Karnataka High Court Rules Jurisdictional AO Lacks Power to Issue Section 148 Notices Under Faceless Regime

In a significant ruling that reinforces the supremacy of the Faceless Assessment Scheme, the Karnataka High Court has invalidated reassessment proceedings initiated by a Jurisdictional Assessing Officer (JAO). The Court held that following the notification of the e-Assessment of Income Escaping Assessment Scheme, 2022, the local officers were divested of their authority to issue notices under Section 148 of the Income Tax Act 1961.

The judgment in the case of Exotic Innovations Private Limited Vs DCIT serves as a critical reminder to the Revenue Department regarding adherence to the procedural mandates established under Section 151A.

The central issue adjudicated by the High Court was whether a Jurisdictional Assessing Officer (JAO) retains the authority to issue notices for reassessment under Section 148 after the Central Government has notified the Faceless Scheme.

With the introduction of Section 151A of the Income Tax Act 1961, the legislature intended to eliminate the human interface between the assessee and the tax authority to the extent technologically feasible. Pursuant to this, the Central Government issued Notification No. 18/2022 on March 29, 2022, effectively operationalizing the faceless regime for income escaping assessment.

Despite this legislative shift, in the present case, the JAO issued notices and subsequently passed assessment orders against the assessee for multiple assessment years. The assessee challenged these actions, arguing that the JAO suffered from a fundamental lack of jurisdiction.

Case Background: Exotic Innovations Private Limited Vs DCIT

The petitioner, Exotic Innovations Private Limited, approached the Karnataka High Court seeking a writ of certiorari to quash a series of notices and orders issued by the Respondent (DCIT). The litigation covered a broad spectrum of Assessment Years (AY), specifically from AY 2017-18 through AY 2022-23.

The Assessee’s Grievance

The assessee contended that the entire reassessment exercise was legally flawed from its inception. The primary arguments raised were: