Section 151A Notice issued by JAOs instead of FAOs are invalid: Bombay HC

Hitesh Ramniklal Shah Vs ACIT (Bombay High Court)

In the recent judgment of Hitesh Ramniklal Shah Vs ACIT delivered by the Bombay High Court, the court addressed crucial issues related to the validity of notices issued under Section 148 of the Income Tax Act, 1961. This case has significant implications for how jurisdictional assessing officers (JAOs) and faceless assessing officers (FAOs) issue notices, especially in light of the procedural requirements laid down under Section 151A of the Act. The court’s decision follows its earlier ruling in the Hexaware Technologies Limited case, thereby setting a precedent for similar cases.

1. Background of the CaseThe petitions under consideration were filed challenging the validity of notices issued by JAOs. The petitioners contended that these notices were invalid as they did not comply with the procedural norms established under Section 151A of the Income Tax Act. Section 151A stipulates that notices under Section 148 must be issued by an FAO, not a JAO, to ensure adherence to the faceless assessment scheme introduced to curb discrepancies and enhance transparency in tax assessments.
2. Legal Framework and Relevant JudgmentThe crux of the petitioners’ argument was that the notices in question were issued improperly. They cited the judgment in Hexaware Technologies Limited v. Assistant Commissioner of Income Tax (Writ Petition No. 1778 of 2023) as a pivotal reference. In this judgment, the Bombay High Court had already determined that notices not issued in accordance with Section 151A are invalid. This ruling was instrumental in shaping the current case.Section 151A was designed to streamline and standardize the process of issuing notices, mandating that only FAOs, operating under a faceless system, could issue such notices. This was part of a broader initiative to improve fairness and reduce human errors or biases in tax assessments.
3. Court’s Findings in Hitesh Ramniklal Shah CaseIn the present case, the Bombay High Court analyzed whether the notices issued by JAOs were valid. The court acknowledged that the procedural shortcomings in issuing the notices were consistent with the issues highlighted in the Hexaware Technologies case. Consequently, the court concluded that the notices issued under Section 148 by JAOs were invalid as they did not align with the requirements of Section 151A.The court’s decision to quash the notices was grounded in the need to uphold procedural integrity and ensure compliance with established legal standards. This not only applied to the notices themselves but also to any reassessment orders or consequential demand or penalty notices that may have arisen from these notices.
4. Implications of the JudgmentThe ruling has broader implications for the assessment process under the Income Tax Act. It reinforces the importance of adhering strictly to procedural norms and highlights the necessity for compliance with the faceless assessment scheme. Taxpayers can expect increased scrutiny of procedural correctness in notices and assessments, which could lead to more stringent checks and balances.Furthermore, the judgment emphasizes that similar petitions will benefit from the precedent set in Hexaware Technologies Limited. It assures petitioners that procedural non-compliance will not be overlooked and reinforces the legal expectation for fair and transparent tax administration.
5. Disposition of PetitionsFollowing the court’s ruling, all notices issued under Section 148 by JAOs in these petitions were quashed. The court also set aside any reassessment orders and consequential notices that were derived from these invalid notices. This comprehensive quashing underscores the court’s commitment to upholding procedural fairness and ensuring that all actions taken under invalid notices are rectified.The court also made it clear that any interim applications related to these petitions were to be disposed of in light of the judgment. Additionally, it preserved the rights and contentions of the parties that were not covered by the Hexaware Technologies judgment, allowing them to be addressed in future petitions if necessary.

Conclusion

The decision in Hitesh Ramniklal Shah Vs ACIT reinforces the importance of procedural compliance in tax assessments and sets a clear precedent for handling similar cases. By invalidating notices issued by JAOs and aligning with the earlier Hexaware Technologies ruling, the Bombay High Court has ensured that the procedural norms outlined in Section 151A of the Income Tax Act are strictly followed.

FULL TEXT OF THE JUDGMENT/ORDER OF BOMBAY HIGH COURT

1. Counsels, whose vakalatnamas are not on record, undertake to file their vakalatnamas within a week from today. Undertaking accepted.

2. One of the grounds raised in these petitions raises an issue that the impugned notice issued in respective petition is invalid and bad-in-law being issued by the Jurisdictional Assessing Officer (“JAO”) as the same was not in accordance with the provisions of Section 151A of the Income Tax Act, 1961 (“the Act”) and the scheme framed thereunder. According to Petitioners, the notice could have been issued only by the Faceless Assessing Officer (“FAO”). Whether such a notice is valid or invalid, has been decided by this Court in the judgment passed in the case of Hexaware Technologies Limited v. Assistant Commissioner of Income Tax, Circle-15(1)(2), Mumbai and Ors. Writ Petition No. 1778 of 2023 decided on 3rd May 2024 and the Court has given a finding that such a notice will be invalid and bad-in-law.

3. We are, therefore, informed by the Counsels for respective Petitioner that these petitions will be covered by the judgment passed in Hexaware Technologies Limited (supra). Counsels for respective Respondent concur.

4. In some of the petitions, the ground of notice being invalid since it was not in accordance with the scheme framed under Section 151A of the Income Tax Act, 1961 was raised orally. Since we have held in the judgment in Hexaware Technologies Limited (supra) that such a notice will be invalid, certainly those Petitioners should also be given the benefit of decision taken by this Court

5. Writ Petition No. 1778 of 2023 decided on 3^rd May 2024. such a notice will be invalid, certainly those Petitioners should also be given the benefit of decision taken by this Court. In the circumstances, the notices issued in these petitions by the JAO under Section 148 of the Act are hereby quashed and set aside. In case any reassessment orders are passed, the same also will stand quashed and set aside. So also, the consequential demand notices or penalty notices, if any, will also stand quashed and set aside.

6. Petitions disposed accordingly.

7. In view thereof, interim application, if any, also stands disposed.

8. All the rights and contentions of the parties are kept open, which are raised in these petitions and not covered by the judgment in Hexaware Technologies Limited (supra), to be raised in any other petition should the need arise.