Assessment Reopening Notice issued by JAO not in accordance with Section 151A of Income Tax Act is invalid: Bombay HC [Read Order]

A Division bench of the Bombay High Court held that the notice for reopening of assessment is  invalid on mere belief of escapement of income when the deduction under Section 80JJAA of the Income Tax Act had been consistently allowed in earlier years without a change in law.

The petitioner is engaged in information technology consulting, software development and business process services. Respondent no.1 is the Assistant Commissioner of Income Tax and Jurisdictional Assessing Officer (JAO), who issued the impugned notice of reassessment to the petitioner.

The petitioner had filed return of income for Assessment Year 2015-2016 on 28th November 2015 declaring total income of Rs. 204,54,44,990/-.

The petitioner contended that approval under Section 151 of the Income Tax Act for issuing the impugned initial notice has not been obtained from the appropriate authority and, hence, the reassessment proceedings are invalid and bad in law.

The question as to whether the impugned notice dated 27th August 2022 is invalid and bad in law being issued by the JAO as the same was not in accordance with Section 151A of the Income Tax Act, 1961 was framed for decision.

The assessee contended that, The impugned notice dated 27th August, 2022 has been issued by respondent no.1 (JAO) and not by the NFAC, which is not in accordance with the aforesaid Scheme.

It was also contented that any such guideline issued by the CBDT is not binding on petitioner. Further the said guideline is also not binding on respondent no.1 as they are contrary to the provisions of the Act and the Scheme framed under Section 151A of the Act.

The effect of a guideline came up for discussion in Sofitel Realty LLP vs. Income Tax Officer (TDS) wherein this Court has held that the guidelines which are contrary to the provisions of the Act cannot be relied upon by the Revenue to reject an application for compounding filed by an assessee.

The Court had held that guidelines are subordinate to the principal Act or Rules, it cannot restrict or override the application of specific provisions enacted by legislature. The guidelines cannot travel beyond the scope of the powers conferred by the Act or the Rules.

On behalf of the revenue, it was submitted that FAO and JAO have concurrent jurisdiction and merely because the Scheme has been framed under Section 151A of the Act, it does not mean that the jurisdiction of the JAO is ousted or that the JAO cannot issue the notice under Section 148 of the Income Tax Act.

The bench noted that, “In our opinion, there is no such power given to the administration under either Section 151A of the Act or under the said Scheme. The Scheme is clear and categorical that notice under Section 148 of the Act shall be issued through automated allocation and in a faceless manner. Therefore, the argument of the Revenue is clearly contrary to the provisions of the Scheme.”

It was also noted 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.”

It was thus held that, “Therefore, no reliance can be placed on the said Office Memorandum to justify that the JAO has jurisdiction to issue notice under Section 148 of the Act” and added that, the notices issued by the JAOs are invalid and bad in law.

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