ITAT Agra Sets Aside Reassessment Proceedings: Notices by Jurisdictional AO Invalid After Faceless Scheme Implementation
Introduction
The Income Tax Appellate Tribunal, Agra Bench has delivered a significant ruling in the matter of Ashok Sahu Vs ITO, holding that reassessment notices issued by the Jurisdictional Assessing Officer after the notification of the Faceless Income Escaping Assessment Scheme are without jurisdiction and void from inception. The Tribunal's decision underscores the mandatory nature of the faceless assessment mechanism introduced under Section 151A of the Income Tax Act, 1961.
Case Background and Facts
The appeals before the ITAT Agra pertained to assessment year 2018-19 and originated from orders passed by the National Faceless Appeal Centre, Delhi. The fundamental question that arose was regarding the validity of reassessment proceedings initiated through notices issued by the Jurisdictional Assessing Officer rather than through the Faceless Assessing Officer mechanism.
The chronology of events reveals that:
- Notice under Section 148A(b) was issued on 14.03.2022
- Order under Section 148A(d) was passed on 31.03.2022
- Notice under Section 148 was issued on 31.03.2022
The critical aspect was that these notices were issued by the Jurisdictional Assessing Officer after 29.03.2022, which is when the Central Board of Direct Taxes notified the Faceless Income Escaping Assessment Scheme pursuant to Section 151A of the Income Tax Act, 1961.
Legal Framework Under Section 151A
Section 151A empowers the Central Government to formulate schemes through official gazette notifications for multiple purposes including:
- Assessment, reassessment or recomputation under Section 147
- Issuance of notice under Section 148
- Conducting enquiries or issuance of show-cause notice
- Passing orders under Section 148A
- Sanction for issuance of notices under Section 151
The legislative intent behind Section 151A is to achieve:
- Greater efficiency in tax administration
- Enhanced transparency in assessment procedures
- Improved accountability mechanisms
- Elimination of direct interface between tax authorities and assessees
- Optimal resource utilization through economies of scale
- Team-based assessments with dynamic jurisdiction
Sub-section (3) of Section 151A mandates that every notification issued under this provision must be laid before both Houses of Parliament, thereby giving it significant legislative backing.
The Faceless Scheme of 29th March 2022
Exercising powers under Section 151A, the CBDT issued Notification No.18/2022 dated 29.03.2022, formulating the "e-Assessment of Income Escaping Assessment Scheme, 2022". This Scheme explicitly provides that:
- Assessment, reassessment or recomputation under Section 147
- Issuance of notice under Section 148
These actions shall be undertaken through automated allocation in accordance with the risk management strategy formulated by the Board, and in a faceless manner as provided in Section 144B.
The term "automated allocation" is defined in the Scheme as an algorithm for randomized allocation of cases using technological tools including artificial intelligence and machine learning, aimed at optimizing resource utilization.
Judicial Precedents Examined
Bombay High Court Decision in Hexaware Technologies Ltd.
The Tribunal extensively relied on the landmark judgment of the Bombay High Court in Hexaware Technologies Ltd. v. Assistant Commissioner of Income-tax reported in 464 ITR 430. The Bombay High Court undertook a detailed analysis and held:
Key Observations of Bombay High Court:
The Court clarified that the phrase "to the extent provided in Section 144B" relates only to the manner of making assessment or reassessment, not to the issuance of notices. The Scheme mandates that notices under Section 148 must be issued through automated allocation and in a faceless manner.
The Court rejected the concept of concurrent jurisdiction between Jurisdictional Assessing Officers and Faceless Assessing Officers. When specific jurisdiction is assigned to either the JAO or FAO under the Scheme, it operates to the exclusion of the other. Accepting concurrent jurisdiction would lead to administrative chaos and render the faceless proceedings meaningless.
The Bombay High Court examined internal guidelines dated 01.08.2022 relied upon by the Revenue and held that these guidelines, being confidential departmental circulars not issued under Section 119, cannot override the statutory Scheme framed under Section 151A which has been placed before Parliament.
The Court emphasized that when an authority acts contrary to law, such action must be quashed as invalid. An assessee need not demonstrate additional prejudice when the very issuance of notice by an incompetent authority violates statutory provisions and the rule of law.
Madras High Court Division Bench in Mark Studio India (P.) Ltd.
The jurisdictional High Court of Madras, through its Division Bench, reversed the Single Bench decision that had favored the Revenue. The Division Bench expressly followed the reasoning in Hexaware Technologies Ltd. and held that notices issued by Jurisdictional Assessing Officer instead of Faceless Assessing Officer are invalid.
The Madras High Court accepted the Revenue's submission to keep open their rights and contentions in case the Supreme Court interferes with the Bombay High Court judgment, but nevertheless quashed the impugned notices.
Other High Court Decisions Supporting Assessees
Multiple High Courts across jurisdictions have adopted similar positions:
Telangana High Court in KankanalaRavindra Reddy v. Income-tax Officer (156 taxmann.com 178) held that notices issued by JAOs post-Scheme notification are invalid.
Gauhati High Court in Ram Narayan Sah v. Union of India (163 taxmann.com 478) followed the Telangana precedent.
Punjab & Haryana High Court in Jatinder Singh Bhangu v. Union of India (466 ITR 474) and Jasjit Singh v. Union of India (467 ITR 52) adopted the same view.
Telangana High Court in Sri Venkataramana Reddy Patloola v. Deputy Commissioner of Income Tax (468 ITR 181) reiterated that only Faceless Assessing Officers have jurisdiction post-Scheme implementation.
The Mumbai Bench decisions in Sushila Sureshbabu Malge v. Income-tax Officer (468 ITR 624), Samp Furniture Pvt. Ltd. v. Income Tax Officer (165 taxmann.com 581), and Kairos Properties Private Limited v. ACIT (468 ITR 168) further strengthened this position.