Bombay High Court Reaffirms Faceless Mandate, Quashes Reassessment Notice in International Tax Case

MUMBAI – In a significant ruling reinforcing the procedural sanctity of the faceless assessment regime, the Bombay High Court has quashed a reassessment notice issued under Section 148 of the Income Tax Act, 1961. The court held that even matters concerning international taxation are subject to the faceless assessment framework, and a notice issued by a Jurisdictional Assessing Officer (JAO) instead of the designated Faceless Assessing Officer (FAO) is fatally defective.

The decision, delivered by a Division Bench comprising Justices B.P. Colabawalla and Amit S. Jamsandekar in the case of Shabana Aijaz Khan Vs. Income Tax Officer, International Tax Ward- 3(1)(1), Mumbai & Ors. , settles a key jurisdictional question raised by the Revenue and provides crucial clarity for taxpayers involved in cross-border transactions. The ruling underscores the judiciary's commitment to upholding the legislative intent behind the faceless scheme, which aims to enhance transparency and eliminate territorial jurisdiction.

Background of the Dispute

The case originated from a writ petition filed by Shabana Aijaz Khan, who challenged the validity of a reassessment notice issued under Section 148 of the Income Tax Act. The petitioner’s primary ground of challenge was a fundamental jurisdictional error: the notice was issued by the local Jurisdictional Assessing Officer, despite the law mandating that such notices be issued by the National Faceless Assessment Centre, i.e., a Faceless Assessing Officer.

The petitioner argued that this procedural lapse rendered the entire reassessment proceeding void ab initio. This argument was not novel; it was firmly rooted in established judicial precedent from the same court.

Petitioner's Reliance on Precedent

The petitioner’s counsel, Mr. Rutuja Pawar, contended that the issue was squarely covered by the Bombay High Court's earlier decision in Hexaware Technologies Ltd. v. ACIT [(2024) 162 taxmann.com 225 (Bom)] . In Hexaware , the court had unequivocally held that a reassessment notice issued by a JAO after the introduction of the faceless regime is invalid. The petitioner argued that this precedent was directly applicable, as the core issue—the authority to issue the notice—was identical.

The core principle established in Hexaware is that the shift to a faceless system is not merely an administrative change but a substantive alteration of jurisdiction. As the source states, "a reassessment notice issued by a Jurisdictional AO even after the introduction of the faceless regime is invalid."

Revenue's Attempt to Distinguish the Case

The Revenue, represented by Advocate Subir Kumar, sought to create an exception to this established rule. The primary counter-argument was that the Hexaware judgment did not apply because the subject matter of the present case was international taxation. The Department contended that central charges and international taxation matters were carved out from the faceless regime, thereby preserving the JAO's authority in such cases.

Furthermore, the Revenue highlighted that the Hexaware decision was currently under challenge before the Supreme Court. They urged the High Court to keep the writ petition pending until the apex court delivered its final verdict, suggesting that a potential reversal would validate their actions.

The Court's Unambiguous Ruling

The Division Bench systematically dismantled the Revenue’s contentions, finding them contrary to the clear letter of the law and existing judicial pronouncements. The court first noted the undisputed fact that "the Notice under Section 148 has been issued by the Jurisdictional Assessing Officer instead of the Faceless Assessing Officer." Citing Hexaware , the Bench reiterated that this defect was "fatal to the Notice."

Addressing the Revenue's main argument, the court found "no force in the argument... that the judgment in Hexaware Technologies Ltd (supra) would not apply to the present case because it relates to international taxation." The Bench's reasoning was fortified by another crucial Division Bench judgment: Abhin Anilkumar Shah v/s Income-tax Officer, International Taxation [2024] 166 taxmann.com.679 (Bombay) .

The court quoted directly from paragraph 17 of the Abhin Shah judgment to emphasize the all-encompassing nature of the faceless regime:

"We have thus reached a considered conclusion that the mandatory faceless procedure for issuance of notice under section 148 of the Act falling within the purview of the scheme notified by the Central Government dated 29 March 2022 would not exclude the Central charges and International taxation charges from the application of the faceless mechanism as notified under section 144B read with section 151A of the Act.”

This precedent left no room for ambiguity. The Bench opined that the law laid down by the court was clear: "even in cases of Central Charges and International Taxation, the reassessment notice u/S 148 of the Act would have to be issued by the Faceless Assessing Officer following the faceless regime and not otherwise."

Finding the present case squarely covered by both the Hexaware and Abhin Shah judgments, the court concluded that it was bound to follow these decisions. Consequently, the impugned Section 148 notice and all subsequent proceedings were set aside.

Conditional Liberty and Future Implications

While ruling decisively in favor of the assessee, the High Court acknowledged the pending appeal in the Hexaware case before the Supreme Court. In a pragmatic move, it granted the Revenue a limited liberty to revive the petition.

The court clarified that if the Supreme Court were to set aside the Hexaware judgment on this specific jurisdictional issue, the Revenue could seek revival of the petition "simply by moving a Praecipe." In such an event, the operation of the quashed notice would remain stayed until further orders. Conversely, if the Supreme Court dismisses the Special Leave Petition against Hexaware , no revival would be possible.

This conditional order balances judicial discipline with practical considerations, preventing a multiplicity of proceedings while ensuring the finality of the Supreme Court's impending decision is respected.

Legal Analysis and Takeaways

This judgment is a critical reaffirmation of the procedural framework established by the faceless assessment scheme under Sections 144B and 151A of the Income Tax Act.

1. Jurisdiction is Not a Curable Defect: The ruling solidifies the principle that the issuance of a notice by an officer lacking jurisdiction is a fundamental flaw, not a mere procedural irregularity that can be cured. The authority to initiate reassessment proceedings lies exclusively with the FAO under the current regime.
   
   
2. No Implied Exceptions for International Tax: The court has explicitly rejected the notion that complex areas like international taxation are implicitly excluded from the faceless scheme. Unless the statute or a specific notification provides for an exception, the general rule of faceless jurisdiction applies universally.
   
   
3. Consistency in Judicial Interpretation: The Bombay High Court has demonstrated remarkable consistency in its interpretation of the faceless assessment laws, building a robust body of case law ( Hexaware , Abhin Shah , and now Shabana Aijaz Khan ). This provides much-needed certainty for taxpayers and practitioners.
   
   
4. Awaiting the Supreme Court's Verdict: The entire framework of these decisions now hinges on the Supreme Court's final word in the Hexaware appeal. The apex court's decision will have far-reaching consequences for thousands of reassessment notices issued across the country and will ultimately determine the definitive jurisdictional landscape for tax assessments in India.

For now, the Bombay High Court's stance is clear: the procedural mandates of the faceless regime are non-negotiable and apply across the board, including the intricate domain of international taxation.