the Act in a faceless manner.” [para 26]

3. Kairos Properties (P.) Ltd. v. ACIT [2024] 165 taxmann.com 760 (Bombay) wherein Hon’ble High Court of Bombay held that “to accept a contention that merely because the notification does not explicitly refer to the provisions of Section 148A, the scope of the Scheme as defined in paragraph 3 would exclude the applicability of Section 148A, would lead to an absolute absurdity, and more particularly, considering the express provisions of subsection (1) of Section 151A. Sub-section (2) of Section 151A is specifically incorporated to empower the Central Government to exclude the applicability of any of the provisions of the Act and/or to make such provisions applicable with exceptions, modifications and adaptations. Nothing of this nature is found in the notification to infer any exclusion of Section 148A, and when it clearly concerns the entire assessment, reassessment or re-computation under Section 147 and issuance of notice in that regard under Section 148 of the Act.” [para 14] …  “In the light of the above discussion, and as there is no dispute that the JAO had no jurisdiction to issue the impugned notice” [para 17].

4. Jatinder Singh Bhangu v. Union of India [2024] 165 taxmann.com 115 (Punjab & Haryana) wherein Hon’ble High Court of Punjab & Haryana held that “From the perusal of Section 151A, it is quite evident that scheme of faceless assessment is applicable from the stage of show cause notice under Section 148 as well as 148A. Clause 3 (b) of notification dated 29.03.2022 issued under Section 151A clearly provides that scheme would be applicable to notice under Section 148. Even otherwise, it is a settled proposition of law that assessment proceedings commence from the stage of issuance of show cause notice. The object of introduction of faceless assessment would be defeated if show cause notice under Section 148 is issued by Jurisdictional Assessing Officer.” [para 15]

Conclusion

In light of the provisions established by the Scheme dated 29^th March, 2022, and supported by judicial rulings, it is evident that the procedures for assessment, reassessment, or recomputation under Section 147 of the Act, as well as the issuance of notices under Section 148, must adhere to an automated and faceless approach.