Facts of the case

The order under section 148A(d) and notice under section 148 for A.Y. 2016-17 were passed and issued respectively as on 29.07.2022. The assessee challenged the said order and notice before the Hon’ble High Court.

Objections raised by the Petitioner

Once the Jurisdictional Assessing Officer have decided to go in for re-assessment of the return of income submitted by the petitioner and notice for the same under section 148A was issued then it was incumbent upon the Assessing Officer to have adhered to the amended provisions of Income-tax Act [hereinafter referred to as “the Act”].

The Petitioner contended that re-assessment should be done in a faceless manner rather than being assessed by the Jurisdictional Assessing Officer as has been provided under section 144B and in accordance with the scheme enacted by Central Government under section 151A.
Subsequent to the amendment incorporated in the Act with effect from 29.03.2022, all the proceedings initiated by the concerned authorities under section 148A and 148 were all mandatorily to be proceeded in a faceless manner. Else, the same would amount to being violative of the Act or in contravention to the procedure prescribed under the law which is in force.

When Central Board of Direct Taxes [“the CBDT”] have issued the notification dated 29.03.2022 whereby a scheme called e-assessment of Income Escaping Assessment Scheme, 2022 came into force from 29.03.2022 then the assessment, re-assessment or re-computation under section 147 and issuance of notice under section 148A shall be done through automated collection. Further, the notices to be issued have to be in a faceless manner as is provided under section 144B.

Contentions of the Department

Under the provisions of the Act, both Jurisdictional Assessing Officer and units under NFAC have concurrent jurisdiction. The Act does not distinguish between Jurisdictional Assessing Officer or NFAC with respect to jurisdiction over a case. This is further corroborated by the fact that under section 144B the records in a case are transferred back to Jurisdictional assessing Officer as soon as the assessment proceedings are completed.

Section 144B lays down the role of NFAC and the units under it for the specific purpose of conduct of assessment proceedings in a specific case in a particular assessment year. This cannot be construed to mean that Jurisdictional Assessing Officer is bereft of the jurisdiction over a particular assessee or with respect to procedures not falling under the ambit of Section 144B.

Since, section 144B does not provide for issuance of notice under section 148, there can be no ambiguity in the fact that the Jurisdictional assessing Officer still has the jurisdiction to issue notice under section 148.

The notification dated 29.03.2022 issued by CBDT does not state whether the notice under section 148 is to be within the scope of the scheme with regards to the procedure covered by it and lays down only the legal contours of how such procedures are to be carried out. It states that the issuance of notice under Section 148 of the Act shall be through automated allocation in accordance with the risk management strategy and that the assessment shall be in a faceless manner to the extent provided under Section 144B of the Act. From the above, it is apparent that in the procedure for re-assessment as it exists as on date, both these can be followed. Therefore, it will be incorrect to state that the issuance of notice by the Jurisdictional Assessing Officer is without jurisdiction.

Neither the Section nor the scheme dated 29.03.2022 speak about the detail specifics of the procedure to be followed therein. They lay down the general principles that should be followed so as to impart greater efficiency, transparency and accountability to the procedures contained therein. The said scheme lays down that the issuance of notice under Section 148 shall be through automated allocation in accordance with Section 144B.

The order under Section 148A(d) and the notice under Section 148 both dated 29.07.2022 were passed/issued as per the provisions of the Act with appropriate sanction, after giving due opportunity to the petitioner and after considering the submissions of the petitioner. It is submitted that no prejudice is caused to the petitioner as the order passed under Section 148A(d) is not an assessment order and only an order to determine whether it is a fit case for issuance of notice under Section 148.

Substantial question of law framed by the Hon’ble Court

Whether the impugned order under section 148A(d) and notice under section 148 could be issued by the Jurisdictional Assessing Officer rather than NFAC.
In other words, whether was it not mandatory for the concerned authorities to initiate reassessment proceedings under section 148A and 148 in a faceless manner rather than being proceeded by the Jurisdictional Assessing Officer as is envisaged under section 144B and under section 151A.

Analysis of the legal provisions involved by Hon’ble Court

Section 144B inserted by virtue of the Finance Act, 2021, with effect from 01.04.2021 provides for faceless assessment. Section 151A which was inserted with effect from 01.11.2020 refers to faceless assessment of income escaping assessment.

CBDT had also amended Section 130 of the Act so far as conferring jurisdiction of the Income Tax Authorities in the light of the faceless assessment procedure being adopted.

In furtherance to the powers conferred under sub-Sections 1 and 2 of Section 130 of the Act, the CBDT framed a scheme called as the “Faceless jurisdiction of Income Tax Authorities Scheme, 2022.”
CBDT has framed a scheme which defines the Act to be the Income Tax Act and it specifically defines automated allocation which is defined under Section 2 (1)(b), which again for ready reference is being re-produced herein under:
“In this Scheme, unless the context otherwise requires, —
(a) “Act” means the Income-tax Act, 1961 (43 of 1961);
(b) “automated allocation” means 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;”

Further Section 3 of the said scheme deals with vesting of the jurisdiction with the Assessing Officer, which again for ready reference is being reproduced herein under:

“vesting the jurisdiction with the Assessing Officer as referred to in section 124 of the Act, shall be in a faceless manner, through automated allocation, in accordance with and to the extent provided in-
(i) Section 144B of the Act with reference to making faceless assessment of total income or loss of assessee;”

In furtherance to the aforesaid notification, the CBDT again in exercise of its powers conferred under sub-Sections 1 and 2 of Section 151A framed another scheme called as the e-assessment of Income Escaping Assessment Scheme 2022, which defines automated allocation is reproduced herein under:

“In this Scheme, unless the context otherwise requires,-
(a) “Act” means the Income-tax Act, 1961 (43 of 1961);
(b) “automated allocation” means 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.”

And the scope of the scheme again has been envisaged in Section 3 of the said scheme, which again for ready reference is being reproduced herein under:

“For the purpose of this Scheme,-
(a) assessment, reassessment or re-computation under
section 147 of the Act,
(b) 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.”

A plain reading of the aforesaid two notifications issued by the CBDT dated 28.03.2022 and 29.03.2022 would clearly indicate that the CBDT 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 faceless manner. There were two mandatory conditions which were required to be adhered to by the Department. Firstly, the allocation being made through the automated allocation system in accordance with the risk management strategy formulated by the CBDT under Section 148. Secondly, the re-assessment has to be done in a faceless manner to the extent provided under Section 144B.

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. Proceedings under Section 147 and Section 148 of the Act would now have to be taken as per the procedure legislated by the Parliament in respect of reopening/ re-assessment i.e., proceedings under Section 148A of the Act.

In the present case, both the proceedings i.e., the impugned proceedings under Section 148A of the Act as well as the consequential notices under Section 148 of the Act were issued by the local jurisdictional assessing officer and not in the prescribed faceless manner. The order under Section 148A(d) of the Act and the notices under Section 148 of the Act are issued on 29.07.2022, i.e., after the “Faceless Jurisdiction of the Income Tax Authorities Scheme, 2022”and the “e-Assessment of Income Escaping Assessment Scheme, 2022” were introduced.

Firstly, the statutory provisions enumerated in the preceding paragraphs and secondly, the subsequent direction given by the Hon’ble Supreme Court in the case of Ashish Agarwal, what is clearly reflected is the fact that when the Hon’ble Supreme Court had partly allowed the petitions which were filed by the Union of India challenging the judgements of various High Courts whereby the notice under Section 148 of the unamended Act were set aside by the High Courts, the Hon’ble Supreme Court has only permitted the Union of India to proceed further with the reassessment proceedings under the amended provision of law, more particularly, as amended by the Finance Act, 2021. It never intended the authorities concerned to continue with the proceedings from the stage of the issuance of notices under Section 148, nor is the directions to that effect.

The Hon’ble Supreme Court has in paragraph No.7 specifically held that the High Courts have rightly held that the benefit of new provisions shall be made available in respect of the proceedings relating to past assessment years. Further, the Hon’ble Supreme Court again in paragraph No.8 very emphatically had said that the proceedings ought not to have been issued under the unamended Act. Rather ought to have been issued under the substituted provisions as per the Finance Act, 2021. Further, in the same paragraph clearly directed the Income Tax Department to proceed further as per the Finance Act, 2021, subject to compliance of all the procedural requirements and defences available to the assessee under the substituted provisions under the Finance Act, 2021.
The fact that the Hon’ble Supreme Court allowed the notice earlier issued under Section 148 to be treated as the show cause notice issued under Section 148A(b) by itself establishes the fact that the directions given by the Hon’ble Supreme Court for the Department was to proceed further in accordance with the substituted provisions which stood introduced by the Finance Act, 2021.

Observation of the Court in respect of present case in back drop of above legal analysis

In the instant case, undisputedly the Department has not proceeded against the petitioner under the substituted provisions of the Finance Act, 2021. Rather, it proceeded in accordance with the unamended provisions of law. This in other words takes the position back to the stage as it stood when the initial notices under Section 148 under the unamended provisions of law were issued.

Principle of law – where the power is given to do certain things in certain way, the thing has to be done in that way alone

It is well settled principle of law that where the power is given to do certain things in certain way, the thing has to be done in that way alone and no any other manner which is otherwise not provided under the law.

The Hon’ble Supreme Court in the case of Chandra Kishore Jha Vs. Mahaveer and others [1999 8 SCC 266] in paragraph No.17 laying down the aforesaid principle held as under “it is well settled solitary principle that if statute provides for a thing to be done in a particular manner, then it has to be done in that manner and in no other manner.”

In the case of Tata Chemicals Limited Vs. Commissioner of Customs (preventive) Jam Nager (2015 11 SCC 628), wherein it has been held that there can be no stopple against the law. If the law requires something to be done in a particular manner, then it must be done in that manner, if it is not done in that manner then it would have no existence in the eye of law.

Application of aforesaid principle of law to the present case by the Hon’ble High Court

If we look into the principle of law laid down by the Hon’ble Supreme Court as enumerated in the preceding paragraphs and when we look into the facts of the present case, it would clearly reflect that the Parliament had by virtue of the Finance Act 2021 brought certain amendments to the provisions of the Income Tax Act, more particularly, in respect of the manner in which the reassessment is to be initiated and the procedure to be adopted by the Income Tax Department.
The amendment was brought with an intention to make the law more transparent and effective. The Hon’ble Supreme Court also while deciding the case of Ashish Agarwal, had specifically directed the Union of India to proceed further in terms of the substituted provisions brought in by way of Finance Act 2021.

What is also relevant to take note of the fact that the Hon’ble Supreme Court while exercising its power under Article 142 of the Constitution of India has also not relaxed the applicability of the Finance Act 2021. Rather, the Hon’ble Supreme Court in very clear and unambiguous terms had held that the notices issued under the un-amended provisions, which were struck down by the High Court, shall be treated as a notice under new amended provisions and the Union of India was directed to proceed further from that stage in terms of the amended provisions of law. In spite of such specific clear directions by the Hon’ble Supreme Court, the Union of India for reasons best known again proceeded with the procedure as it stood prior to the amended provisions which came into force from 01.04.2021.

In view of the aforesaid discussions, it is by now very clear that the procedure to be followed by the Department upon treating the notices issued for reassessment being under Section 148A, the subsequent proceedings was mandatorily required to be undertaken under the substituted provisions as laid down under the Finance Act, 2021. In the absence of which, we are constrained to hold that the procedure adopted by the Department is in contravention to the statute i.e. the Finance Act, 2021, at the first instance. Secondly, it is also in direct contravention of the directives issued by the Hon’ble Supreme Court in the case of Ashish Agarwal.

Decision

For all the aforesaid reasons, the impugned notices issued and the proceedings drawn by the Department is neither tenable, nor sustainable. The notices so issued and the procedure adopted being per se illegal, deserves to be and are accordingly set aside/quashed. As a consequence, all the impugned orders getting quashed, the consequential orders passed by the Department pursuant to the notices issued under Section 147 and 148 would also get quashed and it is ordered accordingly. The reason for quashing the consequential order is on the principles that when the initiation of the proceedings itself was procedurally wrong, the subsequent orders also gets nullified automatically.

The preliminary objection raised by the petitioner is sustained and all these writ petitions stands allowed on this very jurisdictional issue. Since the impugned notices and orders are getting quashed on the point of jurisdiction, we are not inclined to proceed further and decide the other issues raised by the petitioner which stands reserved to be raised and contended in an appropriate proceeding.

The Court allows the petitions only on the procedural flaw, the right conferred on the Revenue would remain reserved to proceed further if they so want from the stage of the order of the Supreme Court in the case of Ashish Agarwal.

Posted on: September 17th, 2023