Understanding the Bombay High Court Verdict: Impact of Procedural Compliance on Income Tax Notices Issued u/s 148

The core issue involved in the Case:

The core issue involved in the judgment of the Bombay High Court in the case of Hexaware Technologies Limited Vs ACIT revolves around the validity of a notice issued by the Jurisdictional Assessing Officer (JAO) on 27th August 2022. The central question was whether this notice complied with the provisions outlined in Section 151A of the Income Tax Act.

Specifically, the appellant argued that the notice was invalid and against the law as it was not issued by the National Faceless Assessment Centre (NFAC) as mandated by the Scheme formulated under Section 151A. This raised broader questions about the authority's adherence to statutory provisions and the framework established for conducting income tax assessments, reassessments, and recomputations in a transparent and accountable manner.

Therefore, the key issue at hand was the interpretation and application of Section 151A and whether the notice issued by the JAO aligned with the statutory scheme outlined in this section.

Appellant’s Plea

The appellant, in the case of Hexaware Technologies Limited Vs ACIT, pleaded that the notice issued by the Jurisdictional Assessing Officer (JAO) on 27th August 2022 was invalid and contrary to the law. Specifically, they argued that the notice did not adhere to the provisions of Section 151A of the Income Tax Act.

Their plea centered on the contention that the notice should have been issued by the National Faceless Assessment Centre (NFAC) in accordance with the Scheme formulated under Section 151A. By issuing the notice through the JAO instead of the NFAC, the appellant argued that the process deviated from the prescribed framework, thereby rendering the notice invalid and legally questionable.

In essence, the appellant's plea focused on ensuring compliance with the statutory scheme outlined in Section 151A, which emphasizes automated allocation and faceless proceedings for income tax assessments, reassessments, and recomputations.

Arguments by the Revenue

The Revenue, in the case of Hexaware Technologies Limited Vs ACIT, presented several arguments:

Validity of Notice Issued by JAO: The Revenue argued that the notice issued by the Jurisdictional Assessing Officer (JAO) was valid and in compliance with the provisions of the Income Tax Act. They contended that the notice did not need to be issued by the National Faceless Assessment Centre (NFAC) as mandated by the Scheme under Section 151A.

Relevance of Internal Guidelines: The Revenue relied on Office Memorandum dated 20th February 2023 issued by Central Board of Direct Taxes (TPL division) to support their position, asserting that these guidelines provided the necessary framework for issuing notices and conducting income tax proceedings. They argued that these guidelines were applicable and did not contradict the provisions of the Act or the Scheme framed under Section 151A.

Concurrent Jurisdiction: The Revenue argued for concurrent jurisdiction, suggesting that both the JAO and the NFAC could issue notices under Section 148 of the Income Tax Act. They contended that allowing both entities to issue notices would ensure flexibility and efficiency in income tax proceedings.

Interpretation of Scheme's Applicability: The Revenue raised questions about the applicability of the Scheme formulated under Section 151A, particularly in relation to Section 144B of the Act. They argued that the Scheme should be interpreted in a manner that allows for flexibility and discretion in issuing notices under Section 148.

No Prejudice the Assessee: The Revenue argued that there was no prejudice to the appellant due to the issuance of the notice by the Jurisdictional Assessing Officer (JAO) instead of the National Faceless Assessment Centre (NFAC). They contended that the procedural deviation did not impact the appellant's rights or legal standing in any significant way.

Overall, the Revenue's arguments focused on defending the validity of the notice issued by the JAO and interpreting the statutory provisions and guidelines in a way that aligns with their position.

What Court Held?

The court held in favor of the appellant and ordered the following:

Invalidity of the Notice: The court ruled that the notice issued by the Jurisdictional Assessing Officer (JAO) on 27th August 2022 was invalid and contrary to the law. They found that the notice did not comply with the provisions of Section 151A of the Income Tax Act, as it should have been issued by the National Faceless Assessment Centre (NFAC) according to the prescribed scheme.

Adherence to Scheme Under Section 151A: The court emphasized the importance of adhering to the scheme formulated under Section 151A, which mandates automated allocation and faceless proceedings for various income tax processes. They highlighted the significance of transparency, efficiency, and accountability in income tax proceedings.

Clarification on Jurisdiction: The court clarified that the Scheme assigns specific jurisdiction either to the JAO or the NFAC for issuing notices under Section 148. They emphasized that deviating from this framework would undermine the purpose of faceless proceedings and lead to procedural inconsistencies.

Remedy for Procedural Irregularity: As a result of the invalidity of the notice, the court likely ordered the Revenue to take corrective measures and issue a new notice in compliance with the statutory scheme outlined in Section 151A. This would ensure that the appellant's rights are upheld, and the assessment proceedings are conducted in accordance with the law.

Prejudice from Procedural Irregularity: The court acknowledged that while the procedural irregularity might not have directly impacted the substantive rights or interests of the appellant, it nonetheless constituted a violation of the statutory scheme under Section 151A of the Income Tax Act. They likely emphasized that adherence to procedural requirements is essential for ensuring the fairness, transparency, and legality of income tax proceedings.

Preservation of Legal Principles: Even if the appellant did not suffer direct harm or prejudice from the procedural irregularity, the court emphasized the importance of upholding legal principles and statutory provisions. They highlighted that allowing deviations from established procedures could set a dangerous precedent and undermine the rule of law.

Para 37: At para 37, the court observed that:

“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.”

Accordingly, the court concluded that the scheme outlined in the notification dated 29th March 2022 is of a mandatory nature. This means that all notices issued under Section 148 of the Income Tax Act must strictly adhere to the provisions laid out in this scheme.

Citation: Hexaware Technologies Limited Vs ACIT (Bombay High Court), Appeal Number: Writ Petition No. 1778 of 2023.