2025 (6) TMI 1491 - 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 in this matter are:

• Whether notices issued under Section 148A and Section 148 of the Income Tax Act, 1961, after the amendments introduced by the Finance Act, 2021, ought to have been issued and proceeded with in a faceless manner;
• Whether the issuance of such notices and the consequent assessment proceedings, when not conducted facelessly as mandated by the amended provisions, are valid or liable to be quashed;
• The effect of prior judicial pronouncements, including those of this Court and other High Courts, on the validity of such notices and proceedings;
• The procedural obligations of the Income Tax Department in light of pending Special Leave Petitions (SLPs) before the Supreme Court challenging these High Court decisions;
• The impact of continued issuance of impugned notices by the Income Tax Department despite binding judicial precedents and the absence of any interim stay from the Supreme Court;
• The balance between protecting the interests of the Revenue and the assessee, particularly concerning the liberty granted to the Revenue to initiate fresh proceedings in compliance with the amended provisions;
• The principle of judicial discipline requiring subordinate authorities to comply with binding appellate decisions and the consequences of non-compliance;
• The appropriate judicial approach to dispose of writ petitions on issues squarely covered by binding precedents, subject to the outcome of pending appeals.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of notices issued under Sections 148A and 148 post Finance Act, 2021 amendments and requirement of faceless proceedings

The legal framework governing this issue is the Income Tax Act, 1961, particularly Sections 148A and 148, as amended by the Finance Act, 2021 effective from 01.04.2021. The amendments mandate that proceedings under these sections must be conducted in a faceless manner, as reinforced by Notification 18/2022 dated 29.03.2022.

The Court examined prior decisions including this Court's ruling in Kankanala Ravindra Reddy vs. Income Tax Officer, where it was held that notices and proceedings not conducted facelessly violate Section 151A of the Act read with the relevant notification, rendering them illegal and liable to be quashed. This principle has been consistently followed by various High Courts across India, including Bombay, Gauhati, Punjab and Haryana, Himachal Pradesh, Gujarat, Jharkhand, Rajasthan, Calcutta, and Telangana High Courts, in cases involving both domestic and international taxation.

The Court noted that despite these binding precedents, the Income Tax Department continues to issue notices and initiate proceedings in contravention of the faceless mandate, thereby violating the statutory scheme and judicial pronouncements. The Department's justification that the matter is sub judice before the Supreme Court and that no interim stay has been granted was found insufficient to justify continued non-compliance.

The Court applied the law to the facts and concluded that the impugned notices under Sections 148A and 148 issued in a non-faceless manner are invalid and the consequential assessment orders are also nullified as they stem from procedurally flawed initiation.

Issue 2: Effect of pending Supreme Court Special Leave Petitions (SLPs) and procedural obligations of the Income Tax Department

The Income Tax Department contended that the pending SLPs before the Supreme Court against the High Court decisions justify their continued issuance of notices, arguing no interim protection has been granted to them. The Court observed that over 1200 SLPs are pending on the same issue, yet the Department has not taken any remedial or policy steps to suspend or modify its proceedings pending the Supreme Court's decision.

The Court emphasized that the Department should have deferred issuance of notices or adopted a mechanism to comply with the faceless procedure until the Supreme Court decides the matter. The Department's stance that such a decision must be taken at the Central Board of Direct Taxes (CBDT) level and cannot be limited to jurisdictional High Courts was acknowledged, but the Court noted the absence of any proactive measures to prevent further litigation and hardship to assessees.

The Court highlighted the adverse impact of the Department's approach, resulting in docket explosion with hundreds of identical writ petitions filed daily, burdening judicial resources unnecessarily.

Issue 3: Judicial discipline and binding nature of High Court decisions on subordinate authorities

The Court relied on the authoritative precedent from the Bombay High Court in Bank of India vs. Assistant Commissioner, Income Tax, which underscores the principle that subordinate revenue authorities are bound by appellate orders and judicial decisions unless set aside by a competent court or stayed. The Court quoted extensively from that decision, emphasizing that treating binding decisions as "not acceptable" and ignoring them leads to harassment of assessees and chaos in tax administration.

This principle was applied to the present facts, where the Income Tax Department's disregard of binding High Court rulings and continued issuance of invalid notices was criticized as undermining judicial discipline and causing unnecessary litigation.

Issue 4: Balancing interests of Revenue and assessees and disposal of writ petitions subject to pending SLPs

The Court acknowledged the liberty granted to the Revenue in previous decisions, including Kankanala Ravindra Reddy, to initiate fresh proceedings strictly in accordance with the amended provisions of the Income Tax Act. This liberty was preserved to protect Revenue's interests while safeguarding assessees from illegal proceedings.

The Court expressed concern that the Department's current approach appears to exploit this liberty to protract litigation and circumvent limitation periods, to the detriment of assessees.

In light of these considerations, the Court decided to dispose of the instant writ petition by quashing the impugned notices and consequential orders, subject to the outcome of the pending SLPs before the Supreme Court. The Court clarified that either party may seek revival of the writ petition depending on the Supreme Court's ruling, thus balancing finality with procedural fairness.

Issue 5: Judicial approach to pendency and docket explosion on covered issues

The Court expressed grave concern over the steep increase in litigation on an issue already settled by multiple High Courts. It emphasized the need for timely disposal of matters squarely covered by binding precedents to reduce pendency and conserve judicial resources.

The Court urged the Income Tax Department to respect judicial pronouncements and avoid initiating proceedings contrary to established law, thereby preventing unnecessary burden on the judiciary and hardship to taxpayers.

3. SIGNIFICANT HOLDINGS

The Court held verbatim as follows:

"The impugned notices issued and the proceedings drawn by the respondent-Department is neither tenable, nor sustainable. 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 preliminary objection raised by the petitioner is sustained and all these writ petitions stands allowed on this very jurisdictional issue. 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."

"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."

Core principles established include:

• Notices under Sections 148A and 148 must be issued and proceedings conducted in a faceless manner as mandated by the Finance Act, 2021 amendments and related notifications;
• Non-compliance with the faceless procedure renders notices and consequent assessment orders invalid and liable to be quashed;
• Binding judicial precedents must be respected and implemented by subordinate authorities, and non-compliance constitutes a breach of judicial discipline;
• Pending appeals or SLPs do not justify ignoring binding High Court decisions in the absence of an interim stay;
• Courts should dispose of writ petitions on covered issues expeditiously to prevent docket explosion and conserve judicial resources, subject to the outcome of pending higher court appeals;
• The Revenue's right to initiate fresh proceedings in compliance with amended provisions is preserved, but cannot be used to circumvent limitation or judicial rulings.

Final determinations:

• The impugned notices under Sections 148A and 148 and consequential assessment orders are quashed for lack of jurisdiction and procedural illegality;
• The writ petition is allowed subject to the outcome of pending SLPs before the Supreme Court, with liberty to revive the petition accordingly;
• No costs were imposed, and pending miscellaneous petitions were closed.