Bad Section 148 Notice Saga Continues!

Remember the most famous case, Ashok Kumar Agarwal vs UoI, concerning a reassessment proceeding, where almost all the High Courts help the proceeding bad in law. The Apex Court, even though in agreement with the High Court's decision on the issue, saved the day for the government by using the power vested in the Apex Court under Article 142 of the Constitution of India. A similar situation has arisen now. The reason?

The Sunami issue!

Does Range AO have jurisdiction to issue notice u/s 148 of the Income Tax Act?

In Hexaware Technologies Limited vs ACIT [2024] 162 taxmann.com 225 (Bom.), the Bombay High Court held that under the faceless assessment scheme introduced by Section 151A of the Income Tax Act, 1961, the National Faceless Assessment Centre (NFAC) has exclusive jurisdiction to issue reassessment notices under Section 148. The Court emphasized that the scheme's automated allocation process randomly assigns cases to Assessing Officers( AO) , and in this instance, the Jurisdictional Assessing Officer (JAO) was not the designated officer.

Recently , another verdict from the Mumbai High Court in which the Court relied upon its earlier decision in the Hexaware Technology Ltd case came the case of Hitesh Ramniklal Shah vs ACIT . The Court clubbed more than 100 Writs and disposed off favourly to petitioner. In all these Writs , the issue raised before the Hon'ble Court was as under :

2. One of the grounds raised in these petitions raises an issue that the impugned notice issued in the respective petition is invalid and bad- in-law being issued by the Jurisdictional Assessing Officer ("JAO") as the same was not in accordance with the provisions of Section 151A of the Income Tax Act, 1961 ("the Act") and the scheme framed thereunder.

By relying on its judgment in the Haxaware case, the Hon'ble High Court holds that the notices issued u/s 148 by the JAO are illegal, and even orders already passed after such notices are quashed. The relevant extract from the said order :

5. In the circumstances, the notices issued in these petitions by the JAO under Section 148 of the Act are hereby quashed and set aside. In case any reassessment orders are passed, the same also will stand quashed and set aside. So also, theconsequential demand notices or penalty notices, if any, will also stand quashed and set aside.

Now, in the case of Jatintder Singh Bhangu vs UoI in CWP-15745-2024 before Punjab & Haryana Court, the assessee raised one more point, which was not raised before the Hon'ble Mumbai High Court, that CBDT had made a notification on 29/03/2022 about faceless reassessment scheme, so notices issued by the JAO is without jurisdiction.

The Hon'ble High Court quashed the notices issued by the Jurisdictional Assessing Officer under Section 148 by relying on other high court decisions given below :

1. Telangana High Court in 'Kankanala Ravindra Reddy Vs. Income-Tax Officer (2023) 295 Taxman 652 (Telangana)',
2. Bombay High Court in 'Hexaware Technology Ltd. Vs. Assistant Commissioner of Income Tax, (2024) 464 ITR 430 (Bombay);and
3. Gauhati High Court in ‘Ram Narayan Sah. Vs. Union of India, (2024) 163

The relevant extract of the decision by P & H High Court is

15. From the perusal of Section 151A, it is quite evident that scheme of faceless assessment is applicable from the stage of show cause notice under Section 148 as well as 148A. Clause 3 (b) of notification dated 29.03.2022 issued under Section 151A clearly provides that scheme would be applicable to notice under Section 148. Even otherwise, it is a settled proposition of law that assessment proceedings commence from the stage of issuance of show cause notice.

Why Sunami of Lost Cases?

There may be thousands of cases where notice for reassessment must have been issued by an AO posted in JAO. The Mumbai High Court's decision was without reference to CBDT's notification on 29/03/20222, but other courts have recognized the notification and held the notice issued by anyone other than the Faceless Unit as illegal and without jurisdiction.

Because the board issued a notification on 29/03/2022, it virtually closed all doors of appeal against the judgements in cases where the notices were issued before 29/03/2022. But now, after the notification, there is no need to interpret the AO's power and jurisdiction to issue notices posted under JAO.

I need clarification on why the CBDT Wing responsible for publishing a notification on 29/03/2022 did not apprise and instruct the officers below that notices should only be issued by officers in faceless units. There are so many administration-related questions, but this article is focused on something other than that. So, leave it there!

I do not have data about the number of cases in which the JAO officers issued a notice under their signature, but an estimate suggests that it may exceed the total number of cases (9000) that were pending before the Supreme Court in the Ashoka Kumar Agarwal case.