2025 (7) TMI 528 - HC - Income Tax

Validity of reassessment proceedings - notices issued u/s 148A by the JAO OR in a faceless manner - violation of the provisions of Section 151A - contention of the petitioner is that the 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 HELD THAT - Similar issue is already been dealt with and decided by this Court in the case of Kankanala Ravindra Reddy 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. Down the line we find that the same issue has also been decided against the Revenue by various High Courts in the case of Hexaware Technologies Ltd. 2024 (5) TMI 302 - BOMBAY HIGH COURT Ram Narayan Sah vs. Union Of India 2024 (6) TMI 219 - GAUHATI HIGH COURT Jatinder Singh Bangu vs. Union Of India 2024 (7) TMI 1191 - PUNJAB AND HARYANA HIGH COURT and Sri Venkataramana Reddy Patloola 2024 (9) TMI 100 - TELANGANA HIGH COURT . Assessee appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter are:

• Whether the notices issued under Sections 148A and 148 of the Income Tax Act, 1961 ("the Act") comply with the procedural requirements introduced by the Finance Act, 2021, specifically the mandate for faceless proceedings.
• Whether the initiation of proceedings under Sections 148A and 148 without following the faceless procedure violates the amended provisions of the Act, particularly Section 151A and the relevant notifications issued thereunder.
• Whether the decisions of various High Courts, including this Court's earlier ruling in Kankanala Ravindra Reddy, which held such non-faceless proceedings as invalid, are binding on the Income Tax Department despite pending Special Leave Petitions (SLPs) before the Supreme Court.
• Whether the Income Tax Department's continued issuance of non-faceless notices despite adverse judicial pronouncements amounts to disregard of judicial discipline and causes undue hardship to assessees.
• The appropriate course of action for the High Court in disposing of writ petitions raising identical issues pending before it, given the multiplicity of such petitions and the pendency of SLPs before the Supreme Court.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Compliance with the Faceless Procedure under the Finance Act, 2021

Relevant legal framework and precedents: The Finance Act, 2021 introduced amendments to the Income Tax Act mandating that proceedings under Sections 148A and 148 be conducted in a faceless manner, as per Section 151A and Notification 18/2022 dated 29.03.2022. The faceless assessment regime aims to enhance transparency and reduce harassment in tax proceedings.

Judicial pronouncements, notably this Court's decision in Kankanala Ravindra Reddy vs. Income-Tax Officer, have held that issuance of notices under Sections 148A and 148 in a non-faceless manner violates these statutory provisions and is therefore invalid. This view has been consistently followed by multiple High Courts across India, including Bombay, Gauhati, Punjab and Haryana, Himachal Pradesh, Gujarat, Jharkhand, Rajasthan, Calcutta, and Telangana, reflecting a uniform judicial consensus.

Court's interpretation and reasoning: The Court reaffirmed that the procedural mandate for faceless issuance of notices is mandatory and not directory. The non-compliance renders the notices and consequent proceedings void ab initio. The Court emphasized that the amendments introduced by the Finance Act, 2021 and related notifications are binding on the Income Tax Department and must be strictly adhered to.

Key evidence and findings: The record revealed that despite the clear legal position and judicial pronouncements, the Income Tax Department continued to issue non-faceless notices under Sections 148A and 148, leading to a surge in litigation. The Department's contention that the issue is sub judice before the Supreme Court and that no interim relief has been granted was noted but rejected as a justification for non-compliance.

Application of law to facts: The Court applied the binding precedents and statutory provisions to quash the impugned notices and assessment orders issued in violation of the faceless procedure. The Court found that the procedural irregularity vitiates the entire proceedings.

Treatment of competing arguments: The Revenue's argument that allowing the writ petition immediately would lead to multiple SLPs and burden the exchequer was considered but found insufficient to justify continued non-compliance. The Court also noted the Department's failure to take remedial steps or issue instructions to halt such non-faceless proceedings pending Supreme Court adjudication.

Conclusion: Notices and proceedings under Sections 148A and 148 issued in a non-faceless manner are illegal and liable to be quashed.

Issue 2: Binding Nature of High Court Decisions Despite Pending SLPs

Relevant legal framework and precedents: The principle of judicial discipline mandates that decisions of a High Court bind subordinate authorities unless stayed or set aside by a competent court. The Court relied on the authoritative pronouncement in Bank of India vs. Assistant Commissioner, Income Tax, where the Bombay High Court underscored the obligation of Revenue authorities to comply with binding appellate orders notwithstanding pending appeals or SLPs.

Court's interpretation and reasoning: The Court reiterated that the mere pendency of SLPs before the Supreme Court does not absolve the Income Tax Department from following binding High Court decisions. The Department's approach of treating adverse decisions as "not acceptable" and continuing non-compliance was criticized as contrary to principles of judicial discipline and fairness.

Key evidence and findings: The Court observed the Department's persistent issuance of non-faceless notices despite numerous High Court rulings against such practice and no interim relief granted by the Supreme Court in pending SLPs.

Application of law to facts: The Court held that the Department's conduct amounts to undue harassment of assessees and undermines the rule of law. It emphasized that the Department must respect and implement binding judicial pronouncements pending final adjudication.

Treatment of competing arguments: The Revenue's plea for continued issuance of notices to avoid limitation expiry was noted but rejected as an impermissible strategy to circumvent judicial rulings.

Conclusion: The Income Tax Department is bound to comply with the High Court's decisions despite pending SLPs, and failure to do so is impermissible.

Issue 3: Management of Litigation and Disposal of Identical Writ Petitions

Relevant legal framework and precedents: The Court's inherent power to manage its docket and prevent multiplicity of litigation was invoked. The Court referred to its earlier judgment in Kankanala Ravindra Reddy and other High Court rulings which have consistently disposed of similar writ petitions on the same issue.

Court's interpretation and reasoning: The Court expressed grave concern over the docket explosion caused by repetitive filing of identical writ petitions challenging non-faceless notices. It observed that despite clear precedents, the Income Tax Department's continued issuance of such notices has led to over 600-700 pending petitions on the same issue, thereby straining judicial resources.

Key evidence and findings: The Court noted the Department's failure to institute any pan-India mechanism or issue instructions to curb non-faceless proceedings pending Supreme Court decisions. The Department's reliance on policy decisions at the CBDT level was acknowledged but criticized for lack of timely action.

Application of law to facts: The Court decided to dispose of the instant writ petition in line with the binding precedent of Kankanala Ravindra Reddy, subject to the outcome of the pending SLPs before the Supreme Court. It clarified that the parties may seek revival of the petition depending on the Supreme Court's ruling.

Treatment of competing arguments: The Department's concern about burdening the exchequer and litigation was balanced against the need to uphold judicial discipline and prevent harassment of assessees.

Conclusion: The Court disposed of the writ petition with directions to adhere to existing precedents and subject to Supreme Court outcomes, thereby aiming to reduce pendency and litigation on the issue.

3. SIGNIFICANT HOLDINGS

The Court made the following crucial legal determinations and observations:

"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 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."

"The Income Tax Department's persistent initiation of fresh proceedings, disregarding the established judicial pronouncements, has led to an unprecedented surge in litigation... Such conduct raises serious questions about the administrative efficiency and the respect for judicial pronouncements."

"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:

• Mandatory compliance with faceless procedure under amended Income Tax Act provisions for Sections 148A and 148.
• Binding nature of High Court decisions on subordinate Revenue authorities despite pending appeals or SLPs, unless stayed by a competent court.
• Prohibition of Revenue authorities from disregarding judicial pronouncements on grounds of non-acceptance.
• Judicial responsibility to manage litigation efficiently by disposing of covered matters to prevent docket explosion.
• Preservation of Revenue's right to initiate fresh proceedings in strict compliance with amended provisions, with liberty for assessees to raise other legal objections.

Final determinations:

• The impugned notices under Sections 148A and 148 and consequential assessment orders issued without faceless procedure are quashed.
• The writ petition is allowed subject to the outcome of pending SLPs before the Supreme Court.
• The parties have liberty to revive the petition post Supreme Court decision.
• No costs are awarded.