2025 (6) TMI 1146 - HC - Income Tax

Validity of reassessment proceedings - notices issued u/s 148A and 148 challenged - as argued notices issued u/s 148A and the subsequent initiation of proceedings u/s 148 by the jurisdictional Assessing Officer which ought to have also been issued and proceeded in a faceless manner HELD THAT - This issue of proceedings being in violation of the Finance Act 2021 i.e. the impugned notices u/s 148A and Section 148 of the Act not being issued in a faceless manner have already been dealt with and decided by this Court in the case of KANKANALA RAVINDRA REDDY vs. INCOME-TAX OFFICER 2023 (9) TMI 951 - TELANGANA HIGH COURT whereby a batch of writ petitions were allowed and the proceedings initiated u/s 148A as also u/s 148 of the Act were held to be bad with consequential reliefs on the ground of it being in violation of the provisions of Section 151A of the Act read with Notification 18/2022 dated 29.03.2022. The said judgment passed by this Court has also been subsequently followed in a large number of writ petitions which were allowed on similar terms. To a query being put to the learned counsel for the Revenue they have categorically accepted the fact that there is no interim order granted by the Hon ble Supreme Court in any of these matters pending before it. Meanwhile fresh writ petitions of identical nature are being piled up before this Bench on daily basis and the pendency is getting increased on matter which otherwise has already been dealt and decided by this very High Court itself. On the one hand even though the order of this Court that was passed as early as on 14.09.2023 and more 16 months have lapsed till date we do not find any remedial steps having been taken by the Income Tax Department to take appropriate steps to either hold back issuance of notice under Section 148A and under Section 148 of the Act by the jurisdictional Assessing Officer rather the authorities concerned in the teeth of series of decisions by all the major High Courts in India are continuously still initiating proceedings under Section 148A of the Act and also initiating proceedings under Section 148 of the Act in contravention to the amendments brought into the Income Tax Act pursuant to the Finance Act 2020 as also the Finance Act 2021. This Bench is of the considered opinion that unless and until we do not timely dispose of matters which are squarely covered by the decision of this Court and which stands fortified by the decisions of the various other High Courts on the very same issue the pendency of this High Court would further be burdened which otherwise can be decided and disposed of as a covered matter. We would only further like to make observations that since we are inclined to dispose of the instant writ petition conscious of the fact that the earlier order of this High Court in the case of Kanakala Ravindra Reddy 2023 (9) TMI 951 - TELANGANA HIGH COURT is subjected to challenge before the Hon ble Supreme Court preferred by the Income Tax Department we make it clear that allowing of the instant writ petition is subject to outcome of the aforesaid SLP preferred by the Revenue against the decision of this High Court in the case of Kanakala Ravindra Reddy (1 supra). This in other words would mean that either of the parties if they so want may move an appropriate petition seeking revival of this writ petition in the light of the decision of the Hon ble Supreme Court in the pending SLP on the very same issue. Accordingly the instant writ petition stands allowed in favour of the assessee so far as the issue of jurisdiction is concerned. As a consequence the impugned notice under challenge under Sections 148-A and 148 stands set aside/quashed.

Summary

The core legal questions considered in this judgment revolve around the validity and procedural propriety of notices issued under Sections 148A and 148 of the Income Tax Act, 1961, particularly in light of amendments introduced by the Finance Act, 2021. The principal issues are:

• Whether notices under Sections 148A and 148 of the Income Tax Act ought to have been issued and proceedings conducted in a faceless manner as mandated by the Finance Act, 2021.
• Whether the issuance of such notices and initiation of proceedings by the Assessing Officer in a non-faceless manner violates the amended statutory provisions and prior judicial pronouncements.
• The effect of prior decisions of various High Courts, including this Court's own ruling in Kankanala Ravindra Reddy, on the legality of such notices and proceedings.
• The implications of pending Special Leave Petitions (SLPs) before the Supreme Court challenging these High Court decisions, and whether writ petitions on identical grounds should be entertained pending final adjudication.
• The administrative conduct of the Income Tax Department in continuing to issue non-faceless notices despite judicial rulings and pending Supreme Court consideration.
• The balance between protecting the interests of the Revenue and the assessee, particularly regarding the initiation of fresh proceedings in conformity with the amended law.

Issue-wise Detailed Analysis:

1. Validity of Notices under Sections 148A and 148 and the Faceless Proceedings Requirement

The Finance Act, 2021, effective from 01.04.2021, amended the Income Tax Act to mandate that proceedings under Sections 148A and 148 be conducted in a faceless manner. The petitioner challenged the notices issued under these sections on the ground that they were not issued facelessly, thereby violating the statutory mandate.

The Court referred extensively to its prior ruling in Kankanala Ravindra Reddy, where similar notices and proceedings were quashed for non-compliance with the faceless procedure as prescribed under Section 151A read with Notification 18/2022 dated 29.03.2022. This precedent was followed by numerous other High Courts, including Bombay, Gauhati, Punjab and Haryana, Himachal Pradesh, Gujarat, Jharkhand, Rajasthan, and Calcutta, each holding that non-faceless issuance of notices under Sections 148A and 148 contravenes the amended statutory scheme.

The Court emphasized that the faceless procedure is a mandatory procedural safeguard introduced to ensure transparency, efficiency, and uniformity in income tax proceedings. Issuance of notices outside this framework renders the proceedings void ab initio.

2. Effect of Pending Supreme Court SLPs and Continuation of Identical Writ Petitions

The Revenue contended that since the High Court decisions, including Kankanala Ravindra Reddy and Hexaware Technologies Ltd., are under challenge before the Supreme Court via numerous SLPs (over 1200), and no interim relief has been granted, writ petitions on the same issue should be held in abeyance to avoid burdening the Department and the exchequer.

The Court noted the absence of any interim order from the Supreme Court and expressed concern over the continuous filing of identical writ petitions, which has caused a docket explosion with 600-700 petitions pending on the same issue. The Court observed that the Department has failed to take remedial steps to halt issuance of non-faceless notices despite the clear judicial consensus against such practice.

The Court rejected the Department's argument that holding petitions would prevent unnecessary litigation, pointing out that the Department's own conduct in continuing to issue invalid notices exacerbates the litigation burden.

3. Administrative Conduct and Need for Policy Intervention

The Court criticized the Income Tax Department for not adopting a uniform policy or issuing instructions to restrain jurisdictional officers from issuing non-faceless notices pending Supreme Court adjudication. The Department's stance that such policy decisions must be taken by the Central Board of Direct Taxes (CBDT) at the pan-India level was found insufficient to justify ongoing procedural violations.

The Court underscored that the Department's failure to act responsibly has resulted in unnecessary harassment of taxpayers and undue burden on the judiciary, contrary to the principles of judicial discipline and administrative efficiency.

4. Judicial Discipline and Binding Nature of High Court Decisions

Relying on the decision in Bank of India vs. Assistant Commissioner of Income Tax, the Court reiterated the principle that revenue authorities are bound by the decisions of higher appellate authorities unless and until those decisions are stayed or set aside by competent courts. The Court quoted:

"The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities... The mere fact that the order of the appellate authority is not 'acceptable' to the department... can furnish no ground for not following it unless its operation has been suspended by a competent court."

This principle was applied to emphasize that the Department's refusal to comply with High Court rulings, pending Supreme Court decisions, constitutes a breach of judicial discipline and causes undue hardship.

5. Protection of Revenue's Rights and Assessee's Interests

The Court highlighted that in the Kankanala Ravindra Reddy decision, while quashing the impugned notices and proceedings, it preserved the Revenue's right to initiate fresh proceedings strictly in accordance with the amended provisions of the Income Tax Act. This balanced approach protects both the Revenue's legitimate interests and the assessee's rights against procedural irregularities.

The Court observed that the Department has not availed itself of this liberty to initiate fresh faceless proceedings but instead continues to rely on invalid non-faceless notices, which the Court found to be a deliberate strategy to circumvent limitation periods and prolong litigation.

6. Disposal of Present Writ Petition and Conditions

Given the extensive judicial consensus and the Department's failure to desist from issuing non-faceless notices, the Court decided to allow the present writ petition, quashing the impugned notices and consequential orders under Sections 148A and 148.

However, the Court made it clear that this disposal is subject to the outcome of the pending SLPs before the Supreme Court. It provided liberty to the parties to revive the writ petition depending on the Supreme Court's decision, thus preserving the procedural rights of both sides.

Conclusions:

• Notices issued under Sections 148A and 148 of the Income Tax Act must be issued and proceedings conducted in a faceless manner as mandated by the Finance Act, 2021. Non-compliance renders such notices and proceedings void.
• High Court decisions quashing non-faceless notices are binding on the Department unless stayed or overturned by the Supreme Court. The Department's failure to comply constitutes a breach of judicial discipline.
• The continued issuance of non-faceless notices despite judicial pronouncements and pending Supreme Court adjudication causes unnecessary litigation, harassment, and judicial burden.
• The Income Tax Department must adopt appropriate policy measures at the CBDT level to prevent issuance of invalid notices pending final adjudication.
• The Revenue's right to initiate fresh proceedings in accordance with amended law is preserved, balancing the interests of the Revenue and the assessee.
• The writ petition is allowed, quashing the impugned notices and consequential orders, subject to the outcome of pending Supreme Court SLPs, with liberty to revive the petition accordingly.

Significant Holdings and Core Principles:

"The principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities... The mere fact that the order of the appellate authority is not 'acceptable' to the department... can furnish no ground for not following it unless its operation has been suspended by a competent court."

"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 respondent-Department pursuant to the notices issued under Section 147 and 148 would also get quashed and it is ordered accordingly."

"Since the Hon'ble Supreme Court had, in the case of Ashish Agarwal, supra, as a one-time measure exercising the powers under Article 142 of the Constitution of India, permitted the Revenue to proceed under the substituted provisions, and this Court allowing 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, supra."

These holdings establish that procedural compliance with faceless proceedings is mandatory, that judicial decisions are binding on revenue authorities, and that the Revenue's rights to initiate proceedings are preserved only when strictly adhering to the amended statutory framework.