Jurisdiction in the Digital Age: ITAT Chennai Strikes Down Non-Faceless Reassessment Notices

In a significant ruling that reinforces the sanctity of the "Faceless" assessment regime, the Chennai Bench of the Income Tax Appellate Tribunal (ITAT) has invalidated a reassessment notice issued by a Jurisdictional Assessing Officer (JAO). The decision serves as a stern reminder to the Revenue authorities that internal administrative manuals cannot supersede statutory schemes established through parliamentary process.

The Procedural Impasse

The dispute arose when Furshana Garments appealed against an order passed by the National Faceless Assessment Centre (NFAC), stemming from a reassessment notice issued under Section 148 of the Income Tax Act, 1961. The appellant challenged the underlying notice issued on March 28, 2023, by the Jurisdictional Assessing Officer (Smt. N. Santhi).

The crux of the Appellant's argument was simple yet potent: Once the Central Government notified the Faceless Scheme under Section 151A of the Act on March 29, 2022, the power to issue such notices became the exclusive domain of the Faceless Assessing Officer (FAO). The appellant argued that any action taken by the JAO in this matter was fundamentally "bad in law."

A Conflict of Authority

The Revenue maintained that internal guidelines and various office memoranda allowed for continued jurisdiction by the JAO. However, the Tribunal observed a clear divide between departmental manuals and the legislative intent behind the Faceless Scheme.

The ITAT Bench, comprising Shri Aby T. Varkey (Judicial Member) and Shri Amitabh Shukla (Accountant Member), scrutinized the statutory framework, noting that the Scheme—which mandates "automated allocation" of cases—was laid before both Houses of Parliament in accordance with Section 151A(3). Consequently, they concluded that internal Revenue instructions, labeled as "Confidential for Departmental Circulation Only," carry no legal weight when they contradict the primary Act or rules framed thereunder.

The Court’s Reasoning

The Tribunal heavily relied on a consistent thread of judicial precedents, including the landmark judgment of the Bombay High Court in Hexaware Technologies Ltd. v. ACIT , and concurred with the Madras High Court’s recent stance in Mark Studio India (P) Ltd v. ITO .

The court emphasized that the Faceless Scheme was designed to impart efficiency and impartiality, and allowing a JAO to exercise power concurrently—where not explicitly provided—would defeat the very purpose of the legislation.

Key Observations

The Tribunal's order featured stinging critiques regarding the Revenue’s interpretation of "automated allocation":

• On the nature of the Scheme: "The Scheme is clearly applicable for issuance of notice under Section 148 of the Act and accordingly, it is only the FAO which can issue the notice under Section 148 of the Act and not the JAO."
• On the exclusivity of jurisdiction: "There is no question of concurrent jurisdiction of the JAO and the FAO for issuance of notice under Section 148 of the Act or even for passing assessment or reassessment order."
• On the prejudice to taxpayers: "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."
• On internal manuals: "The guidelines cannot travel beyond the scope of the powers conferred by the Act or the Rules."

The Final Verdict: A Reset for Pending Cases

Finding that the impugned notice was issued in flagrant disregard of the mandatory Faceless Scheme, the Tribunal allowed the assessee's appeal. By declaring the notice issued on March 28, 2023, and the subsequent assessment order of February 27, 2024, as "null in the eyes of law," the ITAT provided significant relief to the taxpayer while side-stepping the need to evaluate the merits of the underlying tax additions.

This judgment reinforces a critical principle of tax administration: the procedural "Rule of Law" is not merely a technicality, but a fundamental protection afforded to citizens against arbitrary exercise of state power. For future assessments, the Revenue must ensure strict adherence to the faceless mandate or face the risk of having their entire assessments quashed by the judiciary.