2025 (7) TMI 530 - 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 AO 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 ( 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 (the Act) comply with the procedural requirements introduced by the Finance Act, 2021, specifically the mandate that such proceedings be conducted in a faceless manner.
• Whether the assessment orders passed under Section 147 of the Act, consequent to the impugned notices, are valid in light of the procedural amendments.
• The impact of earlier decisions by this Court and various High Courts holding that non-faceless issuance of notices under Sections 148A and 148 violates Section 151A of the Act read with Notification No. 18/2022 dated 29.03.2022.
• The consequences of continued issuance of such notices by the Income Tax Department despite judicial pronouncements declaring such practice impermissible.
• The appropriateness of disposing of writ petitions on this issue in light of pending Special Leave Petitions (SLPs) before the Supreme Court challenging these High Court decisions.
• The balance between protecting the rights of the Revenue to initiate fresh proceedings in accordance with amended provisions and safeguarding the interests of the assessee from invalid proceedings.
• The judicial discipline required of Revenue authorities in following binding appellate decisions and the consequences of failing to do so.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Validity of Notices Issued under Sections 148A and 148 in Non-Faceless Manner

Relevant Legal Framework and Precedents: The Finance Act, 2021 amended the Income Tax Act to mandate that proceedings under Sections 148A and 148 be conducted in a faceless manner. Section 151A and Notification 18/2022 prescribe the procedural framework for such faceless proceedings. The Court relied heavily on the judgment in Kankanala Ravindra Reddy vs. Income Tax Officer, where it was held that notices issued in violation of this faceless mandate are bad in law. This position has been consistently upheld by multiple High Courts across India, including Bombay, Gauhati, Punjab & Haryana, Himachal Pradesh, Gujarat, Jharkhand, Rajasthan, and Calcutta High Courts.

Court's Interpretation and Reasoning: The Court reaffirmed that the procedural amendments are mandatory and non-compliance renders the notices and consequent proceedings invalid. The Court emphasized that the faceless mechanism is not a mere procedural formality but a statutory requirement designed to ensure transparency and fairness.

Key Evidence and Findings: The Court noted the continued issuance of notices by the Income Tax Department in a non-faceless manner despite the binding precedent. It observed that this practice has led to a massive increase in identical writ petitions, burdening the Court's docket.

Application of Law to Facts: Given the admitted non-compliance by the Department, the Court held that the impugned notices under Sections 148A and 148 and the consequent assessment orders under Section 147 are liable to be quashed as they violate the statutory procedural requirements.

Treatment of Competing Arguments: The Revenue contended that the issue is sub judice before the Supreme Court in numerous SLPs and that interim protection is not granted. They also argued that disposing of writ petitions would lead to multiplicity of proceedings and burden the exchequer. The Court rejected these contentions, noting that no interim stay has been granted by the Supreme Court and that the Department has failed to take remedial steps to curb the issuance of invalid notices.

Conclusion: The Court concluded that the notices and proceedings initiated in a non-faceless manner are illegal and unsustainable.

Issue 2: Impact of Pending Supreme Court SLPs and Whether Writ Petitions Should Be Disposed of

Relevant Legal Framework and Precedents: The pendency of SLPs before the Supreme Court challenging the High Courts' decisions on this procedural issue was acknowledged. The Court referred to the principle that until the Supreme Court decides otherwise, the High Court's binding precedent must be followed.

Court's Interpretation and Reasoning: The Court recognized the Revenue's concern that disposing of writ petitions might lead to repeated SLPs and additional litigation. However, it underscored that the pendency of SLPs does not justify the continuation of invalid proceedings or the piling up of identical writ petitions.

Key Evidence and Findings: The Court observed that more than 600-700 identical writ petitions have been filed despite the binding precedent. It also noted the absence of any interim relief granted by the Supreme Court to the Revenue in these matters.

Application of Law to Facts: The Court decided to dispose of the instant writ petition in line with its earlier judgment in Kankanala Ravindra Reddy, subject to the outcome of the pending SLPs. It also provided that parties may revive the writ petition depending on the Supreme Court's decision.

Treatment of Competing Arguments: The Revenue's argument that the writ petitions should be kept pending to avoid burdening the Department was rejected as it would cause unnecessary delay and prejudice to the petitioners.

Conclusion: The writ petition was allowed with a caveat preserving the rights of both parties pending the Supreme Court's decision.

Issue 3: Balance Between Revenue's Rights and Assessee's Interests

Relevant Legal Framework and Precedents: The Court referred to the earlier judgment in Kankanala Ravindra Reddy, which allowed the Revenue a one-time liberty to initiate fresh proceedings in a faceless manner, preserving their rights while protecting assessees from invalid notices.

Court's Interpretation and Reasoning: The Court noted that the Department has not availed itself of this liberty and instead continues to issue invalid notices. This conduct was seen as an attempt to protract proceedings and circumvent limitation periods.

Key Evidence and Findings: The Court highlighted the Department's failure to adopt remedial measures or follow judicial directions, resulting in increased litigation and hardship to assessees.

Application of Law to Facts: The Court emphasized that the Department must adhere to the procedural safeguards and initiate fresh proceedings only in compliance with the amended law.

Treatment of Competing Arguments: The Department's stance that policy decisions must be taken at the Central Board of Direct Taxes (CBDT) level was noted, but the Court expressed concern over the lack of interim measures to prevent invalid notices.

Conclusion: The Court underscored the need for administrative discipline and compliance with judicial pronouncements to protect both Revenue and assessee interests.

Issue 4: Judicial Discipline and Binding Nature of Precedents on Revenue Authorities

Relevant Legal Framework and Precedents: The Court cited the Division Bench decision of the Bombay High Court in Bank of India vs. Assistant Commissioner of Income Tax, which emphasized that Revenue officers are bound by appellate orders and cannot disregard them merely because they find them "not acceptable." The Supreme Court's observations in Union of India vs. Kamlakshi Finance Corporation Ltd. were also highlighted.

Court's Interpretation and Reasoning: The Court stressed that failure by Revenue officers to follow binding appellate decisions leads to harassment of assessees and chaos in tax administration.

Key Evidence and Findings: The Court found that the Income Tax Department's conduct in continuing to issue invalid notices despite binding High Court rulings exemplifies disregard for judicial discipline.

Application of Law to Facts: The Court held that the Department's approach is contrary to established legal principles and judicial discipline.

Treatment of Competing Arguments: The Court rejected any justification based on pending appeals or SLPs for ignoring binding High Court decisions.

Conclusion: The Court reaffirmed the binding nature of appellate decisions and the requirement that Revenue authorities comply with them unless stayed by a competent court.

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 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:

• Mandatory compliance with the faceless procedure for notices under Sections 148A and 148 as introduced by the Finance Act, 2021.
• Non-faceless notices and proceedings are invalid and liable to be quashed.
• Revenue authorities must respect binding appellate decisions and cannot disregard them on ground of non-acceptance.
• The pendency of SLPs before the Supreme Court does not justify continuation of invalid proceedings or delay in disposal of writ petitions.
• The interests of both Revenue and assessees must be balanced, with liberty granted to Revenue to initiate fresh proceedings in compliance with the amended law.

Final determinations:

• The impugned notices under Sections 148A and 148 and consequential assessment orders under Section 147 are quashed for violation of procedural mandates.
• The writ petition is allowed subject to the outcome of pending SLPs, with liberty to revive the petition based on the Supreme Court's decision.
• No costs are awarded.