NJR DEVELOPERS LLP vs. ASSESSMENT COMMISSIONER OF INCOME TAX CIRCLE 2 PUNE AND ORS

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WP/12677/2024HC BombayHCBM01043196202409 September 2024Bench: HON'BLE SHRI JUSTICE G. S. KULKARNI,HON'BLE SHRI JUSTICE SOMASEKHAR SUNDARESAN6 pages
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What did the High Court hold?

The Tribunal held that the notice dated March 31, 2024, issued under Section 148 of the Income Tax Act, 1961, by the Jurisdictional Assessing Officer (JAO) is invalid. The Court relied on its previous decision in Hexaware Technologies Limited Vs. Assistant Commissioner of Income Tax & Ors., which clearly stated that the Scheme notified under Section 151A mandates that only a Faceless Assessing Officer (FAO) can issue notices under Section 148 of the Act, and there is no concurrent jurisdiction of the JAO and FAO in this regard. The Court found that the respondent-revenue had not complied with the Scheme, and the issuance of the notice by the JAO vitiated the proceedings. The Court also noted that an act done contrary to the provisions of the statute itself causes prejudice to the assessee, and therefore, the petitioner was not required to prove further prejudice. Consequently, the writ petition was allowed, quashing the impugned notice and all consequential notices.

What were the facts?

The petitioner, NJR Developers LLP, filed a writ petition challenging a notice dated March 31, 2024, issued under Section 148 of the Income Tax Act, 1961, for reassessment concerning Assessment Year 2021-22. The petitioner contended that the notice was issued by the Jurisdictional Assessing Officer (JAO) instead of a Faceless Assessing Officer (FAO), which is mandated by Section 151A of the Act and the Central Government's Notification dated March 29, 2022, introducing a faceless mechanism. The respondents are the Assistant Commissioner of Income Tax and other revenue authorities. The High Court considered the matter based on the arguments presented by both parties.

What were the issues?

1. Whether a notice issued under Section 148 of the Income Tax Act, 1961, for reassessment for Assessment Year 2021-22 is invalid if issued by the Jurisdictional Assessing Officer (JAO) instead of a Faceless Assessing Officer (FAO), contrary to the provisions of Section 151A of the Act and the Notification dated March 29, 2022. Assessee's Contention: The petitioner argued that the notice is invalid because it was issued by the JAO, violating Section 151A and the mandatory faceless mechanism introduced by the Notification. They relied on the Division Bench judgment in Hexaware Technologies Limited Vs. Assistant Commissioner of Income Tax & Ors. Revenue's Contention: The revenue argued that the Scheme introduced by the Notification dated March 29, 2022, is applicable only to the extent provided in Section 144B of the Act, and since Section 144B does not refer to the issuance of notice under Section 148, the notice could be issued by the FAO. They also argued that there could be concurrent jurisdiction between JAO and FAO.

Which sections of the Income-tax Act were involved?

Section 148,Section 151A,Section 144B,Section 147,Section 143(2),Section 142(1)

AI-generated summary — verify with the full judgment below

927.WP.12677.2024.doc

IN THE HIGH COURT OF JUDICATURE AT BOMBAY CIVIL APPELLATE JURISDICTION WRIT PETITION NO.12677 OF 2024 NJR Developers LLP …. Petitioner Vs. Assistant Commissioner of Income Tax, Circle 2, Pune & Ors. …. Respondents _________ Mr. Ruturaj H. Gurjar for the Petitioner. Mr. Vikas T. Khanchandani for Respondents. _________ CORAM : G. S. KULKARNI & SOMASEKHAR SUNDARESAN, JJ. DATE : 09 SEPTEMBER, 2024 P.C. 1. Rule. Rule made returnable forthwith. Learned counsel for the respondents waives service. By consent of the parties, heard finally. 2. This writ petition under Article 226 of the Constitution of India has been filed to challenge a notice dated 31 March, 2024 (“impugned notice”) issued to the petitioner under Section 148 of the Income Tax Act, 1961 (“the Act”). The reassessment under Section 148 of the Act has been initiated in respect of returns filed Page 1 of 6 09 September, 2024 Aarti Palkar AARTI GAJANAN PALKAR Digitally signed by AARTI GAJANAN PALKAR Date: 2024.09.12 15:36:54 +0530

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by the petitioner-assessee for the Assessment Year 2021-22. 3. On perusal of the record, it is apparent that the impugned notice dated 31 March, 2024 under Section 148 of the Act was issued by the Jurisdictional Assessing Officer (“JAO”) and not by a Faceless Assessing Officer (“FAO”), as is required by the provisions of Section 151A of the Act. 4. To give effect to the provisions of Section 151A, the Central Government has issued a Notification dated 29 March 2022 whereby a faceless mechanism has been introduced. Thus, necessarily in resorting to a procedure under Section 148A and the consequent notice to be issued under Section 148 of the Act, the Assessing Officer is required to adhere to the provisions of Section 151A read with the Notification. Thus, for a notice to be validly issued for reassessment under Section 148 of the Act, the Respondent-Revenue would need to be compliant with Section 151A, which has been interpreted and analysed in detail by a Division Bench of this Court in the case of Hexaware Technologies Limited Vs. Assistant Commissioner of Income Tax & 4 Ors.

1 (“Hexaware”). The Division Bench has clearly declared the law as follows : 1 (2024) 464 ITR 430 Page 2 of 6 09 September, 2024 Aarti Palkar

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35 Further, in our view, there is no question of concurrent jurisdiction of the JAO and the FAO for issuance of notice under Section 148 of the Act or even for passing assessment or reassessment order. When specific jurisdiction has been assigned to either the JAO or the FAO in the Scheme dated 29th March, 2022, then it is to the exclusion of the other. To take any other view in the matter, would not only result in chaos but also render the whole faceless proceedings redundant. If the argument of Revenue is to be accepted, then even when notices are issued by the FAO, it would be open to an assessee to make submission before the JAO and vice versa, which is clearly not contemplated in the Act. Therefore, there is no question of concurrent jurisdiction of both FAO or the JAO with respect to the issuance of notice under Section 148 of the Act. The Scheme dated 29

th March 2022 in paragraph 3 clearly provides

that the issuance of notice “shall be through automated allocation ” which means that the same is mandatory and is required to be followed by the Department and does not give any discretion to the Department to choose whether to follow it or not. That automated allocation is defined in paragraph 2(b) of the Scheme to mean an algorithm for randomised allocation of cases by using suitable technological tools including artificial intelligence and machine learning with a view to optimise the use of resources. Therefore, it means that the case can be allocated randomly to any officer who would then have jurisdiction to issue the notice under Section 148 of the Act. It is not the case of respondent no.1 that respondent no.1 was the random officer who had been allocated jurisdiction. 36 With respect to the arguments of the Revenue, i.e., the notification dated 29th March 2022 provides that the Scheme so framed is applicable only ‘to the extent’ provided in Section 144B of the Act and Section 144B of the Act does not refer to issuance of notice under Section 148 of the Act and hence, the notice cannot be issued by the FAO as per the said Scheme, we express our view as follows:- Section 151A of the Act itself contemplates formulation of Scheme for both assessment, reassessment or recomputation under Section 147 as well as for issuance of notice under Section 148 of the Act. Therefore, the Scheme framed by the CBDT, which covers both the aforesaid aspect of the provisions of Section 151A of the Act cannot be said to be applicable only for one aspect, i.e., proceedings post the issue of notice under Section 148 of the Act being assessment, reassessment or recomputation under Section 147 of the Act and inapplicable to the issuance of notice under Section 148 of the Act. The Scheme is clearly applicable for issuance of notice under Section 148 of the Act and accordingly, it is only the FAO which can issue the notice under Section 148 of the Act and not the JAO. The argument advanced by respondent would render clause 3(b) of the Scheme otiose and to be ignored or contravened, as according to respondent, even though the Scheme Page 3 of 6 09 September, 2024 Aarti Palkar

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specifically provides for issuance of notice under Section 148 of the Act in a faceless manner, no notice is required to be issued under Section 148 of the Act in a faceless manner. In such a situation, not only clause 3(b) but also the first two lines below clause 3(b) would be otiose, as it deals with the aspect of issuance of notice under Section 148 of the Act. Respondents, being an authority subordinate to the CBDT, cannot argue that the Scheme framed by the CBDT, and which has been laid before both House of Parliament is partly otiose and inapplicable. ……..” 37 When an authority acts contrary to law, the said act of the Authority is required to be quashed and set aside as invalid and bad in law and the person seeking to quash such an action is not required to establish prejudice from the said Act. An act which is done by an authority contrary to the provisions of the statue, itself causes prejudice to assessee. All assessees are entitled to be assessed as per law and by following the procedure prescribed by law. Therefore, when the Income Tax Authority proposes to take action against an assessee without following the due process of law, the said action itself results in a prejudice to assessee. Therefore, there is no question of petitioner having to prove further prejudice before arguing the invalidity of the notice.

[Emphasis Supplied] 5. In the present case, it is apparent that the respondent- revenue has not complied with the Scheme notified by the Central Government pursuant to Section 151A(2) of the Act. The Scheme has also been tabled in Parliament and is in the character of subordinate legislation, which governs the conduct of proceedings under Section 148A as well as Section 148 of the Act. In view of the explicit declaration of the law in Hexaware, the grievance of the petitioner-assessee insofar as it relates to an invalid issuance of a notice is sustainable and consequently, the very manner in which the proceedings have been initiated, vitiates the proceedings. Page 4 of 6 09 September, 2024 Aarti Palkar

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6.

Learned counsel for both the parties agree that the proceedings initiated under Section 148 of the Act would not be sustainable in view of the judgment rendered in Hexaware. Learned counsel for the petitioner-assessee has also drawn our attention to a recent decision of this Court in Nainraj Enterprises Pvt. Ltd. Vs. The Deputy Commissioner of Income Tax, Circle-4(3) (1), Mumbai & Ors.2, whereby in similar circumstances, this Court has allowed the petition considering the provisions of Section 151A of the Act. 7. Learned counsel for the revenue fairly agrees that this proceeding would stand covered by the decision of a Division Bench of this Court in the case of Hexaware Technologies Limited Vs. Assistant Commissioner of Income Tax & 4 Ors. 8. In the light of the above discussion, and as there is no dispute that the JAO had no jurisdiction to issue the impugned notice, the writ petition is accordingly allowed in terms of prayer clause (b), which read thus : “(b) Issue a writ of Certiorari or a writ in the nature of certiorari or any other writ, order or direction, quashing the Impugned Notice under s 148 of the Act dated 31 March 2024 (Exhibit A), the notice u/s 2 Writ Petition (L.) No. 16918 of 2024 dt. 2-07-2024 Page 5 of 6 09 September, 2024 Aarti Palkar

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142(1) dated 25 July 2024 (Exhibit E), the notice u/s.143(2) dated 30 July 2024 and all consequential notices. 9. We make it clear that having disposed of this petition on the ground of non-compliance with Section 151A of the Act, we have not expressed any opinion on the other issues raised in the Writ Petition. The other questions raised in this petition are not being answered since it is not necessary to do so. 10. Rule is made absolute in the aforesaid terms. No costs. [SOMASEKHAR SUNDARESAN, J.] [ G. S. KULKARNI, J. ] Page 6 of 6 09 September, 2024 Aarti Palkar

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