PALLAPU SRINIVASARAO (HUF),ALMASGUDA vs. ITO., WARD-9(1), HYDERABAD

“The order of learned Commissioner of Income Tax (Appeals) is contrary to the facts and also the law applicable to the facts of the case.

The learned Commissioner of Income Tax (Appeals) is not justified in deciding the appeal ex-parte.

Without prejudice to the above, the learned Commissioner of Income Tax (Appeals) ought to have quashed the notice issued u/s 148 as invalid and hence the learned Commissioner of Income Tax (Appeals) ought to have quashed the reassessment proceedings as void-ab-Initio.

Without prejudice to the above, the learned Commissioner of Income Tax (Appeals) ought to have held that the assessing officer is not justified in making addition of Rs.84,91,663 u/s 69A of the Act towards unexplained deposits in the bank account.

Any other ground that may be urged at the time of appeal hearing.”

Succinctly stated, the AO based on information flagged asper Risk Management Strategy formulated by the CBDT through Insight Portal under the head NMS cases, observed that though the assessee during the subject year had carried out certain cash withdrawals (including through bearer’s cheque) in current account with the South Indian Bank Limited, but had failed to file its return of income under section 139(1) of the Act, initiated proceedings under section 147 of the Act. Notice under section 148A(b) of the Act, dated 15/02/2024 was issued to the assessee. Thereafter, the ITO, Ward-1, Ongole, i.e., the Juri ictional Assessing Officer (for short “JAO”) passed an order under section 148A(d) of the Act, dated 24/03/2024. Further, the JAO issued notice under section 148 of the Act, dated 24/03/2024 calling upon the 3 Pallapu Srinivasa Rao (HUF) vs. ITO assessee to file its return of income in compliance thereto. However, the assessee despite sufficient opportunity failed to file its return of income in compliance with the aforesaid notice. Accordingly, the AO in the backdrop of the non-cooperative approach of the assessee, issued a show cause notice (SCN) under section 144 of the Act, dated 22/01/2025, wherein it was called upon to explain as to why the assessment in its case may not be framed to the best of judgment. However, the assessee even failed to respond to the aforesaid notice.

During the course of the assessment proceedings, the AO observed that the assessee had in the subject year made cash deposits of Rs.52.01 lakhs from its current account held with the Suth Indian Bank Limited. As the assessee despite lapse of a period of more than 10 months had failed to come forth with any explanation regarding its aforesaid financial transaction, therefore, the AO called for the bank statement of the assessee from its aforementioned bank. On a perusal of the bank statement, the AO observed that there were total credits in the bank account No.0689073000000122 held by the assessee with the South Indian Bank Limited amounting to Rs.84,91,663/-. Also, the AO observed that out of the subject credits, mostly the amounts were withdrawn immediately by the assessee in cash. As the assessee had not come forth with any explanation regarding the source of the credits in his aforementioned bank account, therefore, the AO held the same as his unexplained money under section 69A of the Act. Accordingly, the 4 AO vide his order under section 147 r.w.s 144 r.w.s 144B of the Act, dated 17/02/2025 determined the income of the assessee at Rs.84,91,663/-.

Aggrieved, the assessee carried the matter in appeal before the CIT(A) but without success.

On a perusal of the record, we find that as the assessee had failed to participate in the proceedings before the CIT(A), therefore, the latter after taking cognizance of the material available on record, concluded that the contentions raised by the assessee before him were not acceptable as no documents in support thereof were furnished in the course of the appellate proceedings. Accordingly, the CIT(A) finding no infirmity in the view taken by the AO declined to interfere with the view taken by him and dismissed the appeal.

The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us.

We have heard the Learned Authorized Representatives of both parties, perused the orders of the authorities below and the material available on record as well as considered the judicial pronouncements that have been pressed into service by the Ld. AR to drive home his contentions.

We have given thoughtful consideration on the issue of validity of the juri iction assumed by the “Faceless Assessing Officer” (FAO) for framing the assessment vide his order passed under Section 147 r.w.s 144 r.w.s 44B of the Act, dated 17/02/2025 based on the order passed under Section 148A(d) of the Act, dated 24/03/2024 and Notice issued U/s 148 of the Act, dated 24/03/2024 by the Income Tax Officer, Ward- 1, Ongole, i.e., the “Juri ictional Assessing Officer” (JAO).

In our view, the issue involved in the present appeal, i.e., the validity of the assessment order passed under Section 147 r.w.s 144r.w.s 144B of the Act, dated 17/02/2025 by the Assessment Unit, Income-Tax Department, i.e., Faceless Assessing Officer (FAO), based on the order passed u/s 148A(d), dated 24/03/2024 and Notice u/s 148

In furtherance to the powers conferred under sub-sections 1 and 2 of section 130 of the aforesaid Income-tax Act, the Central Board of Direct Taxes framed a scheme called as the "Faceless juri iction of Income Tax Authorities Scheme, 2022." A plain reading of the aforesaid notification would clearly reflect that as has been amended under section 130. The Central Board of Direct Taxes has framed a scheme which defines the Act to be the Income Tax Act and it specifically defines automated allocation which is defined under section 2 (1)(b), which again for ready reference is being re-produced herein under: "In this Scheme, unless the context otherwise requires, -- (a) "Act" means the Income-tax Act, 1961 (43 of 1961); (b) "automated allocation" means 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;" Further Section 3 of the said scheme deals with vesting of the juri iction with the Assessing Officer, which again for ready reference is being reproduced herein under: "vesting the juri iction with the Assessing Officer as referred to in section 124 of the Act, shall be in a faceless manner, through automated allocation, in accordance with and to the extent provided in- (i) Section 144B of the Act with reference to making faceless assessment of total income or loss of assessee;"

In furtherance to the aforesaid notification, the Central Board of Direct Taxes again in exercise of its powers conferred under sub- sections 1 and 2 of section 151A framed another scheme called as the e-assessment of Income Escaping Assessment Scheme 2022, which defines automated allocation is reproduced herein under: "In this Scheme, unless the context otherwise requires,- (a) "Act" means the Income-tax Act, 1961 (43 of 1961); (b) "automated allocation" means 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." And the scope of the scheme again has been envisaged in Section 3 of the said scheme, which again for ready reference is being reproduced herein under: "For the purpose of this Scheme,- (a) assessment, reassessment or recomputation under sectopm 147 of the Act, (b) issuance of notice under section 148 of the Act, shall be through automated allocation, in accordance with risk management strategy formulated by the Board as referred to in section 148 of the Act for issuance of notice, and in a faceless manner, to the extent provided in section 144B of the Act with reference to making assessment or reassessment of total income or loss of assessee."

A plain reading of the aforesaid two notifications issued by the Central Board of Direct Taxes dated 28-3-2022 and 29-3-2022, it would clearly indicate that the Central Board of Direct Taxes was very clear in its mind when it framed the aforesaid two schemes with respect to the proceedings to be drawn under section 148A, that is to have it in a faceless manner. There were two mandatory conditions which were required to be adhered to by the Department, firstly, the allocation being made through the automated allocation system in accordance with the risk management strategy formulated by the Board under section 148 of the Act. Secondly, the re-assessment has to be done in a faceless manner to the extent provided under section 144B of the Act.

After the introduction of the above two schemes, it becomes mandatory for the Revenue to conduct/initiate proceedings pertaining to reassessment under section 147, 148 & 148A of the Act in a faceless manner. Proceedings under section 147 and section 148 of the Act would now have to be taken as per the procedure legislated by the Parliament in respect of reopening/re- assessment i.e., proceedings under section 148A of the Act.

In the present case, both the proceedings i.e., the impugned proceedings under section 148A of the Act, as well as the consequential notices under section 148 of the Act were issued by the local juri ictional officer and not in the prescribed faceless manner. The order under section 148A(d) of the Act and the notices under section 148 of the Act are issued on 29-4-2022, i.e., after the "Faceless Juri iction of the Income-tax Authorities Scheme, 2022"

From the afore given factual matrix, firstly the statutory provisions enumerated in the preceding paragraphs and secondly, the subsequent direction given by the Hon'ble Supreme Court in the case of Ashish Agarwal, supra, what is clearly reflected is the fact that when the Hon'ble Supreme Court had partly allowed the petitions which were filed by the Union of India challenging the judgements of various High Courts whereby the notice under section 148 of the unamended Act were set aside by the High Courts, the Hon'ble Supreme Court has only permitted the Union of India to proceed further with the reassessment proceedings under the amended provision of law, more particularly, as amended by the Finance Act, 2021. It never intended the authorities concerned to continue with the proceedings from the stage of the issuance of notices under section 148, nor is the directions to that effect. And there cannot be any confusion, ambiguity or mis-conception for the respondent-Department to have in this regard.

The Hon'ble Supreme Court has in paragraph No. 7 specifically held that the High Courts have rightly held that the benefit of new provisions shall be made available in respect of the proceedings relating to past assessment years. Further, the Hon'ble Supreme Court again in paragraph No. 8 very emphatically had said that the proceedings ought not to have been issued under the unamended Act. Rather ought to had been issued under the substituted provisions as per the Finance Act, 2021. Further, in the same paragraph clearly directed the Income-tax Department to proceed further as per the Finance Act, 2021, subject to compliance of all the procedural requirements and defences available to the assessee under the substituted provisions under the Finance Act, 2021. The fact that the Hon'ble Supreme Court allowed the notice earlier issued under section 148 be treated as notice one under section 148A and further it was also be treated as the show cause notice issued under section 148A(b) by itself establishes the fact the directions given by the Hon'ble Supreme Court for the respondent-Department was to proceed further in accordance with the substituted provisions which stood introduced by the Finance Act, 2021. 30. In the instant case, undisputedly the respondent-Department has not proceeded against the petitioner under the substituted provisions of the Finance Act, 2021. Rather, it proceeded with the unamended provisions of law. This in other words takes the position back to the stage as it stood when the initial notices under section 148 under the unamended provisions of law were issued. This in other words also takes us to a position or a stage prior to the large number of writ petitions being allowed across the country, approximately 9,000 in number and confirmed by the Hon'ble Supreme Court also vide the judgement of Ashish Agarwal, supra.

It is well settled principle of law that where the power is given to do certain things in certain way, the thing has to be done in that way

The Hon'ble Supreme Court in the case of Chandra Kishore Jha v. Mahaveer Prasad [1999] 8 SCC 266 in paragraph No. 17 laying down the aforesaid principle held as under "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 reiterated in the case of Cherrukuri Mani v. Chief Secretary Government of Andhra Pradesh [2015] 13 SCC 722, wherein, again in paragraph No. 14, the aforesaid principle has been reinforced by the Hon'ble Supreme Court holding that "where law prescribe a thing to be done in a particular manner following a particular procedure, it shall have to be done in the same manner following the provisions of law without deviating from the prescribed procedure. The said principle has again recently been reiterated and followed in the case of Municipal Corporation Greater Mumbai (MCGM) v. Abhilash Lal [2019] 111 taxmann.com 405/[2020] 157 SCL 477 (SC)/[2020] 13 SCC 234, and in the case of Opto Circuit India Ltd. v. Axis Bank [2021] 127 taxmann.com 290/165 SCL 703 (SC)/[2021] 6 SCC 707 and again in the case of Union of India v. Mahendra Singh [CAP No. 4807 of 2022, dated 25-7-2022]. In the case of Tata Chemicals Ltd. v. Commissioner of Customs (preventive) Jam Nager [2015] 58 taxmann.com 126/[2015] 11 SCC 628, wherein it has been held that there can be no stopple against the law. If the law requires something to be done in a particular manner, then it must be done in that manner, if it is not done in that manner then it would have no existence in the eye of law. In paragraph 18 of the said judgment, the Hon'ble Supreme Court held as under: "The Tribunal's judgment has proceeded on the basis that even though the samples were drawn contrary to law, the appellants would be estopped because their representative was present when the samples were drawn and they did not object immediately. This is a completely perverse finding both on fact and law. On fact, it has been more than amply proved that no representative of the appellant was, in fact, present at the time the Customs Inspector took the samples. Shri K.M. Jani who was allegedly present not only stated that he did not represent the Clearing Agent of the appellants in that he was not their employee but also stated that he was not present when the samples were taken. In fact, therefore, there was no representative of the appellants when the samples were taken. In law equally the Tribunal ought to have realized that there can be no estoppel against law. If the law requires that something be done in a particular manner, it must be done in that manner, and if not done in that manner has no existence in the eye of law at all. The Customs Authorities are not absolved from following the law depending upon the acts of a particular assessee. Something that is illegal cannot convert itself into something legal by the act of a third person."

If we look into the principle of law laid down by the Hon'ble Supreme Court as enumerated in the preceding paragraphs and when we look into the facts of the present case, it would clearly reflect that the Parliament had by virtue of the Finance Act 2021, brought certain

For all the aforesaid reasons, the impugned notices issued and the proceedings drawn by the respondent-Department is neither tenable, nor sustainable. The notices so issued and the procedure adopted being per se illegal, deserves to be and are accordingly set aside/quashed. As a consequence, all the impugned orders getting quashed, the consequential orders passed by the respondent-

Since the Hon'ble Supreme Court had, in the case of Ashish Agarwal, supra, as a one-time measure exercising the powers under Article 142 of the Constitution of India, permitted the Revenue to proceed under the substituted provisions, and this Court allowing the petitions only on the procedural flaw, the right conferred on the Revenue would remain reserved to proceed further if they so want from the stage of the order of the Supreme Court in the case of Ashish Agarwal, supra.

No order as to costs.”

We, thus, respectfully follow the judgment of the Hon’ble Juri ictional High Court in the case of Kankanala Ravindra Reddy Vs. ITO & 2 Others (supra), and on the same terms hold the impugned orders and notices issued by the Juri ictional Assessing Officer (JAO), i.e., outside the faceless mechanism as provided in Section 144(b) r.w Section 151A and the "E-Assessment Scheme of Income Escaping Assessment Scheme, 2022" notified by the Government of India on 29.03.2022 under Section 151A of the Act, as bad and illegal. Consequent thereto, we herein set aside the order passed by the CIT(A), and quash the impugned assessment order passed by the Assessment Unit, Income-tax Department, i.e., FAO under Section 147 r.w.s 144 r.w.s 144B of the Act, dated 17/02/2025, for want of a valid assumption of juri iction on his part.

As we have quashed the assessment for want of valid assumption of juri iction by the Assessment Unit, Income-Tax Department, i.e., Faceless Assessing Officer (FAO) for framing the impugned assessment vide order passed under Section 147 r.w.s 144

Resultantly, the order passed by the Assessment Unit, Income- Tax Department, i.e., Faceless Assessing Officer (FAO) under Section 147 r.w.s 144 r.w.s 144B of the Act, dated 17/02/2025, is quashed for want of a valid assumption of juri iction by him.

Before parting, we may herein observe that the Hon’ble Juri ictional High Court, while disposing of the appeal in the case of Kankanala Ravindra Reddy Vs. ITO & 2 Others (supra), observed that since the Hon'ble Supreme Court had, in the case of Ashish Agarwal, supra, as a one-time measure exercised the powers under Article 142 of the Constitution of India, and permitted the Revenue to proceed under the substituted provisions, therefore, on the same terms as the petitions before them, i.e., the Hon’ble High Court, were being allowed only on the procedural flaw, hence right conferred on the Revenue would remain reserved to proceed further if they so want from the stage of the order of the Supreme Court in the case of Ashish Agarwal, supra. We, thus, respectfully follow the aforesaid observation

We would further observe that the Hon’ble High Court of Juri iction in its order in the case of Yashnu Yasasvi Polucherla Vs. Income-tax Officer (2025) 179 taxmann.com 470 (Telangana), had held that as its earlier order in the case of Kankanala Ravindra Reddy Vs. ITO & 2 Others (supra) is subjected to challenge before the Hon'ble Supreme Court in SLP No.3574 of 2024, preferred by the Income Tax Department, therefore, the allowing of the writ petition in the case before them is subject to the outcome of the aforesaid SLP preferred by the Revenue against its decision in the case of Kankanala Ravindra Reddy Vs. ITO & 2 Others (supra). This, the Hon’ble High Court had allowed liberty to either of the parties, if they so want, to move an appropriate petition seeking revival of this writ petition in the light of the decision of the Hon'ble Supreme Court in the pending “Special Leave Petition” (SLP) on the very same issue. We, thus, respectfully follow the aforesaid observation of the Hon’ble Juri ictional High Court and, thus, on the same terms allow liberty to either of the parties before us to seek revival of the matter in light of the decision of the Hon’ble Supreme Court in the aforesaid SLP.

In the result, the appeal filed by the assessee is allowed in terms of our aforesaid observations.

"वभागीय""त"न"ध, आयकरअपील"यअ"धकरण /DR,ITAT, Hyderabad.

The Commissioner of Income Tax 6. गाड"फ़ाईल / Guard file