2025 (6) TMI 1413 - 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 writ petition are:

• Whether the notices issued under Section 148A and Section 148 of the Income Tax Act, 1961, 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 initiation of proceedings under Sections 148A and 148 by the jurisdictional Assessing Officer in a non-faceless manner violates the provisions of Section 151A of the Income Tax Act read with Notification 18/2022 dated 29.03.2022.
• Whether the decisions of various High Courts, including this Court's earlier ruling in Kankanala Ravindra Reddy, which held such non-faceless proceedings as bad in law, are binding and ought to be followed despite pending Special Leave Petitions (SLPs) before the Supreme Court.
• The propriety of continuing to entertain fresh writ petitions on identical issues despite the existence of binding precedents and the impact of such litigation on judicial resources.
• The extent to which the Income Tax Department is obligated to comply with judicial pronouncements and whether it can continue to initiate proceedings contrary to settled law pending final adjudication by the Supreme Court.
• The balancing of interests between the Revenue's right to initiate fresh proceedings in accordance with amended law and the assessee's protection from illegal notices and assessments.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Compliance with procedural requirements under Finance Act, 2021 regarding faceless proceedings under Sections 148A and 148

The relevant legal framework includes the Income Tax Act, 1961, specifically Sections 148A and 148, as amended by the Finance Act, 2021, which introduced mandatory faceless procedures for issuance of notices and initiation of reassessment proceedings. This is supplemented by Section 151A and Notification 18/2022 dated 29.03.2022, which prescribe the manner of faceless proceedings.

The Court noted that the petitioner challenged notices issued in a non-faceless manner, contending that such issuance violates the statutory amendments. This contention was supported by the Court's earlier decision in Kankanala Ravindra Reddy, where the Court held that non-faceless issuance of notices under Sections 148A and 148 is illegal and void. The Court also referenced numerous decisions from other High Courts (Bombay, Gauhati, Punjab & Haryana, Himachal Pradesh, Gujarat, Jharkhand, Rajasthan, Calcutta) uniformly holding that the Revenue's initiation of reassessment proceedings outside the faceless framework violates the amended provisions.

The Court emphasized that despite these rulings, the Income Tax Department continues to issue notices in contravention of the faceless procedure, thereby violating the statutory mandate. The Court observed that the Department's failure to adopt remedial measures or issue clear instructions to comply with the faceless regime results in continued illegality and unnecessary litigation.

Issue 2: Binding nature of High Court precedents despite pending SLPs before the Supreme Court

The Income Tax Department argued that the decisions of this Court and other High Courts are under challenge before the Supreme Court through numerous SLPs and that no interim relief has been granted by the Supreme Court. Hence, they contended that the writ petitions should be kept pending till the Supreme Court decides the SLPs.

The Court rejected this argument, relying on the principle of judicial discipline and binding effect of High Court decisions until set aside by a competent court. It cited the Bombay High Court's decision in Bank of India v. Assistant Commissioner, which underscored that revenue authorities must follow binding appellate orders and cannot disregard them merely because they are "not acceptable" or subject to appeal. The Court reiterated that failure to follow binding precedents causes harassment to taxpayers and disrupts tax administration.

Therefore, the Court held that the pendency of SLPs does not justify the Income Tax Department's continued non-compliance with binding High Court rulings. The Department must abide by the law as declared by the High Courts until the Supreme Court pronounces otherwise.

Issue 3: Judicial management of repetitive litigation and pendency

The Court expressed grave concern over the explosion of litigation on the same issue, with 600 to 700 writ petitions pending before it, despite the issue being conclusively decided in Kankanala Ravindra Reddy and other High Court decisions. The Court noted that this surge in identical petitions strains judicial resources and delays disposal of other matters.

The Court criticized the Income Tax Department's strategy of continuing to issue notices in violation of the faceless procedure, effectively prolonging proceedings and potentially circumventing limitation periods. The Court observed that the Department's conduct appears to be a calculated attempt to gain procedural advantage rather than a bona fide adherence to law.

The Court urged the Department to take centralized remedial action through the Central Board of Direct Taxes (CBDT) to halt issuance of non-faceless notices pending final adjudication by the Supreme Court. The Court acknowledged that such policy decisions must be taken at the highest administrative level to prevent further litigation and judicial burden.

Issue 4: Balancing Revenue's rights and assessee's interests

The Court recalled that in Kankanala Ravindra Reddy, while quashing the impugned notices and proceedings for procedural illegality, it preserved the Revenue's right to initiate fresh proceedings strictly in accordance with the amended faceless provisions. This balanced approach protects the Revenue's legitimate interests while safeguarding taxpayers from illegal notices.

The Court noted that the Department has not availed itself of this liberty and instead persists in issuing defective notices. The Court emphasized that if the Revenue initiates fresh proceedings in compliance with the law, the assessee is entitled to raise all legal objections in appropriate proceedings.

The Court expressed concern that the Department's current approach disadvantages assessees by prolonging litigation and delaying finality, while the Revenue gains an extended period to initiate reassessment.

Issue 5: Obligation of Revenue to follow binding judicial pronouncements

The Court underscored the importance of judicial discipline and adherence to binding decisions by subordinate authorities. It quoted extensively from the Bombay High Court's ruling in Bank of India, which emphasized that revenue officers must give effect to appellate orders and cannot treat them as "not acceptable" merely because appeals are pending.

The Court criticized the Income Tax Department for disregarding this principle by continuing to issue notices contrary to settled law. It highlighted that such conduct results in unnecessary harassment of taxpayers and chaos in tax administration.

3. SIGNIFICANT HOLDINGS

The Court held that:

• "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."
• "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. 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."

The Court established the core principle that procedural compliance with faceless proceedings under Sections 148A and 148 is mandatory and non-compliance renders notices and consequent assessments void. It reinforced the binding nature of High Court decisions on revenue authorities pending Supreme Court review and condemned the practice of continuing illegal proceedings to gain procedural advantage.

In conclusion, the Court quashed the impugned notices and consequential orders issued under Sections 148A and 148 of the Income Tax Act for violation of the faceless procedure mandated by the Finance Act, 2021, subject to the final outcome of pending Supreme Court SLPs. The Court directed that fresh proceedings, if any, must strictly comply with the amended provisions and faceless procedure. There was no order as to costs, and pending miscellaneous petitions were closed.