ITAT Rajkot Sets Aside Reassessment: Jurisdictional Officer's Notices Invalid Under Faceless Assessment Regime

Introduction

The Rajkot Bench of the Income Tax Appellate Tribunal has delivered a significant ruling in the matter of Kalpesh Ravjibhai Sojitra Vs ITO, striking down the entire reassessment proceedings for Assessment Year 2017-18. The Tribunal held that notices issued by the Jurisdictional Assessing Officer (JAO) under Section 148A(b), Section 148A(d), and Section 148 of the Income Tax Act 1961 were invalid from inception, as they bypassed the mandatory faceless assessment mechanism mandated under Section 151A read with Section 144B and the E-Assessment of Income Escaping Assessment Scheme, 2022.

Factual Matrix of the Case

The assessee in question is an individual who came under the scanner of the Income Tax Department following information received through the Insight Portal. According to departmental records, the assessee had deposited cash totaling Rs. 91,89,290/- during the demonetization period in two bank accounts maintained with Indian Overseas Bank—Rs. 78,26,790/- in Account No. 339433000000002 and Rs. 13,62,500/- in Account No. 339402000000019.

The case was reopened under Section 147 of the Income Tax Act 1961 based on this information. During assessment proceedings, the assessing officer issued notice under Section 142(1) dated 11.01.2023, calling upon the assessee to furnish bank statements highlighting cash deposit transactions and substantiating documents explaining the source of these deposits. However, the assessee failed to comply with these notices.

Subsequently, the department issued notices under Section 133(6) of the Act on 09.02.2023 and 15.02.2023, and obtained bank statements directly from Indian Overseas Bank. The statements confirmed the cash deposits as reported.

Since the assessee operated a petrol pump authorized to accept old currency notes during the demonetization period, the assessing officer allowed 1.63% of the total deposit amount (Rs. 1,50,000/-) as business-related. The balance amount of Rs. 90,39,290/- (Rs. 91,89,290/- minus Rs. 1,50,000/-) was treated as unexplained cash credit under Section 68 of the Income Tax Act 1961 for Financial Year 2016-17, relevant to Assessment Year 2017-18.

Appellate Proceedings Before CIT(A)

Aggrieved by the assessment order, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi. The CIT(A) upheld the addition of Rs. 90,39,290/- under Section 68, observing that the assessee failed to explain the nature and source of cash deposits. The appellate authority noted that no documentary evidence was submitted either during assessment or appellate proceedings, and found no violation of principles of natural justice. Accordingly, the findings of the assessing officer were confirmed.

Grounds Before ITAT

Dissatisfied with the CIT(A)'s order dated 29.07.2025, the assessee approached the ITAT Rajkot with the following grounds:

  1. The CIT(A) erred in upholding the addition of Rs. 90,39,290/- as unexplained cash credit under Section 68 of the Act
  2. The CIT(A) erred in upholding the assessment order passed by the National Faceless Assessment Centre under Section 147 read with Section 144 of the Act
  3. The CIT(A) erred in dismissing the appeal without considering facts and merits
  4. The CIT(A) erred regarding the validity of notice issued by the JAO under Section 148, which was issued manually and without Document Identification Number (DIN)

Additionally, the assessee raised legal and technical grounds challenging:

  1. The notice/order under Section 148A(d) issued by the JAO and not through faceless manner
  2. The notice/order under Section 148 issued by the JAO and not through faceless manner

Admission of Additional Grounds

The assessee's counsel contended that the additional legal grounds should be admitted in the interest of justice, as all relevant facts were already before the assessing officer. These grounds raised purely legal issues requiring no fresh investigation, as all facts were on record.

The Departmental Representative objected, arguing that since the assessee did not raise these issues before the CIT(A), they should not be permitted at the appellate stage.

The Tribunal noted that the additional grounds challenged the very jurisdiction of the JAO to issue notices under Section 148A(d) and Section 148. Being purely legal issues going to the root of the matter, with all facts already on record and requiring no further inquiry, the Tribunal admitted the additional grounds following the precedent laid down by the Hon'ble Supreme Court in National Thermal Power Company Ltd., vs. CIT (1998) 229 ITR 382 (SC).

Assessee's Contentions

The learned counsel for the assessee vehemently argued that no concurrent jurisdiction exists between the Jurisdictional Assessing Officer (JAO) and Faceless Assessing Officer (FAO). The Revenue's position that both officers enjoy concurrent jurisdiction is fundamentally flawed and contradicts the express framework of Section 144B of the Act and the E-Assessment of Income Escaping Assessment Scheme, 2022.

The statutory mandate is clear: once faceless reassessment is notified, physical jurisdiction ceases. The counsel relied on the judgment of the Hon'ble Supreme Court in ACIT v. M/s. Dharmendra M Jani (2022) 447 ITR 62 (SC), wherein the Court held that when specific machinery is prescribed by statute, the same must be followed, and assessments made contrary to prescribed procedure are void ab initio.

Statutory Analysis of Section 144B

The provisions of Section 144B(1) of the Act unambiguously state that assessment or reassessment "shall be made" in a faceless manner notwithstanding anything contrary elsewhere in the Act. This non-obstante clause categorically excludes the manual jurisdiction of the JAO. The scheme provided in the Act itself overrides manual jurisdiction.

The E-Assessment of Income Escaping Assessment Scheme, 2022, notified on 29.03.2022, expressly mandates that reassessment proceedings are to be conducted exclusively by units under the National Faceless Assessment Centre. Consequently, the JAO cannot initiate proceedings under Section 148A(b) or Section 148 once the scheme is enforced.

The counsel emphasized that jurisdiction vested in a specific authority cannot be exercised by another authority. This is a settled proposition of law that jurisdiction is not a matter of convenience. The following judicial precedents were cited:

CIT v. S. S. Gadgil (1964) 53 ITR 231 (SC): The Hon'ble Supreme Court held that a notice issued by an officer who does not possess jurisdiction is void, and such jurisdictional defects cannot be cured.

Pannalal Binjraj v. Union of India (1957) 31 ITR 565 (SC): Reaffirmed the principle that jurisdictional defects go to the root of the matter and cannot be condoned.

Rakesh Agarwal vs. UOI (2023) - Gujarat High Court: The Court held that notices under Section 148/Section 148A issued by a non-competent officer are void and liable to be quashed.

Distinguishing Delhi High Court Decisions

The assessee's counsel distinguished the Delhi High Court rulings cited by the Revenue (T.K.S. Builders, Kataria Education Society, and Navita Bansal) on multiple grounds:

First, those judgments dealt with situations where no allocation to the FAO had been made. The Courts held that the JAO may proceed only in the absence of allocation to FAO. However, in the present case, the National Faceless Assessment Centre had already been notified for all reassessments.