Telangana High Court
Mr. Ashok Reddy Thumu vs The Deputy Commissioner Of Income Tax on 24 July, 2024
*THE HON'BLE SRI JUSTICE SUJOY PAUL
AND
*THE HON'BLE SRI JUSTICE NAMAVARAPU RAJESHWAR RAO
+ WRIT PETITION Nos.13353, 16141 AND 16877 OF 2024
% 24-07-2024
# Sri Venkataramana Reddy Patloola
...Petitioner
vs.
$ Deputy Commissioner of Income Tax,
Circle 1(1), Hyderabad and Others
... Respondents
!Counsel for the Petitioners : Sri Dundu Manmohan
Sri A.V.Raghu Ram
Sri A.V.A. Siva Kartikeya
^Counsel for Respondents : Sri Vijhay K.Punna,
Senior Standing Counsel
for Income Tax
<Gist :
>Head Note :
? Cases referred
1. (2023) 156 taxmann.com 178 (Telangana)
2. (2024) 464 ITR 430 (Bom)
3. AIR 1963 SC 946
4. AIR 1992 SC 604
5. (1951) 2 All ER 473
2
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IN THE HIGH COURT FOR THE STATE OF TELANGANA AT
HYDERABAD
****
WRIT PETITION Nos.13353, 16141 AND 16877 OF 2024
(Per Hon'ble Sri Justice Sujoy Paul)
Between:
Sri Venkataramana Reddy Patloola
...Petitioner
vs.
Deputy Commissioner of Income Tax,
Circle 1(1), Hyderabad and Others
... Respondents
JUDGMENT PRONOUNCED ON: 24.07.2024
THE HON'BLE SRI JUSTICE SUJOY PAUL
AND
THE HON'BLE SRI JUSTICE NAMAVARAPU RAJESHWAR RAO
1. Whether Reporters of Local newspapers
may be allowed to see the Judgments? :
2. Whether the copies of judgment may be
Marked to Law Reporters/Journals? :
3. Whether His Lordship wishes to
see the fair copy of the Judgment? :
_________________
SUJOY PAUL, J
_____________________________________
NAMAVARAPU RAJESHWAR RAO, J
3
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THE HONOURABLE SRI JUSTICE SUJOY PAUL
AND
THE HONOURABLE SRI JUSTICE NAMAVARAPU RAJESHWAR RAO
WRIT PETITION Nos.13353, 16141 AND 16877 OF 2024
COMMON ORDER:
The singular and pivotal question raised in these Writ
Petitions filed under Article 226 of the Constitution is whether
show cause notices issued under Section 148 of the Income Tax
Act, 1961 (for short, the Act) in matters relating to international
tax charges are exempted to follow the statutory faceless
procedure?
2. Heard Sri Dundu Manmohan, Sri A.V. Raghu Ram and Sri
A.V.A. Siva Kartikeya, learned counsel for the petitioners in
W.P.Nos.13353, 16141 and 16877 of 2024 respectively and Sri
Vijhay K.Punna, learned Senior Standing Counsel for Income Tax
Department.
3. These matters were analogously heard on the joint request
of the parties, and during the course of hearing, the bone of
contention of learned counsel for the petitioners was that the
notices under Sections 148 of the Act were issued in utter
violation of the prescribed procedure of faceless assessment.
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4. In addition, in W.P.No.13353 of 2024, the argument of
learned counsel for the petitioner is that the notice under Section
148 of the Act was issued by the DCIT, Circle 1(1), Hyderabad on
26.04.2022 and not by an officer holding charge of international
tax cases. For this reason also, the impugned orders deserve to
be interfered with.
5. It is a common ground taken by learned counsel for the
petitioners that Section 151A of the Act permits the Central
Government to frame a scheme by notifying the same in the
official gazette for various purposes including for issuance of
notice under Section 148 in order to ensure greater efficiency,
transparency and accountability. The whole exercise is done to
eliminate the interface between the income tax authority and the
assessee.
6. It is urged that in exercise of power under Section 151A of
the Act, a gazette notification dated 29.03.2022 (scheme) was
issued. The scope of scheme clearly shows that it relates with
issuance of notice under Section 148 of the Act in a faceless
manner. A conjoint reading of Section 151A of the Act and
scheme dated 29.03.2022 makes it crystal clear that for the
purpose of issuance of notice under Section 148 of the Act, the
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respondents are bound to follow the prescribed faceless
procedure. Admittedly, in the instant cases, the show cause
notices were issued by a faced authority, and for this reason
alone, the notices run contrary to the mandatory procedure
prescribed in the notification dated 29.03.2022. In support of
above submissions, the learned counsel for the petitioners placed
reliance on a judgment of this Court in Kankanala Ravindra
Reddy v. Income-tax Officer 1. Reference is also made on a
recent Division Bench judgment of Bombay High Court in the
case of Hexaware Technologies Ltd. v. Assistant
Commissioner of Income-Tax 2.
7. It is contended that Bombay High Court held that scheme
and Section 144B do not provide any exemption to the revenue
so far issuance of notice under Section 148 is concern, the
exemption may be in relation to assessment and reassessment.
8. Per contra, Sri Vijhay K.Punna, learned Senior Standing
Counsel for Income Tax Department, submits that the matter
relates with the interpretation of scheme, Section 144B and
CBDT's order dated 06.09.2021. He strenuously contended that
a combined reading of both the provisions makes it clear like
(2023) 156 taxmann.com 178 (Telangana)
(2024) 464 ITR 430 (Bom)
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cloudless sky that the international tax charges are exempted
from faceless procedure. Sections 144B and 151A cannot be
read in isolation. The Board's order dated 06.09.2021 gives
exemption to international tax charges cases with regard to
applicability of faceless procedure. Thus, as per newly
introduced Section 148 through the Finance Act, 2021, the JAOs
of regular charges are not barred from conducting the
proceedings under Section 148A and issuance of notice under
Section 148. The new faceless assessment procedure is
applicable only for completion of assessment/reassessment.
Even after introduction of faceless scheme, except for completion
of assessment and penalty proceedings, all other works,
including conducting of proceeding under Section 148A and
issuance of notice under Section 148 remain with the JAOs.
9. It is urged that the judgment of Telangana High Court in
Kankanala Ravindra Reddy (supra) and Bombay High Court in
Hexaware Technologies Ltd. (supra) are called in question by
revenue by filing SLPs before the Supreme Court and same are
pending consideration. The petitioners in the instant cases are
Non-resident Indians (NRIs) and the faceless scheme is applicable
only for residents and that too for conducting assessment
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proceeding. By placing reliance on the Supreme Court
judgments in State of U.P. v. Vijay Anand 3 and State of
Haryana v. Bhajanlal 4, it is submitted that when the language of
statute is plain and unambiguous, it must be given effect to,
irrespective of consequences. Learned Senior Standing Counsel
for the Income Tax has also filed brief synopsis.
10. The parties confined their arguments to the extent
indicated above. We have bestowed our anxious consideration on
rival contentions and perused the record.
11. Before dealing with the rival contentions, it is apposite to
reproduce Section 151A of the Act which reads as under:
"151A. Faceless assessment of income escaping
assessment. (1) The Central Government may make a
scheme, by notification in the Official Gazette, for the
purposes of assessment, reassessment or re-computation
under section 147 or issuance of notice under section 148
or conducting of enquiries or issuance of show-cause notice
or passing of order under section 148A or sanction for issue
of such notice under section 151, so as to impart greater
efficiency, transparency and accountability by--
(a) eliminating the interface between the income-tax
authority and the assessee or any other person to the extent
technologically feasible;
(b) optimising utilisation of the resources through economies
of scale and functional specialisation;
AIR 1963 SC 946
AIR 1992 SC 604
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(c) introducing a team-based assessment, reassessment, re-
computation or issuance or sanction of notice with dynamic
jurisdiction.
(2) The Central Government may, for the purpose of giving
effect to the scheme made under sub-section (1), by
notification in the Official Gazette, direct that any of the
provisions of this Act shall not apply or shall apply with such
exceptions, modifications and adaptations as may be
specified in the notification:
Provided that no direction shall be issued after the 31st
day of March, 2022.
(3) Every notification issued under sub-section (1) and sub-
section (2) shall, as soon as may be after the notification is
issued, be laid before each House of Parliament."
(Emphasis Supplied)
12. Section 151A of the Act is an enabling provision which
permits the Central Government to make a scheme for following
purposes:
(i) Assessment, reassessment or computation under
Section 147;
(ii) Issuance of notice under Section 148;
(iii) Conducting enquiries or issuance of notice under
Section 148A; and
(iv) Sanction for issue of such notice under Section 151.
13. The Central Government was competent to make changes
but no such directions could be issued after 31.03.2022.
Admittedly, in exercise of power under Section 151A, the
notification dated 23.09.2022 was issued which reads as under:
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" MINISTRY OF FINANCE
(Department of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)
NOTIFICATION
New Delhi, the 29th March, 2022
S.O.1466(E):- In exercise of the powers conferred by sub-
sections (1) and (2) of section 151A of the Income-tax Act,
1961 (43 of 1961), the Central Government hereby makes the
following Scheme, namely:-
1. Short title and commencement:- (1) This Scheme may
be called the e-Assessment of Income Escaping Assessment
Scheme, 2022.
(2) It shall come into force with effect from the date of its
publication in the Official Gazette.
2. Definitions:- (1) In this Scheme, unless the context
otherwise requires,-
(a) "Act" means the Income-tax Act, 1961 (43 of 1961);
(b) "automated allocation" means 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.
(2) Words and expressions used herein and not defined, but
defined in the Act, shall have the meaning respectively
assigned to them in the Act.
3. Scope of the Scheme:- For the purpose of this Scheme,--
(a) assessment, reassessment or recomputation under
section 147 of the Act,
(b) issuance of notice under section 148 of the Act,
shall be through automated allocation, in accordance with
risk management strategy formulated by the Board as
referred to in section 148 of the Act for issuance of notice,
and in a faceless manner, to the extent provided in
section 144B of the Act with reference to making
assessment or reassessment of total income or loss of
assessee."
(Emphasis Supplied)
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14. The argument of learned Senior Standing Counsel for
Income Tax Department is based on conjoint reading of scheme
dated 29.03.2022 and language employed in Section 144B(2) and
CBDT's order dated 06.09.2021. Thus, it is apposite to
reproduce the relevant portions of the same.
" Section 144B(2) of the Income Tax Act, 1961
144B. Faceless Assessment:
(1)...
(2) The faceless assessment under sub-section (1) shall
be made in respect of such territorial area, or persons or
class of persons, or incomes or class of incomes, or cases or
class of cases, as may be specified by the Board.
(Emphasis Supplied)
CBDT's Order dated 06.09.2021:
F.No.187/3/2020-ITA-I
Government of India
Ministry of Finance
Department of Revenue
(Central Board of Direct Taxes)
*****
North Block, New Delhi
Dated, the 6th September, 2021.
ORDER
Subject:- Order under section 119 of the Income-tax
Act, 1961 (the Act) providing exclusions to section 144B
of the Act.
The Faceless Assessment Scheme, 2019 (the Scheme)
has been incorporated in the Act vide the Taxation and Other
Laws (Relaxation and Amendment of Certain Provisions) Act,
2020. Section 144B of the Act pertaining to Faceless
Assessment has been inserted by the said amendment w.e.f.
01.04.2021.
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2. The Central Board of Direct Taxes vide Order
F.No.187/3/2020-ITA-I dated 13th August, 2020 (the Order)
read with order under section 119 of the Act regarding
mutatis mutandis application of Orders, Circulars etc., issued
in order to implement the Scheme to Faceless Assessment
u/s 144B of the Act, F.No.187/3/2020-ITA-I dated 31st
March, 2021 directed that all the Assessment Orders shall
be passed by the National Facelss Assessment Centre
(NaFAC) u/s 144B of the Act except as under:-
i. Assessment orders in cases assigned to Central
Charges.
ii. Assessment Orders in cases assigned to
International Tax Charges."
(Emphasis Supplied)
15. Sub-section (2) of Section 144B of the Act makes it
obligatory for undertaking faceless assessment in respect of such
territorial area, or persons or class of persons, or incomes or
class of incomes, or cases or class of cases, as may be specified
by the Board. The sheet anchor of argument of the Revenue is
based on this italic portion which gives power to the Board to
specify in relation to persons, class of incomes and persons, etc.
16. It is strenuously contended that the order dated
06.09.2021 provides for such exception, and in no uncertain
terms, makes it clear that one of the exception is regarding
assessment orders in cases assigned to international tax charges.
In other words, assessment orders relating to international tax
charges are exempted from the purview of faceless assessment
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system. In our opinion, the argument on the face of it appears to
be attractive, but lost much of its shine when provisions were
examined minutely.
17. Sub-section (2) of Section 144B of the Act is also an
enabling provision to the extent it gives authority to the Board to
'specify' about applicability of faceless assessment in respect of
class, income, group, etc. Clause 3(b) of notification/scheme
dated 29.03.2022 shows that issuance of notice under Section
148 is squarely covered and mandated under clause 3 by making
it clear that it shall be through automated allocation, in
accordance with risk management strategy formulated by the
Board as referred to in Section 148 of the Act for issuance of
notice, and same has to be in a faceless manner. The parties are
at loggerheads because of expression i.e., "to the extent provided
in Section 144B of the Act" used in clause 3(b) of the notification
dated 29.03.2022.
18. Learned counsel for the petitioners, by placing reliance on
the judgment of Bombay High Court in Hexaware Technologies
Ltd. (supra), argued that the provision has already been
interpreted by the Bombay High Court, and therefore, the
aforesaid expression 'to the extent provided in Section 144B of the
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Act' does not deal with the aspect of issuance of notice under
Section 148 of the Act.
19. As noticed, learned Senior Standing Counsel for Income
Tax Department has taken a diametrically opposite stand by
contending that the said expression, indeed, covers the issuance
of notice under Section 148 of the Act. His contention was that
issuance of notice under Section 148 of the Act was also part of
assessment procedure.
20. In the considered opinion of this Court, clause 3(b) of the
notification dated 29.03.2022, in specific, deals with issuance of
notice under Section 148 of the Act. For that purpose, the
notification seeks to apply e-assessment of income escaping
assessment scheme, 2022. A microscopic reading of clause 3(b)
shows that its only literal interpretation could be that issuance of
notice under Section 148 of the Act is squarely covered under the
scheme, and for the purpose of issuance of notice, the faceless
procedure must be followed. The expression 'to the extent
provided in Section 144B of the Act' in our judgment does not deal
with 'issuance of notice' under Section 148. The said expression
is applicable with reference to 'assessment' and 'reassessment'.
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Sub-section (2) of Section 144B relates to "assessment" and does
not deal with issuance of notice under Section 148 of the Act.
21. In order to understand the provision in a better way, we
deem it proper to split it as under:
"3. Scope of the Scheme- For the purpose of this Scheme:-
(a) assessment, reassessment of recomputation under Section
147 of the Act,
(b) issuance of notice under Section 148 of the Act,
shall be through automated allocation, in accordance with
risk management strategy formulated by the Board as referred
to in Section 148 of the Act for issuance of notice
and
in a faceless manner, to the extent provided in Section
144B of the Act with reference to making assessment or
reassessment of total income or loss of assessee."
(Scheme)
22. A careful reading of the scheme points out that law makers
consciously provided two different sub clauses (a) and (b).
Clause 3 '(a)' specifically deals with assessment, reassessment
and recomputation whereas sub-clause '(b)' deals with notice
under Section 148 of the Act and gives reference of Section 144B
for providing 'extent' for the purpose of 'assessment' and
'reassessment'. Putting it differently, sub-clause (b) of Clause 3
of the scheme, before use of word 'and' is complete in itself and
makes it obligatory to issue notice under Section 148 as per
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automated allocation procedure envisaged in clause 2 (b) of the
scheme. The sentence after use of word 'and' in sub-clause (b) of
clause 3 talks about 'extent' provided in Section 144B with
reference to assessment and reassessment. The second portion
of sub-clause (b) of clause 3 after 'and' does not deal with
issuance of notice under Section 148 of the Act. Therefore,
sub-clause (b) of clause 3 is in two parts. First part is confined
to notice under Section 148 of the Act, whereas, second part after
the word 'and' is confined to 'assessment' and 'reassessment'.
23. It is noteworthy that the order of CBDT dated 06.09.2021
deals with "assessment orders". The said order is passed in
exercise of power under Section 144B of the Act. The order of
CBDT is clear that direction was issued about passing of
"assessment orders" by the National Faceless Assessment Centre
under Section 144B of the Act except in two situations, one of
which is passing of assessment orders in cases assigned to
International Tax Charges.
24. Thus, there is no cavil of doubt that Section 144B of the Act
and order of CBDT dated 06.09.2021 give exemption from
following the mandatory faceless procedure only in relation to
passing of assessment orders in cases of central charges and
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international tax charges. Any other interpretation would
amount to doing violence with the language employed in the
scheme/notification dated 29.03.2022, Section 144B(2) of the Act
and order dated 06.09.2021. Since in our view, the plain and
unambiguous language used in the scheme and order dated
06.09.2021 shows that the notice under Section 148 does not fall
within the 'exception', the judgments cited by the learned Senior
Standing Counsel for Income Tax Department are of no
assistance. The Taxpayer is nowhere distinguished between NRIs
and Indian Citizens. The notice issued under Section 148 must
comply with the requirement of the Scheme whether or not the
Taxpayer is NRI/Indian Citizen. Thus, the second limb of
argument of the learned Senior Standing Counsel for Income Tax
Department deserves to be rejected.
25. Pertinently, this Court in Kankanala Ravindra Reddy
(supra), held as under:
"25. A plain reading of the aforesaid two notifications
issued by the Central Board of Direct Taxes dated
28.03.2022 and 29.03.2022, it would clearly indicate that
the Central Board of Direct Taxes was very clear in its mind
when it framed the aforesaid two schemes with respect to the
proceedings to be drawn under Section 148A, that is to have
it in a faceless manner. There were two mandatory
conditions which were required to be adhered to by the
Department, firstly, the allocation being made through the
automated allocation system in accordance with the risk
management strategy formulated by the Board under Section
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148 of the Act. Secondly, the re-assessment has to be done
in a faceless manner to the extent provided under Section
144B of the Act."
(Emphasis Supplied)
26. The Bombay High Court in Hexaware Technologies Ltd.
(supra) held as under:
"36.1 Section 151A of the Act itself contemplates formulation
of Scheme for both assessment, reassessment or
recomputation under Section 147 as well as for issuance of
notice under Section 148 of the Act. Therefore, the Scheme
framed by the Central Board of Direct Taxes, which covers
both the aforesaid aspect of the provisions of Section 151A of
the Act cannot be said to be applicable only for one aspect,
i.e., proceedings post the issue of notice under Section 148 of
the Act being assessment, reassessment or recomputation
under Section 147 of the Act and inapplicable to the
issuance of notice under Section 148 of the Act. 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. The argument advanced by respondent would render
clause 3(b) of the Scheme otiose and to be ignored or
contravened, as according to respondent, even though the
Scheme specifically provides for issuance of notice
under Section 148 of the Act in a faceless manner, no notice
is required to be issued under Section 148 of the Act in a
faceless manner. In such a situation, not only clause 3(b) but
also the first two lines below clause 3(b) would be otiose, as it
deals with the aspect of issuance of notice under Section
148 of the Act. Respondents, being an authority subordinate
to the CBDT, cannot argue that the Scheme framed by the
CBDT, and which has been laid before both House of
Parliament is partly otiose and inapplicable. The argument
advanced by respondent expressly makes clause 3(b) otiose
and impliedly makes the whole Scheme otiose. If clause 3(b)
of the Scheme is not applicable, then only clause 3(a) of the
Scheme remains. What is covered in clause 3(a) of the
Scheme is already provided in Section 144B(1) of the Act,
which Section provides for faceless assessment, and covers
assessment, reassessment or recomputation under Section
147 of the Act. Therefore, if Revenue's arguments are to be
accepted, there is no purpose of framing a Scheme only for
clause 3(a) which is in any event already covered under
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faceless assessment regime in Section 144B of the Act. The
argument of respondent, therefore, renders the whole
Scheme redundant. An argument which renders the whole
Scheme otiose cannot be accepted as correct interpretation of
the Scheme. The phrase "to the extent provided in Section
144B of the Act" in the Scheme is with reference to only
making assessment or reassessment or total income or
loss of assessee. Therefore, for the purposes of making
assessment or reassessment, the provisions of Section
144B of the Act would be applicable as no such manner
for reassessment is separately provided in the Scheme.
For issuing notice, the term "to the extent provided
in Section 144B of the Act" is not relevant. The Scheme
provides that the notice under Section 148 of the Act,
shall be issued through automated allocation, in
accordance with risk management strategy formulated by the
Board as referred to in Section 148 of the Act and in a
faceless manner. Therefore, "to the extent provided
in Section 144B of the Act" does not go with issuance of
notice and is applicable only with reference to assessment
or reassessment. The phrase "to the extent provided
in Section 144B of the Act" would mean that the
restriction provided in Section 144B of the Act, such as
keeping the International Tax Jurisdiction or Central
Circle Jurisdiction out of the ambit of Section 144B of
the Act would also apply under the Scheme. Further the
exceptions provided in sub-section (7) and (8) of Section
144B of the Act would also be applicable to the Scheme."
27. We are in respectful agreement with the view taken by the
Bombay High Court and are of the opinion that the aforesaid
underlined expression used in clause 3(b) of the scheme dated
29.03.2022 does not preclude the mandatory faceless procedure
for issuance of notice under Section 148 of the Act. Any other
interpretation, in our humble view, will not only cause violence to
the language used, but will also defeat the object for which a
transparent 'faceless procedure' was introduced. Hence, we are
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unable to persuade ourselves to accept a different meaning than
the literal meaning flowing and conveyed from the provisions.
28. In interpreting a section in a taxing statute, according to
LORD SIMONDS, "the question is not at what transaction the
section is according to some alleged general purpose aimed, but
what transaction its language according to its natural meaning
fairly and squarely hits (see St. Aubyn (LM) v. A.G. 5). LORD
SIMONDS call this "the one and only proper test". This principle
is followed by the Indian Supreme Court in catena of judgments.
Thus, in our view, no such exemption from faceless procedure
can be read by combined reading of aforesaid provisions for the
purpose of issuance of notice under Section 148 of the Act.
29. In view of foregoing analysis, it is clear that the respondents
have erred in not following the mandatory faceless procedure as
prescribed in the scheme dated 29.03.2022. Since notices under
Section 148 of the Act were not issued in a faceless manner, the
entire further proceeding founded upon it and assessment orders
stand vitiated. Thus, the impugned notices under Section 148 of
the Act and all consequential assessment orders based
(1951) 2 All ER 473
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thereupon are set aside. Liberty is reserved to the respondents to
proceed against the petitioners in accordance with law.
30. The Writ Petitions are allowed to the extent indicated
above. There shall be no order as to costs. Miscellaneous
applications pending, if any, shall stand closed.
_________________
SUJOY PAUL, J
_____________________________________
NAMAVARAPU RAJESHWAR RAO, J
Date: 24.07.2024
L.R. copy be marked.
B/o. TJMR
