Non-compliance with Section 151A: Bombay HC quashes Income Tax Notice u/s 148A outside Faceless Assessment by Jurisdictional AO [Read Order]

The Bombay High Court has quashed the entire process undertaken by the Jurisdictional Assessing Officer (AO) under Section 148A outside the faceless mechanism, noting that the scheme notified by the Central Government does not exclude the application of Section 148A.

The High Court emphasised that the procedures outlined in Section 148A are inextricably linked to Section 148.

Section 148A of the Income Tax Act requires the assessing officer to follow specific procedures before issuing any notices, including providing the taxpayer with an opportunity to be heard. This step is intended to help the taxpayer clarify the income suspected to have escaped assessment before any notice is issued.

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The case arose after the Assessee company was issued a notice under Section 148 and an order under Sections 148A(b) and 148A(d) by the Jurisdictional AO, rather than a Faceless Assessing Officer (FAO), as required by Section 151A. The Assessee subsequently challenged the notices and orders in the High Court.

The court noted that, to implement Section 151A, the Central Government and the CBDT issued Notification No.18/2022 on March 29, 2022, which introduced the E-Assessment of Income Escaping Assessment Scheme. This notification mandates that proceedings under Sections 148A(b) and 148A(d) must adhere to the faceless procedure prescribed in the Scheme.

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The court further observed that the Scheme's provisions, particularly clause 3(b), cover the issuance of notices under Section 148 and require such notices to be allocated and issued in a faceless manner. The Bench also highlighted that Section 151A(1) allows the Central Government to create a scheme to eliminate the interface between tax authorities and Assessees and to streamline reassessment, recomputation, or issuance of notices with dynamic jurisdiction.

In its decision, the Division Bench of Justice G.S. Kulkarni and Justice Somasekhar Sundaresan observed that "Section 148A, in its object, intent, and purpose, is inextricably connected with the assessment, reassessment, or recomputation for which a notice under Section 148 may be issued. Any other interpretation would reduce the requirement to follow the faceless procedure under the Scheme to a mere formality for issuing the notice. Such a reading would contradict the objectives outlined in clauses (a), (b), and (c) of Section 151A(1)."

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The Bombay High Court stated that excluding the applicability of Section 148A would result in absurdity, as its provisions are inextricably linked to Section 148. Consequently, the High Court allowed the Assessee's petition and set aside the notices issued under Sections 148 and 148A(b).

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