Rajasthan High Court Mandates Faceless Procedure for Reassessment Notices, Quashes Those Issued by Traditional Officers

Jodhpur, Rajasthan - In a significant ruling impacting income tax reassessment proceedings, the Rajasthan High Court at Jodhpur has declared notices issued under Section 148 of the Income Tax Act, 1961 by Jurisdictional Assessing Officers (JAOs) as invalid if they fail to adhere to the mandatory faceless procedure stipulated by the Central Government's Scheme. A division bench comprising Hon'ble Dr. Justice Pushpendra Singh Bhati and Hon'ble Mr. Justice Munnuri Laxman delivered the verdict in a batch of writ petitions, with the lead case being D.B. Civil Writ Petition No. 11787/2024, Sharda Devi Chhajer vs. The Income Tax Officer, Ward 1(1), Bikaner, and connected matters.

The court held that the "e-Assessment of Income Escaping Assessment Scheme, 2022," notified by the Central Board of Direct Taxes (CBDT) on March 29, 2022, in conjunction with Section 151A of the Act, mandates that reassessment notices under Section 148 must be issued through an automated allocation system in a faceless manner, typically by a Faceless Assessing Officer (FAO).

Case Background

The petitioners in these cases had received notices under Section 148 of the Income Tax Act, 1961, initiating reassessment proceedings. Their primary challenge was that these notices were issued by their respective JAOs, violating the Scheme of 2022 which, they argued, required such notices to be issued facelessly via an automated allocation process, as envisioned by Section 151A.

Notices under Section 133(6) were issued first, leading to potential reassessment proceedings under Section 148, requiring prior approval under Section 151. The approvals were granted, and notices under Section 148 followed.

Petitioners' Arguments

Learned Senior Advocate Mr. Vikas Balia, assisted by Mr. Sachin Saraswat, Mr. Priyansh Arora , and other counsel representing the petitioners, contended that Section 151A empowers the Central Government to create a scheme for faceless assessment, reassessment, re-computation, and issuance of notices under Section 148, aiming to eliminate human interface and introduce automated allocation. The Scheme of 2022, issued under this power, specifically states that assessment, reassessment, re-computation under Section 147, and issuance of notice under Section 148 "shall be through automated allocation... and in a faceless manner."

They argued that issuing notices by the JAO, a specific officer identified by territorial jurisdiction, directly contravenes this mandate. This, they submitted, defeats the legislative intent of optimizing resources through randomized, algorithm-based allocation and making the process transparent and accountable. Allowing concurrent jurisdiction for JAOs and FAOs would render the entire faceless mechanism redundant.

Reliance was placed on judgments of the Telangana High Court in Kankanala Ravindra Reddy and the Bombay High Court in Hexaware Technologies Ltd. , which held that Section 151A read with the Scheme makes the faceless process mandatory for Section 148 notices and that only the FAO (through automated allocation) has the jurisdiction to issue such notices, to the exclusion of the JAO. They also cited the CBDT order dated August 13, 2020, which directed all assessment orders to be passed by the National e-Assessment Centre (now NFAC) except for specified cases.

Respondents' Arguments

Mr. K.K. Bissa, representing the respondents (Income Tax Department), argued that Sections 144B(7) and (8) provide flexibility for the transfer of cases to JAOs, suggesting a concurrent or complementary role for traditional officers. He submitted that excluding JAOs completely would weaken the assessment process and that the object was a complementary system ensuring accountability with a human element to address deficiencies in faceless assessment.

He contended that the phrase "to the extent provided in Section 144B" in the Scheme means the faceless process applies mainly to the assessment/reassessment procedure under Section 147, not necessarily the initial issuance of notice under Section 148, which can still be done by the JAO. Counsel cited judgments from the Madras, Delhi, and Calcutta High Courts ( Mark Studio India Private Limited, T.K.S. Builders Private Ltd., etc. ) that had taken a view favouring the JAO's power.

Court's Analysis and Findings

The High Court undertook a detailed examination of the evolution of the faceless regime in India, tracing it back to e-filing initiatives and culminating in the codified faceless assessment (Section 144B) and the Scheme under Section 151A. The court emphasized the legislative intent behind this paradigm shift: to eliminate human interface, optimize resources through automation (AI/ML-based random allocation), and enhance transparency and accountability.

Citing the principle of strict interpretation of taxing statutes and Article 265 of the Constitution, the court noted that tax must be imposed strictly in accordance with law ( Commissioner of Customs (Import), Mumbai vs. M/s. Dilip Kumar and Company & Ors. ). It found the interpretation adopted by the Telangana and Bombay High Courts ( Kankanala Ravindra Reddy, Hexaware Technologies Ltd. ) to be more aligned with the legislative purpose than the liberal interpretation favoured by the Delhi, Madras, and Calcutta High Courts.

The bench held that Section 151A and the Scheme of 2022 clearly mandate that the issuance of notice under Section 148 must be through automated allocation and in a faceless manner. The phrase "to the extent provided in Section 144B" refers to the procedure for assessment/reassessment itself, not the method of issuing the initial notice under Section 148.

Pivotal Excerpts from the Judgment:

The court observed: "The core question raised by learned counsel for the petitioners is that whether the notices issued by Jurisdictional Assessing Officer (JAO) are to be declared invalid & bad in law, being in contravention of Section 151A of the Act of 1961 read with Notification dated 29.03.2022."

Rejecting the argument for concurrent jurisdiction, the bench stated: "Further, in our view, 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. When specific jurisdiction has been assigned to either the JAO or the FAO in the Scheme dated 29th March, 2022, then it is to the exclusion of the other... The Scheme dated 29th March, 2022 in paragraph 3 clearly provides that the issuance of notice 'shall be through automated allocation' which means that the same is mandatory and is required to be followed by the Department and does not give any discretion to the Department to choose whether to follow it or not."

Clarifying the meaning of automated allocation, the court highlighted: "The term ‘random’, in our view, has been used in the context of assigning the case to a random Assessing Officer, i.e., an Assessing Officer would be randomly chosen by the system to handle a particular case. The term ‘random’ is not used for selection of case for issuance of notice under Section 148 as has been alleged by the Revenue in the Office Memorandum."

Emphasizing the legislative intent against manual control, the court concluded: "The common tendency to cling to control and old methods has to be dealt with firmly and ways & means including loopholes to fall back upon the old regime of control is an imminent danger which has to be thwarted off. The legislative intention, legislative vision and legislative wisdom has to be given full meaning in terms of technology and progressiveness, and thus, once an effective and strong step has been taken towards faceless regime, then maintaining the strings of local control to the prejudice of a common man would not only undermine the legislative wisdom but the gains in terms of such a progressive and pragmatic step would stand to reduce."

Decision and Implications

Based on this interpretation, the High Court concluded that the impugned notices under Section 148, having been issued by the JAOs without adhering to the faceless automated allocation procedure mandated by the Scheme under Section 151A, were fundamentally flawed and issued without proper jurisdiction.

The court allowed the writ petitions, quashed and set aside the impugned notices issued by the JAOs. It clarified that the question of jurisdiction of JAOs for issuing notices under Sections 148 & 148A was decided in favour of the petitioners.

However, the court granted liberty to the Income Tax Department to issue fresh notices in compliance with the CBDT Notification dated March 29, 2022, ensuring the FAO acts as the assessing officer and follows the automated allocation system. Crucially, the court directed that the time spent during the pendency of the writ petitions shall be excluded for the purpose of computing the limitation period for issuing such fresh notices.

This judgment reinforces the mandatory nature of the faceless procedure for initiating reassessment proceedings and curbs the traditional jurisdiction of JAOs in such matters, pushing the tax administration further towards a technology-driven, human-interface-free environment as intended by the recent legislative reforms.