The legal standing of the notices issued u/s 148 of the IT Act, 1961 by the Jurisdictional AO.

The legal standing of the notices issued u/s 148 of the IT Act, 1961 by the Jurisdictional AO has been a heated issue in these recent weeks.

Various high courts have held that the issuance of notice u/s 148 by the JAO is bad in law and have quashed the notices. The said stand was even taken in International Tax cases where the regular assessments are carried in the non-faceless manner. [Dy. CIT Circle 1(1)(1), Hyderabad & ORS vs. Sri Venkataramana Reddy Patoola].

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Now the said issue has reached to the Hon’ble Supreme Court of India. The department has knocked the doors of the apex court against the order passed by the Hon’ble Telangana High Court in the case of Union of India & ORS. vs. Suryalakshmi Cotton Mills.

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Summary of the respective arguments taken by the Revenue Department and the Assessee during the proceedings in the Hon’ble Telangana High Court is as follows:

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Assessee’s Counsel: - Subsequent to the amendment incorporated in the Income Tax Act, 1961, with effect from 29.03.2022 all the proceedings initiated by the authorities concerned under Section 148A and 148 of the Act were all mandatorily to be proceeded in a faceless manner. Else, the same would amount to being violative of the Income Tax Act or in contravention to the procedure prescribed under law which is in force.

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Revenue Department’s Counsel: - Under the provisions of the Act both the JAO as well as units under NFAC have concurrent jurisdiction. The Act does not distinguish between JAO or NFAC with respect to jurisdiction over a case. This is further corroborated by the fact that under Section 144B of the Act, the records in a case are transferred back to the JAO as soon as the assessment proceedings are completed. So, section 144B of the Act lays down the role of NFAC and the units under it for the specific purpose of conduct of assessment proceedings in a specific case in a particular assessment year. This cannot be construed to mean that the JAO is bereft of the jurisdiction over a particular assessee or with respect to procedures not falling under the ambit of Section 144B of the Act. Since, section 144B of the Act does not provide for issuance of notice under Section 148 of the Act, there can be no ambiguity in the fact that the JAO still has the jurisdiction to issue notice under Section 148 of the Act.

Further, neither the Section nor the scheme dated 29.03.2022 speak about the detail specifics of the procedure to be followed therein. They lay down the general principles that should be followed so as to impart greater efficiency, transparency and accountability to the procedures contained therein. It was also submitted that the CBIT has issued notification No.01/2022 dated 11.05.2022 containing guidelines for implementation of the Hon’ble Supreme Court’s judgement in the case of Union of India and Others vs. Ashish Agarwal. Vide the said judgment, the Hon’ble Supreme Court revived nearly 90,000 notices issued under Section 148 between 01.04.2021 to 30.06.2021 re-opening assessment for the assessment year 2013-14 and subsequent years. It is to be stated that these notices were issued under the old provisions of re-opening. The Hon’ble Supreme Court had revived these notices quashed by certain High Courts by converting the notices issued under Section 148 (old) to notice under Section 148A (new) of the Act with a direction to continue the proceedings after following the procedure laid down under the provisions. As such, the instruction No.01/2022 of CBIT, the present notice under Section 148 dated 31.07.2022 and the order under Section 148A(d) dated 29.07.2022 are valid actions on the part of the Department.

Further, the order passed under Section 148A(d) and the notice under Section 148 of the Act dated 29.07.2022 were passed/issued as per the provisions of the Act with appropriate sanction, after giving due opportunity to the petitioner, and after considering the submissions of the assessee. It is submitted that no prejudice is caused to the petitioner as the order passed under Section 148A(d) of the Act is not an assessment order and only an order to determine whether it is a fit case for issuance of notice under Section 148 of the Act.

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Grounds of the judgement of the Hon’ble Telangana High Court:

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The Hon’ble Telangana High Court after hearing the arguments referred to the Faceless jurisdiction of Income Tax Authorities Scheme, 2022. A specific mention of the Section 3 of the Faceless jurisdiction of Income Tax Authorities Scheme, 2022 was made:

“vesting the jurisdiction with the Assessing Officer as referred to in section 124 of the Act, shall be in a faceless manner, through automated allocation, in accordance with and to the extent provided in-

(i)??????????? Section 144B of the Act with reference to making faceless assessment of total income or loss of assessee;”

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A plain reading of the two notifications issued by the Central Board of Direct Taxes dated 28.03.2022 and 29.03.2022 clearly indicates that the Central Board of Direct Taxes was very clear in its mind when it framed the aforesaid two schemes with respect to the proceedings to be drawn under Section 148A, that is to have it in a faceless manner.

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After the introduction of the above two schemes, it becomes mandatory for the Revenue to conduct/initiate proceedings pertaining to reassessment under Section 147, 148 & 148A of the Act in a faceless manner. Proceedings under Section 147 and Section 148 of the Act would now have to be taken as per the procedure legislated by the Parliament in respect of reopening/ re-assessment i.e., proceedings under Section 148A of the Act.

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In the present case, both the proceedings i.e., the impugned proceedings under Section 148A of the Act, as well as the consequential notices under Section 148 of the Act were issued by the local jurisdictional officer and not in the prescribed faceless manner. The order under Section 148A(d) of the Act and the notices under Section 148 of the Act are issued on 29.04.2022, i.e., after the “Faceless Jurisdiction of the Income Tax Authorities Scheme, 2022” and the “e-Assessment of Income Escaping Assessment Scheme, 2022” were introduced.

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Further, it was held that the Hon’ble Supreme Court while allowing the revival of old notices issued u/s 148 as the notice u/s 148A in the judgement in the case of Ashish Agarwal, never intended the authorities concerned to continue with the proceedings from the stage of the issuance of notices under Section 148, nor is the directions to that effect. And there cannot be any confusion, ambiguity or mis-conception for the respondent Department to have in this regard.

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Further, it was held that in the instant case, undisputedly the respondent-Department has not proceeded against the petitioner under the substituted provisions of the Finance Act, 2021. Rather, it proceeded with the unamended provisions of law. This in other words takes the position back to the stage as it stood when the initial notices under Section 148 under the unamended provisions of law were issued. This in other words also takes us to a position or a stage prior to the large number of writ petitions being allowed across the country, approximately 9,000 in number and confirmed by the Hon’ble Supreme Court also vide the judgement of Ashish Agarwal, supra.

It is well settled principle of law that where the power is given to do certain things in certain way, the thing has to be done in that way alone and no any other manner which is otherwise not provided under the law.

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What is also relevant to take note of the fact that the Hon’ble Supreme Court while exercising its power under Article 142 of the Constitution of India has also not relaxed the applicability of the Finance Act 2021. Rather, the Hon’ble Supreme Court in very clear and unambiguous terms had held that the notices issued under the un-amended provisions, which were struck down by the High Court, shall be treated as a notice under new amended provisions and the Union of India was directed to proceed further from that stage in terms of the amended provisions of law. In spite of such specific clear directions by the Hon’ble Supreme Court, the Union of India for reasons best known again proceeded with the procedure as it stood prior to the amended provisions which came into force from 01.04.2021.

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The court further made it very clear that procedure to be followed by the respondent-Department upon treating the notices issued for reassessment being under Section 148A, the subsequent proceedings was mandatorily required to be undertaken under the substituted provisions as laid down under the Finance Act, 2021. In the absence of which, the court held that the procedure adopted by the respondent-Department is in contravention to the statute i.e. the Finance Act, 2021, at the first instance. Secondly, it is also in direct contravention to the directives issued by the Hon’ble Supreme Court in the case of Ashish Agarwal, supra.

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Finally, it was held and concluded that notices so issued and the procedure adopted being per se illegal, deserves to be and are accordingly set aside/quashed.

Conclusion: - In my opinion the entire argument of the Revenue Department stands on the ground that since the notices issued u/s 148 prior to the Notification of Faceless Jurisdiction of Income Tax Authorities Scheme, 2022 was allowed to be treated as notice u/s 148A in the landmark judgement of the Hon'ble Apex Court in the case of Ashish Agrawal, the notices issued by the Jurisdictional AO after issuance of such notification following the procedures prior 28.03.2022 are also valid.

But here the main issue as highlighted by the Telangana High Court is that the above judgement of the Apex Court was just meant to cover the notices issued prior to the notification of Faceless Jurisdiction of Income Tax Authorities Scheme, 2022 and the same shall not be blanketly applied for the notices issued after the said notification as it defeats the very changes as brought in the Finance Act 2021 to make the assessment proceedings more fair and without any interaction between the AO and the assessee.