2025 (1) TMI 1567 - HC - Income Tax

Reopening of assessment - Jurisdictional Officer is wholly without jurisdiction having regard to Section 151A - HELD THAT - Similar view has been taken in a judgment rendered in Kankanala Ravindra Reddy 2023 (9) TMI 951 - TELANGANA HIGH COURT both the proceedings i.e. the impugned wherein 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 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 29.04.2022 i.e. after the Faceless Jurisdiction of the Income Tax Authorities Scheme 2022. and the eAssessment of Income Escaping Assessment Scheme 2022 were introduced. 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. Therefore there shall be interim stay of all further proceedings pursuant to Annexure-3 notice issued to the petitioner until further orders. List on 02.04.2025. Reply if any be filed in the meanwhile.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

(a) Whether the notice issued under Section 148 of the Income Tax Act, 1961 by the jurisdictional officer without adherence to the automated allocation system mandated under Section 151A of the Income Tax Act, 1961 and the related notification dated 28.03.2022 is valid and within jurisdiction;

(b) Whether the reassessment proceedings under Sections 147, 148, and 148A of the Income Tax Act must be initiated and conducted in a faceless manner as per the statutory scheme introduced by the Central Board of Direct Taxes (CBDT);

(c) Whether the issuance of notices and proceedings by local jurisdictional officers, not allocated through the prescribed automated system, contravenes the statutory scheme and is liable to be quashed;

(d) The applicability and binding nature of the CBDT's notification dated 28.03.2022 and the related faceless assessment schemes on the reassessment proceedings;

(e) The extent to which precedents from other High Courts, particularly Telangana and Bombay High Courts, influence the interpretation of jurisdiction and procedural compliance under the Income Tax Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (b): Validity of the notice under Section 148 without adherence to the automated allocation system and faceless procedure

The Court examined the legal framework introduced by the amendment of the Income Tax Act, 1961, specifically Section 151A, effective from 01.11.2020, and the subsequent notification dated 28.03.2022 issued by the CBDT. The notification mandates that reassessment proceedings under Sections 147, 148, and 148A must be initiated through an automated allocation system, which employs algorithms, artificial intelligence, and machine learning to randomly allocate cases to officers. This system is designed to optimize resource use and ensure impartiality.

The Court relied heavily on the interpretation of these provisions and notifications as set out in the Telangana High Court decision in Kankanala Ravindra Reddy v. ITO, which held that the reassessment proceedings must be faceless and allocated through the automated system. The Court emphasized that the statutory scheme leaves no discretion to the revenue authorities to bypass the automated allocation system. The issuance of notices by officers not allocated through this system is therefore without jurisdiction.

The Court highlighted the principle that where a statute prescribes a mode of exercise of power, that mode alone must be followed ("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"). This principle was applied to hold that the impugned notice issued by the 4th respondent, a local jurisdictional officer not allocated through the automated system, was invalid.

Issue (c): Issuance of notices by local jurisdictional officers not allocated through the automated system

The Court scrutinized the facts that the impugned notice dated 31.08.2024 was issued by the 4th respondent, who was not shown to be an officer randomly allocated under the automated allocation system as mandated by the CBDT's scheme. The Court found no case made out by the revenue to justify that the 4th respondent was duly allocated the reassessment proceeding under the prescribed scheme.

In this context, the Court also referred to the Bombay High Court's ruling in Hexaware Technologies Ltd. v. Asstt. CIT, which similarly held that the issuance of notices must be through automated allocation and that the Department has no discretion to deviate from this requirement. The Bombay High Court further disapproved reliance on certain Office Memoranda that purported to justify jurisdiction of local officers outside the scheme, holding that such memoranda cannot override the statutory scheme.

The Court thus concluded that the issuance of the notice by the local jurisdictional officer without compliance with the automated allocation system was without jurisdiction and bad in law.

Issue (d): Applicability and binding nature of the CBDT's notification dated 28.03.2022 and faceless assessment schemes

The Court noted that the CBDT's notification dated 28.03.2022 and the related "Faceless Jurisdiction of the Income Tax Authorities Scheme, 2022" and "eAssessment of Income Escaping Assessment Scheme, 2022" are statutory instruments that govern the procedure for reassessment proceedings. These schemes make it mandatory that reassessment notices and proceedings be conducted in a faceless manner and allocated through the automated system.

The Court emphasized that these schemes are not optional guidelines but mandatory procedural requirements enacted to ensure transparency, uniformity, and fairness in reassessment proceedings. The Court rejected any argument that the revenue may choose to initiate reassessment proceedings outside this faceless scheme.

Issue (e): Influence of precedents from other High Courts

The Court extensively relied on the Telangana High Court's decision in Kankanala Ravindra Reddy v. ITO and the Bombay High Court's decision in Hexaware Technologies Ltd. to interpret the scope and application of Section 151A and the CBDT's faceless schemes. These precedents were found to be directly on point and authoritative on the issue of jurisdiction and procedural compliance.

The Court distinguished a decision of the Calcutta High Court in Triton Overseas Private Limited, which had not considered the CBDT's 29.03.2022 scheme and was therefore held not to be a binding precedent on the issue of jurisdiction. The Court also noted that reliance on certain Office Memoranda cited in that decision was misplaced as they do not override the statutory scheme.

3. SIGNIFICANT HOLDINGS

The Court held that the impugned notice issued under Section 148 of the Income Tax Act by the 4th respondent, a local jurisdictional officer, without allocation through the automated allocation system mandated under Section 151A and the CBDT's notification dated 28.03.2022, is wholly without jurisdiction and invalid.

The Court preserved the following crucial legal reasoning verbatim from the Telangana High Court decision:

"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 Court established the core principle that reassessment proceedings under Sections 147, 148, and 148A of the Income Tax Act must be initiated and conducted in a faceless manner, with notices issued only by officers allocated through the automated allocation system as per the CBDT's scheme.

The Court concluded that any notice issued outside this prescribed scheme is invalid and that the revenue has no discretion to bypass the faceless procedure or the automated allocation mechanism.

Accordingly, the Court granted an interim stay on all further proceedings pursuant to the impugned notice until further orders.