2024 (12) TMI 506 - HC - Income Tax

Validity of order passed by NFAC u/s 143 (3)/254/144B - petitioner s contention that the impugned order has been passed without any jurisdiction - HELD THAT - Revenue has failed and neglected to file its counter-affidavit. Consequently, on 02.05.2024, this court passed an order granting a final opportunity to the Revenue to file its counter-affidavit within a period of three weeks from the said date and also put the Revenue to notice that failing the filing of any counter-affidavit the matter would proceed ex-parte, on the basis of the record existed on the said date. Revenue failed to avail the last opportunity as well. Notwithstanding the same, this court by an order dated 28.08.2024 granted liberty to the learned counsel for the Revenue to file a brief note of submissions, if so advised. However, no such note has been filed either. The facts as narrated above are thus accepted as untraversed. Mr Sunil Agarwal, learned counsel for the Revenue, also states that there is no dispute as to the facts as noted above. The order passed by the JAO clearly sets out that it is an order to give effect to the order passed by the learned ITAT. There is no doubt that the proceedings pursuant to the directions issued by the learned ITAT stood concluded by the aforementioned order dated 04.02.2023. Clearly, there is no provision under the Act for continuing assessment proceedings after an assessment order is passed. Concluded assessments cannot be opened except by recourse to specific provisions in this regard including Section 147 of the Act. The initiation of further proceedings by the NFAC pursuant to the orders passed by the learned ITAT, is clearly without jurisdiction.

Summary

Issues:
1. Jurisdiction of the National Faceless Assessment Centre (NFAC) under the Income Tax Act.
2. Disallowance under Section 14A of the Income Tax Act.
3. Disallowance of fines and penalties in income tax assessment.

Jurisdiction of NFAC:
The petitioner challenged an order passed by NFAC under Sections 143(3)/254/144B of the Income Tax Act, contending it lacked jurisdiction. The petitioner had initially filed a revised income tax return for AY 2013-14, which was scrutinized, leading to additions by the Assessing Officer (AO). The Commissioner of Income Tax (Appeals) partly allowed the appeal, reducing the disallowance under Section 14A. The Income Tax Appellate Tribunal (ITAT) remanded certain issues to the AO, directing specific considerations. Despite the JAO passing an order to comply with ITAT's directions, NFAC proceeded to issue another order, disregarding the previous directives, resulting in a jurisdictional issue.

Disallowance under Section 14A:
The AO had disallowed expenses under Section 14A of the Act, which was partly reversed by the CIT(A) and further modified by the ITAT. The ITAT directed the AO to restrict disallowance to the extent of exempt income. Subsequently, the JAO passed an order to implement ITAT's directions, limiting the disallowance. However, NFAC issued an order reiterating a higher disallowance amount, disregarding ITAT's directives, leading to a dispute over the correct disallowance under Section 14A.

Disallowance of Fines and Penalties:
The issue of disallowance related to fines and penalties in the assessment was not specifically addressed by the AO or challenged by the Assessee. Despite the JAO's order to give effect to ITAT's directives, NFAC proceeded to pass an order reiterating the disallowance of fines and penalties, creating a discrepancy in the assessment process. The NFAC's actions in issuing an order that contradicted the JAO's directions raised concerns over the proper assessment procedures and jurisdictional boundaries.

In conclusion, the High Court set aside the impugned order issued by NFAC, emphasizing that concluded assessments cannot be reopened without specific provisions such as Section 147 of the Act. The court highlighted the lack of jurisdiction in NFAC's actions post the JAO's order, ultimately allowing the petitioner's challenge. The detailed analysis of the jurisdictional issues, disallowance under Section 14A, and the handling of fines and penalties in the income tax assessment underscored the importance of adherence to legal procedures and directives in tax assessments.