2023 (11) TMI 1370 - HC - Income Tax

Challenging the Assessment Order passed u/s 148A(d) - as argued respondents while proceeding u/s 148 were required to issue notice u/s 148A and provide an opportunity of hearing to the assessee and reopening has been initiated by the Jurisdictional Assessing Officer. HELD THAT - As in KANKANALA RAVINDRA REDDY VERSUS THE INCOME TAX OFFICER AND 2 OTHERS 2023 (9) TMI 951 - TELANGANA HIGH COURT the preliminary objection raised by the petitioner is sustained and all these writ petitions stands allowed on this very jurisdictional issue. We are inclined to allow the present writ petition also on similar terms. Accordingly the present Writ Petition stands allowed on the objection of the petitioner that the proceedings have not been drawn in accordance with the amended provision but under the unamended provision which is otherwise not sustainable.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in these writ petitions are:

• Whether the reopening of assessment under Section 148 of the Income Tax Act, 1961 (the Act) for the Assessment Year 2018-19 was validly initiated in compliance with the amended provisions of the Act effective from 01.04.2021, particularly the requirement to issue notice under Section 148A and conduct proceedings in a faceless manner.
• Whether the reopening proceedings initiated by the Jurisdictional Assessing Officer (and not in a faceless manner) violated the procedural safeguards introduced by the amendment.
• Whether the procedural irregularity in initiating the reassessment proceedings under the unamended provisions renders the assessment order unsustainable.
• Whether the Revenue's right to proceed further under the substituted provisions remains preserved despite quashing the impugned notices and orders on procedural grounds.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of reopening under amended provisions of the Income Tax Act

Relevant legal framework and precedents: The Income Tax Act was amended effective 01.04.2021 to introduce mandatory procedural safeguards for reopening assessments, including issuance of notice under Section 148A and conducting reassessment proceedings in a faceless manner. This amendment aims to enhance transparency and reduce arbitrariness in reopening assessments.

The Court relied on its earlier batch decision dated 14.09.2023 in W.P. No. 25903 of 2022 and connected matters, where the identical issue was addressed.

Court's interpretation and reasoning: The Court noted that the reopening in the instant case was initiated by the Jurisdictional Assessing Officer and not through faceless proceedings as mandated by the amended law. This procedural deviation from the statutory mandate was held to be a jurisdictional flaw.

Key evidence and findings: The assessment order dated 25.04.2022 was passed under Section 148A(d) but the procedural requirements under the amended Act were not complied with, specifically the faceless mechanism and issuance of proper notice under Section 148A.

Application of law to facts: Since the reopening did not comply with the amended provisions which are mandatory, the Court found the reopening invalid and the assessment order unsustainable on this ground.

Treatment of competing arguments: The Department contended that apart from the procedural objection, there were other substantive objections raised by the petitioner. However, the Court, following its earlier decision, refrained from adjudicating other issues since the jurisdictional defect in initiating the proceedings was sufficient to quash the assessment.

Conclusions: The Court allowed the writ petition on the ground that the reopening was initiated under the unamended provisions, violating the mandatory procedural safeguards introduced by the amendment effective 01.04.2021.

Issue 2: Preservation of Revenue's right to proceed under substituted provisions

Relevant legal framework and precedents: The Court referred to the Supreme Court's order in the case of Ashish Agarwal, where the Revenue was permitted as a one-time measure under Article 142 of the Constitution to proceed under the substituted provisions.

Court's interpretation and reasoning: The Court held that while the impugned notices and orders were quashed on procedural grounds, the Revenue's right to initiate reassessment proceedings afresh under the amended provisions remains intact and reserved.

Key evidence and findings: The Court cited paragraphs 37 and 38 of its earlier batch judgment, which clarified that the procedural flaw led to quashing of the notices but did not extinguish the Revenue's substantive right to reassess.

Application of law to facts: The Court's decision to quash the assessment order did not preclude the Revenue from commencing fresh proceedings in compliance with the amended law.

Treatment of competing arguments: The petitioner's contention that the reopening itself was invalid was accepted only to the extent of procedural non-compliance; the substantive right of the Revenue was preserved to avoid injustice and ensure compliance with statutory norms.

Conclusions: The Court explicitly reserved the right of the Revenue to proceed further under the amended provisions, subject to adherence to procedural safeguards.

3. SIGNIFICANT HOLDINGS

The Court held: "The present Writ Petition stands allowed on the objection of the petitioner that the proceedings have not been drawn in accordance with the amended provision but under the unamended provision which is otherwise not sustainable."

It further observed: "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 proceedings."

Additionally, the Court stated: "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, supra."

Core principles established include:

• Procedural compliance under amended provisions of the Income Tax Act (post 01.04.2021) is mandatory for valid reopening of assessment.
• Reopening initiated under unamended provisions post amendment is a jurisdictional defect and unsustainable.
• Quashing of assessment orders on procedural grounds does not extinguish the Revenue's substantive right to reassess, which remains preserved subject to compliance with amended procedures.
• The Court will not decide substantive objections once jurisdictional defect is established, leaving such issues to be raised in appropriate proceedings.

Final determinations were that the impugned assessment orders were quashed due to procedural non-compliance with the amended Income Tax Act provisions, and the writ petitions were allowed without costs, with all pending miscellaneous applications closed.