2025 (6) TMI 1227 - 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 u/s 148A and u/s 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 u/s 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 in 2024 (12) TMI 1586 - SC ORDER 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

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court are:

• Whether the notices issued under Section 148A and Section 148 of the Income Tax Act, 1961, were validly issued in light of the amendments introduced by the Finance Act, 2021, which mandate faceless proceedings under these provisions.
• Whether the initiation of proceedings under Sections 148A and 148 without following the faceless procedure violates the statutory scheme and judicial precedents.
• The impact of prior judicial decisions, including a recent judgment by this High Court and various other High Courts, on the validity of such notices and proceedings.
• The procedural propriety and judicial discipline regarding the adherence to binding High Court decisions by the Income Tax Department officers.
• The appropriate course of action pending the outcome of multiple Special Leave Petitions (SLPs) filed before the Supreme Court challenging the High Court decisions on this issue.
• The balance between protecting the interests of the Revenue and the assessee in the context of procedural compliance and the initiation of fresh proceedings.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Notices under Sections 148A and 148 in Light of Finance Act, 2021 Amendments

Relevant legal framework and precedents: The Income Tax Act was amended by the Finance Act, 2021, effective from 01.04.2021, mandating that proceedings under Sections 148A and 148 be conducted in a faceless manner. Section 151A and Notification 18/2022 dated 29.03.2022 further reinforce this procedural requirement. The Court relied heavily on the judgment in KANKANALA RAVINDRA REDDY vs. INCOME-TAX OFFICER, where it was held that notices and proceedings not conducted facelessly violate the amended statutory provisions and are liable to be quashed.

Court's interpretation and reasoning: The Court affirmed that the legislative intent behind the amendments was to ensure faceless proceedings, thereby promoting transparency and efficiency. The issuance of notices and initiation of proceedings in a non-faceless manner contravenes the statutory mandate and is thus illegal.

Key evidence and findings: The Court observed that despite the clear legal position, the Income Tax Department continues to issue non-faceless notices under Sections 148A and 148, leading to a surge in identical writ petitions.

Application of law to facts: Applying the statutory provisions and binding precedents, the Court found the impugned notices and consequent proceedings to be procedurally flawed and therefore void.

Treatment of competing arguments: The Revenue contended that the matter is sub judice before the Supreme Court via multiple SLPs and that no interim relief was granted. They also argued against disposing of petitions to avoid burdening the Department with multiple SLPs and claimed no prejudice would be caused to petitioners as interim protection was already granted. The Court rejected these contentions, emphasizing the need to uphold judicial discipline and prevent unnecessary litigation.

Conclusions: The Court held that notices issued under Sections 148A and 148 not following faceless procedure are invalid and liable to be quashed, consistent with the judgment in Kankanala Ravindra Reddy and other High Court decisions.

Issue 2: Judicial Discipline and Binding Nature of High Court Decisions on Revenue Authorities

Relevant legal framework and precedents: The Court referred to the decision in BANK OF INDIA vs. ASSISTANT COMMISSIONER, INCOME TAX, which underscores that revenue officers are bound by appellate and High Court decisions unless set aside by competent authority. The Supreme Court in Union of India vs. Kamlakshi Finance Corporation Ltd. criticized departmental officers for disregarding binding judicial pronouncements.

Court's interpretation and reasoning: The Court reiterated that the Revenue cannot treat High Court decisions as "not acceptable" or await their setting aside before complying. Such conduct leads to harassment of taxpayers and disrupts the administration of tax laws.

Key evidence and findings: The Court noted the Income Tax Department's persistent initiation of proceedings contrary to binding High Court rulings, which has resulted in a docket explosion and increased litigation burden.

Application of law to facts: The Court applied the principle of judicial discipline mandating adherence to binding precedents and found the Department's conduct to be contrary to this principle.

Treatment of competing arguments: The Department argued that policy decisions regarding procedural changes must be taken at the Central Board of Direct Taxes (CBDT) level and cannot be localized. The Court acknowledged this but emphasized that until such policy decisions are made, the Department must comply with binding judicial rulings.

Conclusions: The Court condemned the Department's disregard for judicial discipline and directed adherence to binding High Court decisions to prevent undue hardship and litigation.

Issue 3: Pendency of Identical Writ Petitions and Impact on Judicial Resources

Relevant legal framework and precedents: The Court relied on its own prior ruling in Kankanala Ravindra Reddy and similar judgments from other High Courts that have consistently held the non-faceless notices invalid.

Court's interpretation and reasoning: The Court expressed grave concern over the continuous filing of identical writ petitions despite clear precedents, resulting in docket explosion and judicial resource strain.

Key evidence and findings: The Court observed that 600 to 700 petitions on the same issue are pending before the High Court, with daily filings of 5 to 10 new petitions.

Application of law to facts: The Court found that the Department's failure to halt or modify its practice of issuing non-faceless notices is the root cause of this litigation surge.

Treatment of competing arguments: The Department's argument that no interim order has been granted by the Supreme Court and that they are awaiting its decision was noted. However, the Court emphasized that the Department cannot ignore binding High Court rulings pending Supreme Court adjudication.

Conclusions: The Court directed timely disposal of such matters and discouraged further filing of identical petitions to reduce pendency and judicial burden.

Issue 4: Protection of Revenue's Rights and Assessees' Interests Pending Supreme Court Decision

Relevant legal framework and precedents: The Court referred to paragraph 38 of the Kankanala Ravindra Reddy judgment, which allowed the Revenue a one-time measure to initiate fresh proceedings in a faceless manner, preserving its rights while protecting assessees from invalid proceedings.

Court's interpretation and reasoning: The Court acknowledged the balance struck by previous rulings, which quashed invalid notices but preserved the Revenue's liberty to initiate fresh proceedings compliant with the amended law.

Key evidence and findings: The Court found that the Department has not availed itself of this liberty properly but continues to initiate invalid proceedings.

Application of law to facts: The Court applied the principle that procedural correctness is mandatory and that the Revenue's rights are subject to compliance with statutory provisions and judicial rulings.

Treatment of competing arguments: The Department's attempt to delay disposal of petitions to benefit from extended limitation periods was criticized as detrimental to assessees' interests.

Conclusions: The Court disposed of the writ petition quashing the impugned notices and consequential orders, subject to the outcome of the pending Supreme Court SLPs, with liberty to revive the petition if necessary.

3. SIGNIFICANT HOLDINGS

"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. The reason we are 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 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 - in itself an objectionable phrase - and is the subject matter of an appeal can furnish no ground for not following it unless its operation has been suspended by a competent court."

"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."

Core principles established include:

• Compliance with faceless procedure as mandated by the Finance Act, 2021, is mandatory for proceedings under Sections 148A and 148.
• Non-faceless notices and proceedings are illegal and void ab initio.
• Revenue authorities are bound by High Court and appellate decisions and cannot disregard them on the basis of pending appeals or personal disagreement.
• The balance between Revenue's rights and assessee's protection must be maintained, with liberty to initiate fresh proceedings strictly in accordance with amended law.
• The pendency of identical writ petitions on settled issues must be controlled to conserve judicial resources.
• Disposal of writ petitions may be subject to pending Supreme Court decisions, with liberty to revive if necessary.

Final determinations on each issue:

• The notices under Sections 148A and 148 issued without following faceless procedures are quashed.
• The consequential assessment orders based on such notices are also quashed.
• The Income Tax Department must adhere to binding High Court decisions and cannot ignore them pending Supreme Court adjudication.
• The writ petition is disposed of with liberty to revive post Supreme Court decision on the pending SLPs.
• No costs were awarded, and miscellaneous petitions, if any, were closed.