Introduction
In T.K.S. Builders (P.) Ltd. v. Income-tax Officer[i], the Delhi High Court examined the validity of reassessment notices issued by the Jurisdictional Assessing Officer (‘JAO’) under s. 148 of the Income-tax Act, 1961 (‘Act’). The key issue discussed by the Court was whether the introduction of the Faceless Reassessment Scheme, 2022 (‘FRS’), by virtue of ss. 144B and 151A of the Act entirely eliminated the JAO’s jurisdiction to initiate reassessment proceedings.
Brief Facts
The Petitioner was issued a notice under s. 148A(b) of the Act on 02.06.2022, to which the Petitioner furnished the response on 15.06.2022. The JAO passed an order under s. 148A(d) of the Act on 22.07.2022, rejecting the objections of the Petitioner and subsequently issuing another notice under s. 148 of the Act on the same date.
The Petitioner challenged the validity of the subsequent notice issued under s. 148 of the Act through this Writ Petition, contending that the JAO lacked jurisdiction to issue notice under s. 148 of the Act. The Petitioner relied on various High Court rulings that held that ss. 144B and 151A of the Act divest the JAO of reassessment powers and contended that the FRS mandates automated case allocation through the National Faceless Assessment Centre (‘NFAC’), rendering JAO-issued notices invalid.
The Respondents placed reliance on the Notifications[ii] issued by the Central Board of Direct Taxes (‘CBDT’), which introduced the FRS and explained the working and implementation of the Risk Management System (‘RMS’). It was submitted that case identification was done randomly, and selection was carried out by the Directorate of Systems (‘DIS’) based on predefined RMS criteria.
The Respondents further contended that the JAO had no prior knowledge of which cases would be flagged by the DIS, thereby ensuring automated allocation. Additionally, it was submitted that the Notifications issued by the CBDT allowed for the transfer of cases to the JAO at any stage of the assessment proceedings. The Respondents, thereby, asserted that the role of JAO remained intact for issuing reassessment proceedings, and the JAO and the Assessment Units under NFAC are empowered to exercise concurrent jurisdiction.
Held
The Delhi High Court dismissed the writ petition and the notices issued by JAO under s. 148 of the Act was held as valid. It was further held that the ss. 144B and 151A of the Act do not supersede the powers of JAO to initiate reassessment proceedings under ss. 147 and 148.
The Delhi High Court observed that, despite the clear intention to eliminate the interface between the Assessing Officer (‘AO’) and the Assessee, the aforementioned Notifications did not fully exclude the involvement of the JAO in the faceless assessment process.
The Court further opined that it would be erroneous to view FRS as introduced by s. 144B of the Act, as being the solitary route for assessment and reassessment. It was stated that the main function of s. 144B of the Act facilitates an unbiased, algorithm-driven distribution of cases to support the objective of minimizing direct human interaction in assessment procedures.
The Court noted that the continued involvement of the JAO in certain stages of the assessment process represented a balanced approach aimed at maintaining transparency and efficiency while ensuring that complex issues were handled by a qualified and experienced AO. The High Court further added that the notion of entirely removing the JAO from the reassessment process would be both impractical and misaligned with the objectives of the FRS.
The High Court distinguished the decision of Hexaware Technologies Ltd. v. Asstt. CIT[iii], where it was held that JAO lost jurisdiction after the introduction of FRS. The High Court observed that such an interpretation would render key statutory provisions redundant, thereby disrupting the reassessment procedure.
Our Analysis
It is relevant to note that this issue is currently sub-judice before the Hon'ble Supreme Court[iv], where the Court is called upon to adjudicate as to whether the Notifications issued by the CBDT completely eliminate JAO of its powers or whether a concurrent jurisdiction persists as affirmed by this court.
Nonetheless, this judgement by the Delhi High Court is still relevant for the taxpayers and provides a contrary view to the precedents set forth by various other forums. The ruling highlights that the primary objective of s. 144B or the FRS, to promote an unbiased distribution of cases, is not to be disrupted, and rather than entirely eliminate the involvement of experienced officers, the framework of NFAC and JAO should complement each other during the process of reassessment.
The ruling further underscores the importance of preserving an experienced oversight within a digitalised framework, ensuring that technological advancements enhance efficiency without compromising statutory safeguards. The ruling was guided by the principles of beneficial construction and avoided an interpretation of the law that would render portions of the Actor the FRS ineffective or superfluous.
End Notes
[i] 2024 SCC OnLine Del 7508.
[ii] Notification S.O. 1400(E) [NO. 15/2022/F. NO. 370142/13/2022-TPL], dated March 28, 2022, and Notification S.O. 1466(E) [NO. 18/2022/F. NO. 370142/16/2022-TPL(PART1], dated March 29, 2022.
[iii] [2024] 162 taxmann.com 225/464 ITR 430 (Bombay).
[iv] Union of India & Ors. V. Suryalakshmi Cotton Mill [Special Leave to Appeal (C) No. 27736 of 2023].
Authored by Maarij Ahmad, Advocate at Metalegal Advocates. The views expressed are personal and do not constitute legal opinions.