2025 (6) TMI 1494 - HC - Income Tax

Validity of reassessment - as argued notice u/s 148 has been issued by the Jurisdictional Assessing Officer in place of the Faceless Assessing Officer in violation of the provisions of Section 151A - HELD THAT - We find that this issue is squarely covered by the decision of this Court in case of Hexaware Technologies Ltd. 2024 (5) TMI 302 - BOMBAY HIGH COURT Further in similar circumstances this Court in case of Mahindra and Mahindra Ltd 2024 (11) TMI 1105 - BOMBAY HIGH COURT and Dennischarles John Das 2024 (11) TMI 1267 - BOMBAY HIGH COURT has stayed the assessment order till the proceeding before the Appellate Authority or Revisionary Authority are decided. Thus this Court has granted a complete stay on the demand in light of the fact that the issue on merits is covered by the judgment of this Court. The demand arising out of the reassessment proceeding vide order under Section 147 r/w Section 144B ought to be stayed till the disposal of appeal by the Commissioner (Appeals). Thus the adjustment of refund for the AY 2024-25 against the outstanding demand for the AY 2017-18 is bad in law. Respondent No. 1 and Respondent No. 3 are therefore directed to reverse the adjustment of refund for the AY 2021-22 against the outstanding demand for AY 2017-18 and refund the same along with interest in accordance with law on or before 30th July 2025.

Summary

1. ISSUES PRESENTED and CONSIDERED

- Whether the adjustment of refunds of the petitioner for the assessment years (AY) 2021-22 and 2024-25 against the outstanding demands for AY 2017-18 by the Revenue authorities is legally permissible.

- Whether the adjustment of refund in excess of 20% of the demand, after the petitioner had already paid 20% as per Board instructions, is valid.

- Whether the reassessment proceedings initiated under Section 148 of the Income Tax Act, 1961 (the Act) for AY 2017-18 are valid, particularly in light of the jurisdictional and procedural requirements under Section 151A and the Faceless Assessment Scheme.

- Whether the demand arising from the reassessment order dated 30th May 2023 should be stayed pending disposal of the appeal before the Commissioner (Appeals).

- Whether the adjustment of refund for AY 2024-25 against the reassessment demand for AY 2017-18 is legally sustainable, especially when the stay application filed by the petitioner is pending disposal.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Legality of Adjustment of Refunds for AY 2021-22 and AY 2024-25 against Outstanding Demands for AY 2017-18

Relevant legal framework and precedents: The Income Tax Act, 1961 empowers the Revenue to adjust refunds against outstanding demands. However, Board instructions (CBDT O.M. F. No. 404/72/93-ITCC dated 29th February 2016, as modified on 31st July 2017) provide that the Revenue can recover only 20% of the demand and stay the balance demand. The petitioner had already paid 20% of the demand for AY 2017-18.

Court's interpretation and reasoning: The Court held that since the petitioner had already paid 20% of the demand arising from the original assessment order for AY 2017-18, no further amount was required to be adjusted or recovered by way of refund adjustment. The excess adjustment of refund beyond 20% contravenes the Board's instructions and is therefore impermissible.

Key evidence and findings: The petitioner paid Rs. 7,80,000/- (20% of the demand) on 30th January 2020. Despite this, refunds for AY 2021-22 and AY 2024-25 were adjusted against the outstanding demand and interest for AY 2017-18 in amounts exceeding the 20% threshold.

Application of law to facts: The Court applied the Board instructions to hold that the excess adjustment of refunds was unlawful and directed refund of the excess amount with interest.

Treatment of competing arguments: The Revenue did not respond to the petitioner's objection to the adjustment. The Court relied on its prior decisions in similar cases (Andrew Telecommunications India Pvt Ltd, Fastlink Connection Private Limited) to support the petitioner's position.

Conclusion: The adjustment of refunds exceeding 20% of the demand is invalid and must be reversed with interest.

Issue 2: Validity of Reassessment Proceedings under Section 148 of the Act for AY 2017-18

Relevant legal framework and precedents: Section 148 of the Act empowers the Assessing Officer to initiate reassessment proceedings if there is reason to believe income has escaped assessment. The Faceless Assessment Scheme notified on 29th March 2022 and Section 151A impose procedural requirements on issuance of notices. Jurisdiction must lie with the Faceless Assessing Officer (FAO) rather than the Jurisdictional Assessing Officer (JAO).

Court's interpretation and reasoning: The reassessment notice dated 31st July 2022 was issued by the Jurisdictional Assessing Officer instead of the Faceless Assessing Officer, violating Section 151A and the Faceless Assessment Scheme. This procedural defect renders the reassessment notice and consequent proceedings without jurisdiction.

Key evidence and findings: The reassessment order dated 30th May 2023 was passed by the NFAC (National Faceless Assessment Centre) after notice issuance by the JAO. The petitioner challenged the jurisdiction and validity of the reassessment notice.

Application of law to facts: The Court relied on its recent authoritative decisions in Hexaware Technologies Ltd., Mahindra and Mahindra Ltd., and Dennischarles John Das cases, which held that reassessment notices issued by JAOs instead of FAOs under the Faceless Scheme are invalid.

Treatment of competing arguments: The Revenue did not dispute the procedural irregularity but proceeded with adjustment of refunds against the reassessment demand.

Conclusion: The reassessment proceedings initiated by the JAO are without jurisdiction, and the demand arising therefrom is liable to be stayed pending appeal disposal.

Issue 3: Stay of Demand Arising from Reassessment and Adjustment of Refund for AY 2024-25

Relevant legal framework and precedents: The Income Tax Act allows filing of appeals against assessment and reassessment orders. Courts have discretion to stay demands pending appeal disposal. Prior judgments of this Court (Mahindra and Mahindra Ltd., Dennischarles John Das) have granted complete stay on reassessment demands under similar circumstances.

Court's interpretation and reasoning: The Court granted a stay on the demand of Rs. 1,99,97,631/- arising from the reassessment order dated 30th May 2023 until the appeal before the Commissioner (Appeals) is decided. Consequently, the adjustment of refund of Rs. 1,28,61,270/- for AY 2024-25 against this reassessment demand was held to be bad in law.

Key evidence and findings: The petitioner had filed a stay application before Respondent No. 1, which was pending disposal. Despite this, the Revenue adjusted the refund without considering the petitioner's objections.

Application of law to facts: The Court emphasized that adjustment of refunds against disputed demands pending stay applications and appeals is impermissible and directed reversal of such adjustments with interest.

Treatment of competing arguments: The Revenue's unilateral adjustment without disposing of the stay application or considering objections was rejected.

Conclusion: The demand is stayed pending appeal disposal, and the refund adjustment against the reassessment demand is to be reversed with interest.

3. SIGNIFICANT HOLDINGS

"Since the Petitioner had already paid 20% of the demand arising out of the assessment order under Section 143 (3) r/w Section 144 of the Act dated 28th December 2019, therefore, no further amount was required to be paid/adjusted. As a result, amount of refund adjusted in excess of 20% of the demand has to be refunded to the Petitioner with interest."

"The reassessment proceedings initiated vide notice under Section 148 of the Act is without jurisdiction as the notice has been issued by the Jurisdictional Assessing Officer in place of the Faceless Assessing Officer, in violation of the provisions of Section 151A of the Act read with the Scheme notified on 29th March 2022."

"The demand of Rs. 1,99,97,631/- arising out of the reassessment proceeding vide order under Section 147 r/w Section 144B of the Act dated 30th May 2023 ought to be stayed, till the disposal of appeal by the Commissioner (Appeals). Thus, the adjustment of refund of Rs. 1,28,61,270/- for the AY 2024-25 against the outstanding demand for the AY 2017-18 is bad in law."

Core principles established include the mandatory adherence to Board instructions limiting recovery to 20% of demand during stay, the necessity of jurisdictional compliance with the Faceless Assessment Scheme for reassessment notices, and the protection of taxpayers' rights to stay demands pending appeal disposal.

Final determinations:

- The adjustments of refunds for AY 2021-22 and AY 2024-25 against the outstanding demands for AY 2017-18 are unlawful and must be reversed with interest.

- The reassessment proceedings initiated under Section 148 by the Jurisdictional Assessing Officer are without jurisdiction and the demand arising therefrom is stayed pending appeal disposal.

- The Revenue is directed to refund the adjusted amounts with interest on or before 30th July 2025.

- The balance demand for AY 2017-18 arising from both original and reassessment orders is stayed until disposal of the appeals.