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CIT(E) can’t reject trust’s registration application based on only one clause of trust deed: ITAT

Shah Gulabchand Mulchand v. CIT (Exemption) - [2024] 165 taxmann.com 731 (Surat-Trib.)

The assessee-trust was established with the objects, inter alia, to set up or to be helpful to educational institutions for the upliftment of the group of people following Jainism. The assessee filed an application for registration under section 12AB of the Income Tax Act.

The CIT(E) rejected the assessee’s application for registration under section 12AB of the Act. He held that the objects of the trust were restricted to the benefit of a particular religious community, i.e. Jain community and, therefore, provisions of Sec. 13(1)(b) would be applicable. The matter reached the Surat Tribunal.

The Tribunal held that it was clear from the objects of the assessee-trust that it was not for the benefit of only the Jain community. The CIT(E) considered only one clause for proper appreciation of the issue. The objects also include medical help to needy patients, educational, occupational and medical help, welfare activities for the upliftment of the general public, etc.

Hence, rejecting registration based on only one clause is improper. Since the facts of the present case are similar to those of the earlier case, following the reasons given in the earlier case, the matter was restored back to the file of CIT(E) for de novo consideration after giving the assessee adequate opportunity for hearing.

Jao's Jurisdiction Over Faceless Assessments: A Legal Perspective on Section 148 Notices

CA Kamala Pulugundla Shethiya - [2024] 165 taxmann.com 749 (Article)

Introduction

The evolution of reassessment procedures under the Income Tax Act, 1961, ('the Act') especially following the introduction of the Faceless Assessment Scheme under Section 151A, has raised critical questions regarding the jurisdictional authority of the Jurisdictional Assessing Officer (JAO) to issue notices under Section 148 of the Act. Recent judicial pronouncements have provided significant clarity, particularly the landmark judgment in Hexaware Technologies Ltd. v. Asstt. CIT [2024] 162 taxmann.com 225/464 ITR 430, which has extensively analyzed the limitations of the JAO's authority post the enactment of Section 151A. This article delves into the legal framework, examining the key judicial precedents that shape this discourse, with a detailed focus on the Hexaware judgment and the recent Telangana High Court ruling in Kankanala Ravindra Reddy v. ITO [2023] 156 taxmann.com 178/295 Taxman 652 (Telangana)

Legal Framework: Sections 148, 148A, and 151A of the Act

Section 148 of the Act, empowers the Assessing Officer (AO) to issue a notice for income escaping assessment. Section 148A, introduced later, mandates certain procedures, such as conducting an inquiry and providing an opportunity to the Assessee, prior to the issuance of a notice under Section 148.

With the enactment of Section 151A, the Central Government introduced the Faceless Assessment Scheme, fundamentally altering the traditional roles of the JAO and the newly established Faceless Assessing Officer (FAO). Section 151A mandates that all notices under Section 148 and proceedings under Section 148A be conducted through the faceless assessment system, thereby centralizing the process and limiting the direct involvement of the JAO.

Jurisdictional Authority Post Section 151A: The Role of JAO

Section 151A represents a significant shift towards a faceless, automated system aimed at increasing transparency and reducing the potential for arbitrary assessments. The Scheme, notified on March 29, 2022, designated the FAO as the primary authority for issuing notices under these sections, effectively sidelining the JAO's role in such proceedings. This raises the crucial question of whether the JAO retains any authority to issue reassessment notices under Section 148 after the introduction of Section 151A.

Hexaware Technologies Ltd. (supra) and Kankanala Ravindra Reddy (supra)

The Hexaware Technologies Ltd. (supra) and Kankanala Ravindra Reddy (supra) are landmark rulings that extensively analyzed the jurisdictional limits of the JAO under the faceless assessment regime. The case involved a reassessment notice issued by the JAO, which was challenged by Hexaware Technologies Ltd. on the grounds that it was issued in violation of the faceless assessment mechanism introduced under Section 151A.

The JAO initiated reassessment proceedings under Section 148, alleging that certain components of Hexaware's income had escaped assessment. The company challenged the notice, arguing that it was issued in violation of the faceless assessment scheme under Section 151A.

Key Legal Issues raised by the petitioners in these cases

• Jurisdiction of JAO: Whether the JAO had the authority to issue a reassessment notice under Section 148 in light of the faceless assessment regime.
• Applicability of Faceless Assessment Scheme: Whether the reassessment should have been conducted under the faceless assessment process as mandated by Section 151A.
• Validity of Taxation and Other Laws (Relaxation and Amendment of certain provisions) Act, 2020 (TOLA) which provide for travel back scheme for notices issued subsequent to 01.04.2021 for reopening cases for assessment years falling before 01.04.2021.

The Hexaware case further went on to challenge

• Validity of notices without DIN: whether reopening notice under section 148 of the Act without a DIN, are valid in light of CBDT circular 19/2019

The Revenue countered that the notices were issued under the unamended provisions before the introduction of the faceless scheme. Hence, the continuation of the proceedings by the jurisdictional officer was valid. Moreover, they argued that both jurisdictional Assessing Officers (JAO) and the National Faceless Assessment Centre (NFAC) had concurrent jurisdiction.

The Ld. Senior Counsel on behalf of the department argued that the notices in question were issued under unamended provisions and thus, the proceedings were valid under the unamended provisions. He emphasized that both the Jurisdictional Assessing Officer (JAO) and the National Faceless Assessment Centre (NFAC) have concurrent jurisdiction, with section 144B not eliminating the JAO's authority to issue notices under section 148. The counsel further contended that the schemes introduced, do not explicitly restrict the JAO's jurisdiction, and the Supreme Court's ruling in the Ashish Agarwal case, which revived similar notices issued under the old provisions, validated the current proceedings. Additionally, it was argued that the order under section 148A(d) is merely a preliminary step to determine if a reassessment notice under section 148 should be issued, and does not constitute a final assessment, therefore causing no prejudice to the petitioner.

Court's Analysis and Findings

The Courts examined the amendments made by the Finance Act, 2021, and related schemes introduced by the Central Board of Direct Taxes (CBDT) for faceless assessments.

The court analyzing the Supreme Court's decision in Union of India v. Ashish Agarwal [2022] 138 taxmann.com 64/286 Taxman 183/444 ITR 1, re-iterated the Hon'ble Apex Court's findings that the new provisions of the Finance Act, 2021, were remedial and intended to protect the rights of the Assessee. The Supreme Court had clarified that the notices issued u/s 148 under the unamended must be treated as issued under the amended provisions to provide a one time remedy to the department with respect to issuance of such notices.

Further, referring to The Hon'ble Supreme Court in the case of Chandra Kishore Jha v. Mahavir Prasad [1999] 8 SCC 266, the Hon'ble Telangana HC re-iterated that it is well settled solitary principle that if statute provides for a thing to be done in a particular manner, then it has to be done in that manner and in no other manner. The said principle of law was further emphasized in the case of Cherrukuri Mani v. Chief Secretary Government of Andhra Pradesh [2015] 13 SCC 722. The Court therefore emphasized that any deviation in the procedure prescribed by the statute renders the action illegal.

The High Court emphasized that after the introduction of the faceless assessment schemes, it became mandatory for the Revenue to conduct reassessment proceedings in a faceless manner. The proceedings by the jurisdictional officer violated both the statutory provisions and the Supreme Court's directives.

Both the Bombay and the Telangana High Courts therefore quashed the reassessment notices issued by the JAO, ruling that the JAO lacked the authority to issue such a notice under the faceless assessment scheme. The court emphasized that:

• Exclusive Jurisdiction of FAO: The court held that under the Faceless Assessment Scheme, only the FAO has the jurisdiction to issue notices under Sections 148 and 148A. The Scheme's automated allocation system is designed to ensure transparency and eliminate the potential for arbitrary action, which would be undermined if the JAO were allowed to issue such notices.
• Invalidity of Concurrent Jurisdiction: The Revenue's argument that the JAO and FAO could have concurrent jurisdiction was rejected. The court clarified that the automated allocation process, as mandated by the Scheme, eliminates the possibility of concurrent jurisdiction, ensuring that the FAO is the sole authority for such notices.
• Validity of notices issued beyond time limit prescribed under amended provisions: The Hon'ble Bombay HC in the case of Hexaware reopening notice was issued under Section 148 after the time limit for issuing such a notice had expired as per Section 149. The court rejected the Revenue's argument that the notice was valid under the extended time limits provided by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA). The court held that the reopening notice was issued beyond the statutory period under amended provisions and was thus barred by limitation.

Implications of the Judgment

These judgments are significant as they set a strong precedent limiting the JAO's powers under the faceless regime. It ensures that reassessment proceedings are conducted strictly within the legal framework established by Section 151A, thereby safeguarding taxpayers from arbitrary reassessment actions. The judgments solidy the legal position that the JAO lacks the authority to conduct reassessment proceedings outside the faceless regime. It underscores the importance of strict compliance with the procedural requirements set forth under Section 151A and the associated faceless assessment schemes.

Conclusion: The Future of Reassessments

The introduction of Section 151A and the corresponding judicial interpretations, particularly in the Hexaware and Kankanala Ravindra Reddy cases, represent a significant shift in the reassessment process under the Income Tax Act. The authority of the JAO to issue reassessment notices has been effectively curtailed, with the faceless assessment scheme now playing a central role in ensuring that the process is transparent, fair, and devoid of arbitrary actions.

For tax practitioners and taxpayers, these judgments provide a robust legal framework to challenge any reassessment notices issued by the JAO outside the faceless regime. The courts have made it clear that the JAO no longer has jurisdiction in these matters, and any reassessment notice issued by the JAO in violation of the faceless assessment procedure is invalid.

In conclusion, the Hexaware and Kankanala Ravindra Reddy judgments serve as pivotal reference points in Indian tax jurisprudence, shaping the future of reassessments under the Income Tax Act and reinforcing the sanctity of the faceless assessment mechanism.

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