Delhi High Court: In a batch of writ petitions filed to challenge the validity of reassessment action initiated under Section 148 of the Income Tax Act, 1961 (‘Act’), a Division Bench of Yashwant Varma* and Ravinder Dudeja, JJ. were unable to sustain the challenge that was addressed by the petitioner and negated the contention that the impugned notices were liable to be quashed merely because they were issued by the JAO.
Background
Even though the reassessment action was impugned on various grounds, the primary issue contended by the petitioners was whether a notice issued by the Jurisdictional Assessing Officer (‘JAO’) would be valid and compliant with the Faceless Scheme of Assessment which had been adopted by virtue of Sections 144-B and 151-A of the Act.
On 31-03-2021, a notice under Section 148 of the Act came to be issued against the petitioner. The notice was challenged through a writ petition which formed part of a larger batch of writ petitions and has since then come to be commonly known as Suman Jeet Agarwal v. Income Tax Officer 2022 SCC OnLine Del 3141 wherein the respondents were restrained from taking any coercive action against the petitioner in pursuance of the notice under Section 148 through interim orders.
Pursuant to the liberty accorded by the Supreme Court in Union of India v. Ashish Agarwal (2023) 1 SCC 617, a notice under Section 148A(b) was issued in respect of the petitioner on 02-06-2022 to which the petitioner responded on 15-06-2022. The JAO passed an order dated 22-07-2022 under Section 148A(d) rejecting the objections raised to the commencement of reassessment, which was followed by the issuance of a consequential notice under Section 148.
Taking a cue from the decision of Suman Jeet Agarwal (supra), another notice under Section 148A(b) dated 28-10-2022 was issued to the petitioner. This was followed by an order dated 13-12-2022 which was passed regarding Section 148A(d) along with a notice under Section 148. Although a final assessment order dated 24-05-2023 came to be framed, the said order was related to the second notices under Section 148 dated 22-07-2022.
At this juncture, the present petition was filed before the Court, and the challenge to the notice under Section 148 was founded on the decisions by the High Courts wherein it was held that after the introduction of Sections 144B and 151A read together with the E-Assessment of Income Escaping Assessment Scheme, 2022, the JAO would stand denuded of jurisdiction to commence proceedings under Section 148 of the Act.
Analysis and Decision
To appreciate the statutory scheme of faceless assessment, the Court perused some provisions of the Act as well as the Faceless Re-Assessment Scheme, 2022 which came to be promulgated on 29-03-2022 and said that with the advent of technology, the Revenue appeared to have, over a course of time, adopted new tools for assembling, accumulation, and analysis of data embedded in the millions of returns which came to be filed every financial year.
The Court said that the Central Board for Direct Taxes issued one of its first instructions on 08-04-2021 after the commencement of the Faceless Assessment Scheme in 2019. This was followed by an order under Section 119 of the Act as well as an amending order which stated various categories of cases that would stand excluded from faceless assessment. The Court also took note of the Notification issued under Section 120 of the Act dated 13-08-2020 which designated the authorities charged with the conduct of faceless assessment regarding various territorial areas.
The Court said that despite the expressed intent to altogether eliminate the interface between the AO and the assessee, both Notifications of 12-09-2019 as well as 13-08-2020 had not excluded the involvement of the JAO in the faceless assessment process completely. The Court noted that the retention of the JAO in certain phases of the assessment process reflected a balanced approach, aiming to preserve transparency and efficiency while ensuring that complex issues receive appropriate attention from a qualified and experienced assessing officer.
The Court said that the principal question which arose for consideration before them was whether Section 144B precluded the JAO from initiating proceedings for reassessment as per Sections 148 and 148A.
The Court found it pertinent to note that the Finance Act, 2021 fundamentally altered the procedure for reassessment and the provisions for the same made no specific reference to the faceless scheme at this stage since this subject was brought within the ambit of Section 144B only in 2022. It was also mentioned that the reassessment provisions continue to use the expression ‘Assessing Officer’ throughout.
The Court said that while the first E-Faceless Assessment Scheme came to be promulgated on 12-09-2019, the Union Government formulated a scheme referable to Section 151A on 29-03-2022 namely the Faceless Reassessment Scheme, 2022.
The Court perused the Risk Management Strategy (‘RMS’) and said that the Insight Portal mentioned in the Insight Instruction No. 71 enabled the JAO to test the completeness of disclosures made by an individual assessee against material aggregated by the system and to access a Transaction Number Sequence which would disclose the information pertaining to a particular assessee. The Court highlighted that the extensive framework of information that is collected, structured, and made available on the Insight Portal represents data which is visible solely to the JAO.
Further, the Court said that the Act enables the JAO itself to select cases that may merit further inquiry or investigation based on the information as mentioned. It was noted that Section 144B conferred a power upon the Principal Chief Commissioner or the Principal Director General to transfer cases to the JAO.
The Court stated that the respondent’s submissions not only presented a logical approach but also offered a more sustainable understanding if one is to engage in a harmonious construction of the provisions of the Act. The Court also found it important to note that a reassessment need not, in all conceivable contingencies, be triggered by a return that an assessee may choose to lodge electronically.
The Court opined that it would be erroneous to view Section 144B as constituting the solitary basis for initiation of reassessment. Another indubitable fact that the Court considered was that Section 144B was primarily procedural and was principally concerned with prescribing the manner in which a faceless assessment may be conducted as opposed to constituting a source of power to assess or reassess in itself.
The Court stated that it would be wholly incorrect to view the faceless assessment scheme as introduced by virtue of Section 144B as being the solitary route which the Act contemplates being tread for the purposes of assessment and reassessment. It was also said that the Section’s true function was facilitating an unbiased, algorithm-driven distribution of cases, supporting the overarching objective of minimizing direct human interaction in the assessment process.
The Court mentioned that within the framework of faceless assessment system, the JAO retains powers that do not conflict with, but complement the objectives of neutrality and efficiency. It was also said that the JAO’s retained jurisdiction is vital for ensuring continuity and accountability, acting as a complementary element to the faceless assessment framework.
Further, the Court said that the notion of entirely ousting the JAO from the assessment process is both impractical and misaligned with the objectives of the faceless assessment system and that eliminating the JAO’s role would not only fail to further the goals of the framework but would also compromise the system’s functionality and flexibility.
The Court perused Clause 3 of the Faceless Reassessment Scheme 2022 and stated that the draftsman has used a comma after the phrase “shall be through automated allocation” and after “for issuance of notice” which clearly shows the intent to separate and segregate the phases of initiation of action in accordance with the RMS, the formation of opinion regarding the need for action under Section 148, and the actual undertaking of the assessment.
The Court was guided by the principles of beneficial construction and avoided an interpretation that would render portions of the Act or the Scheme superfluous or ineffective. Thus, the Court held that they had been unable to countenance a situation where the JAO stands completely deprived of the jurisdiction to evaluate data and material that may be placed in its hands.
The Court found itself unable to sustain the challenge as addressed by the petitioners and negated the contention that the impugned notices were liable to be quashed merely on the ground that they had been issued by the JAO.
Thus, the petitions were dismissed.
[T.K.S. Builders Pvt. Ltd. v. Income Tax Officer Ward 25, 2024 SCC OnLine Del 7508, Decided on 28-10-2024]
*Judgment by Justice Yashwant Varma
Advocates who appeared in this case :
For Petitioner — Advocate Kapil Goel, Advocate Sandeep Goel
For Respondent — SSC Aseem Chawla, Advocate Pratishta, Advocate Nivedita, Advocate Priya Sarkar
