2024 (7) TMI 1647 - HC - Income Tax

Reopening of assessment - Jurisdictional Officer jurisdiction having regard to Section 151A - HELD THAT - We are of the view that the impugned notice issued u/s 148 by the 1st respondent who is the Jurisdictional Officer is wholly without jurisdiction having regard to Section 151-A introduced in the Income Tax Act 1961 w.e.f. 01.11.2020 and the notification issued on 28.03.2022 thereunder which specifically contemplates that there would be automated allocation system in accordance with risk management strategy formulated by the CBDT and it is not the case of the revenue that the 1st respondent is an officer who has been so randomly allocated as per the Scheme. See Kankanala Ravindra Reddy 2023 (9) TMI 951 - TELANGANA HIGH COURT has held that in view of the provisions of Section 151A of the Act read with the Scheme dated 29th March 2022 the notices issued by the JAOs are invalid and bad in law.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

• Whether the notice issued under Section 148 of the Income Tax Act, 1961 by the jurisdictional officer without adherence to the provisions of Section 151A and the related notification dated 28.03.2022 is valid and within jurisdiction.
• Whether the procedure for issuance of reassessment notices under Sections 147, 148, and 148A of the Income Tax Act must be conducted in a faceless manner as mandated by the Central Board of Direct Taxes (CBDT) schemes introduced in 2022.
• Whether the automated allocation system, as prescribed by the CBDT notification dated 28.03.2022, is mandatory and if non-compliance with this system renders the reassessment notice invalid.
• The applicability and binding nature of recent High Court precedents on the issue of jurisdiction and procedural compliance in reassessment proceedings under the Income Tax Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity and Jurisdiction of Notice Issued under Section 148 without Compliance with Section 151A and Related Notifications

Relevant Legal Framework and Precedents: Section 148 of the Income Tax Act empowers the Assessing Officer to issue a notice for reassessment if income has escaped assessment. However, Section 151A, introduced effective 01.11.2020, and the CBDT notification dated 28.03.2022, mandate that reassessment proceedings must follow an automated allocation system and be conducted in a faceless manner under the "Faceless Jurisdiction of the Income Tax Authorities Scheme, 2022" and the "e-Assessment of Income Escaping Assessment Scheme, 2022."

The Telangana High Court in Kankanala Ravindra Reddy Vs. Income Tax Office (2023) held that the issuance of notices under Sections 147, 148, and 148A must strictly comply with these schemes, and any deviation renders the notice invalid. Similarly, the Bombay High Court in Hexaware Technologies Ltd. Vs. Assistant Commissioner of Income Tax (2024) emphasized the mandatory nature of the automated allocation system and faceless proceedings.

Court's Interpretation and Reasoning: The Court observed that the impugned notice (Annexure P-2) was issued by the local jurisdictional officer without any claim or evidence that the officer was allocated the case through the automated system as mandated. The Court found this to be a clear violation of the statutory scheme and CBDT notifications, which require reassessment notices to be issued only through the faceless, automated allocation process.

Key Evidence and Findings: The respondents failed to demonstrate that the officer issuing the notice was randomly allocated the case by the automated system. The Court relied on the absence of any such claim or proof and the express provisions of the CBDT notification.

Application of Law to Facts: Since the notice was issued by a local jurisdictional officer without adherence to Section 151A and the faceless scheme, the Court held that the notice was without jurisdiction and therefore invalid.

Treatment of Competing Arguments: The Court considered the respondents' position but found it insufficient to justify bypassing the mandatory procedures. The respondents did not contest the applicability of the faceless scheme or the automated allocation requirement but failed to establish compliance.

Conclusions: The Court concluded that the impugned notice issued under Section 148 is wholly without jurisdiction and invalid for non-compliance with Section 151A and the CBDT notification dated 28.03.2022.

Issue 2: Mandatory Nature of Faceless Proceedings and Automated Allocation System

Relevant Legal Framework and Precedents: The CBDT notifications dated 28.03.2022 and 29.03.2022 introduced schemes mandating faceless reassessment proceedings and automated allocation of cases based on risk management strategy. Paragraph 3 of the Scheme dated 29.03.2022 explicitly provides that issuance of notices shall be through automated allocation, defined as an algorithmic, randomized allocation using technological tools including AI and machine learning.

The Telangana High Court and Bombay High Court judgments reiterated that these schemes are mandatory and not discretionary, and failure to comply results in invalid proceedings.

Court's Interpretation and Reasoning: The Court interpreted the language of the CBDT schemes as clear and unambiguous, mandating faceless issuance of reassessment notices and automated allocation. The Court emphasized the principle that where a statute or scheme prescribes a particular mode of exercise of power, the same must be followed strictly ("where the power is given to do certain things in certain way, the thing has to be done in that way alone").

Key Evidence and Findings: The Court noted the absence of any evidence that the reassessment notice was issued through the automated allocation system or faceless procedure. The respondents did not dispute the mandatory nature of the scheme but failed to show compliance.

Application of Law to Facts: The Court applied the mandatory procedural requirements to the facts and found that the issuance of the notice by the local jurisdictional officer without automated allocation and faceless procedure was contrary to the statutory scheme.

Treatment of Competing Arguments: The respondents relied on earlier precedents and office memoranda that were not aligned with or did not consider the 2022 CBDT schemes. The Court distinguished such precedents and rejected reliance on office memoranda that were superseded by the statutory scheme.

Conclusions: The Court held that the faceless jurisdiction and automated allocation schemes are mandatory and binding on the Revenue, and non-compliance invalidates the reassessment notice.

3. SIGNIFICANT HOLDINGS

"Prima-facie, we are of the view that the impugned notice, Annexure P-2 issued under Section 148 of the Income Tax Act, 1961 by the 1st respondent, who is the Jurisdictional Officer, is wholly without jurisdiction having regard to Section 151-A, introduced in the Income Tax Act, 1961 w.e.f. 01.11.2020 and the notification issued on 28.03.2022 thereunder, which specifically contemplates that there would be automated allocation system in accordance with risk management strategy formulated by the CBDT and it is not the case of the revenue that the 1st respondent is an officer who has been so randomly allocated as per the Scheme."

"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 Scheme dated 29th March 2022 in paragraph 3 clearly provides that the issuance of notice 'shall be through automated allocation' which means that the same is mandatory and is required to be followed by the Department and does not give any discretion to the Department to choose whether to follow it or not."

Core principles established include:

• Reassessment notices under Sections 147, 148, and 148A must be issued through a faceless procedure as per the CBDT schemes introduced in 2022.
• The automated allocation system is mandatory and must be complied with; failure to allocate cases through this system invalidates the jurisdiction of the officer issuing the notice.
• Non-compliance with Section 151A and the related CBDT notifications renders reassessment notices invalid and without jurisdiction.
• The principle of strict adherence to the prescribed mode of exercise of power applies to reassessment proceedings under the Income Tax Act.

Final determination on the issues was that the impugned notice issued under Section 148 without compliance with Section 151A and the faceless, automated allocation scheme is invalid and without jurisdiction. Consequently, all further proceedings pursuant to the impugned notice were stayed pending further orders.