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TMI Blog2024 (10) TMI 1586X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment on the basis of (a) information which comes to light through the RMS (b) an audit objection (c) information received under agreements with nations (d) information made available to the JAO in terms of a scheme notified under Section 135A or (e) information on which further action is warranted in consequence to an order of a Tribunal or a Court. It is thus manifest that apart from information which is made available to the JAO pursuant to the RMS, the Act contemplates a decision to commence reassessment also being founded or based upon other inputs which are noticed in clauses (a) to (e) of Explanation 1. In essence, the Act permits reassessment not only on RMS data but also on a variety of other specified inputs ensuring a broader foundation for initiating reassessment. In terms of Explanation 2 to Section 148, information that may come to the fore consequent to a search or survey, is also, by virtue of the legal fiction incorporated therein, deemed to be that which would constitute information and be viewed as suggestive of income chargeable to income having escaped assessment. The material that may be gathered in the course of a search or survey also thus constitutes inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be placed in the hands of the JAO by the RMS, it would consequently be entitled to initiate the process of reassessment by following the procedure prescribed under Section 148A. If after consideration of the objections that are preferred, it stands firm in its opinion that income was likely to have escaped assessment, it would transmit the relevant record to the NFAC. It is at that stage and on receipt of the said material by NFAC that the concepts of automated allocation and faceless distribution would come into play. The actual assessment would thus be conducted in a faceless manner and in accordance with an allocation that the NFAC would make. This, in our considered opinion, would be the only legally sustainable construction liable to be accorded to the scheme. Our conclusion would thus strike a harmonious balance between the evaluation of information made available to an AO, the preliminary consideration of information for the purposes of formation of opinion and its ultimate assessment in a faceless manner. We are also, in this regard, guided by the principles of beneficial construction and thus avoiding an interpretation that would render portions of the Act or the Facele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ms. Pratishta, Ms. Nivedita, Ms. Priya Sarkar, Advs. Mr. Abhishek Maratha, SSC with Ms. Nupur Sharma, Mr. Parth Semwal & Mr. Apoorv Agarwal, JSCs, Mr. Gaurav Singh, Mr. Bhanukaran Singh, Ms. Muskan Goel, Ms. Parithi Kohli, Mr. Himanshu Gaur, Advs. Mr. Gaurav Gupta, SSC with Mr. Shivendra Singh & Mr. Yojit Pareek, JSCs for IT Deptt. TABLE OF CONTENTS A. FACTUAL BACKGROUND 4 B. ARGUMENTS ADVANCED BY RESPECTIVE SIDES 11 C. STATUTORY PROVISIONS RELEVANT TO THE FACELESS SCHEME OF ASSESSMENT 41 D. NOTIFICATIONS AND INSTRUCTIONS PERTAINING TO THE FACELESS SCHEME OF ASSESSMENT 58 E. RATIONALE AND LEGISLATIVE INTENT UNDERLYING THE FACELESS SCHEME OF ASSESSMENT 69 F. RMS AND OTHER MODES OF SELECTION OF CASES 76 G. "INFORMATION" RELEVANT FOR ASSESSMENTS 80 H. THE CONCURRENT CONFERRAL OF JURISDICTION 84 I. ASSESSMENT AND RE-ASSESSMENT ACTION IN LIGHT OF THE FACELESS ASSESSMENT REGIME 86 J. DISPOSITION 106 JUDGMENT YASHWANT VARMA, J. A. FACTUAL BACKGROUND 1. This batch of writ petitions assail the validity of reassessment action initiated under Section 148 of the Income Tax Act, 1961 [Act]. Although that action is impugned on various groun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e notices in terms of Section 148-A (b). The respective assessing officers shall within thirty days from today provide to the assessees the information and material relied upon by the Revenue so that the assessees can reply to the notices within two weeks thereafter. 25.2. The requirement of conducting any enquiry with the prior approval of the specified authority under Section 148-A (a) be dispensed with as a one-time measure vis-a-vis those notices which have been issued under Section 148 of the unamended Act from 1-4-2021 till date, including those which have been quashed by the High Courts. 25.3. The assessing officers shall thereafter pass an order in terms of Section 148-A (d) after following the due procedure as required under Section 148-A (b) in respect of each of the assessees concerned. 25.4. All the defences which may be available to the assessee under Section 149 and/or which may be available under the Finance Act, 2021 and in law and whatever rights are available to the Assessing Officer under the Finance Act, 2021 are kept open and/or shall continue to be available. 25.5. The present order shall substitute/modify respective judgments and orders passed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue, so that the assessees can reply to the show-cause notices within two weeks thereafter. 28.2. The requirement of conducting any enquiry, if required, with the prior approval of specified authority under Section 148-A (a) is hereby dispensed with as a one-time measure vis-a-vis those notices which have been issued under Section 148 of the unamended Act from 1-4-2021 till date, including those which have been quashed by the High Courts. 28.3. Even otherwise as observed hereinabove holding any enquiry with the prior approval of specified authority is not mandatory but it is for the assessing officers concerned to hold any enquiry, if required. 28.4. The assessing officers shall thereafter pass orders in terms of Section 148-A (d) in respect of each of the assessees concerned; Thereafter after following the procedure as required under Section 148-A may issue notice under Section 148 (as substituted). 28.5. All defences which may be available to the assessees including those available under Section 149 of the IT Act and all rights and contentions which may be available to the assessees concerned and Revenue under the Finance Act, 2021 and in law shall continue to be availabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s:- "209. For the reasons and principles that we have laid down, we dispose of these Writ Petitions with the following directions: 210. Category 'A' : The Notices falling under category 'A', which were digitally signed on or after 1st of April, 2021, are held to bear the date on which the said Notices were digitally signed and not 31st March 2021. The said petitions are disposed of with the direction that the said Notices are to be considered as show-cause-notices under Section 148A (b) of the Act as per the directions of the apex Court in the Ashish Agarwal (Supra) judgment. 211. Category 'B' : The Notices falling under category 'B' which were sent through the registered e-mail ID of the respective JAOs, though not digitally signed are held to be valid. The said petitions are disposed of with the direction to the JAOs to verify and determine the date and time of its despatch as recorded in the ITBA portal in accordance with the law laid down in this judgment as the date of issuance. If the date and time of despatch recorded is on or after 1 of April, 2021, the Notices are to be considered as show-cause-notices under Section 148A (b) as per the directions of the apex Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rit petitions, the petitioners have raised additional defenses to challenge the impugned Notices. Such additional defenses have not been considered by this Court and the petitioners shall be at liberty to raise all such additional defenses as available inlaw. 217. We are conscious that the time granted by the Supreme Court in Ashish Agarwal to the Department has since expired on 3rd June, 2022 however, the proceedings in the present writ petitions were stayed on 24th March, 2022 until the pronouncement of this judgment. Therefore, we grant the JAOs in the first instance eight (8) weeks time from today to determine the date of issuance of the Notices as per the law laid down in this judgment. 218. The Notices which in accordance with the law laid down in this judgment has been verified by the JAOs to have been issued on or after 01st April 2021 and until 30th June, 2021 shall be deemed to have been issued under Section 148A of the Act of 1961 as substituted by the Finance Act, 2021 and construed to be show-cause notices in terms of Section 148A (b) as per the judgment of the apex Court in Ashish Agarwal (Supra) and the JAOs shall thereafter follow the procedure set down by the S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he respondents had adopted faceless assessment in terms of the scheme enacted under Section 151A, the JAO would stand denuded of power and authority to commence proceedings under Section 148A and that it was only the faceless route of assessment which could have been followed. 11. Dealing with this issue, the Telangana High Court in Kankanala Ravindra Reddy had observed as follows: - "25. A plain reading of the aforesaid two notifications issued by the Central Board of Direct Taxes dated 28-3-2022 and 29-3-2022, 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 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. 26. After the introduction of the above two schemes, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation 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'. Sub-section (2) of Section 144B relates to "assessment" and does not deal with issuance of notice under Section 148 of the Act. xxxx xxxx xxxx 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 'as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Department, firstly, the allocation being made through the automated allocation system in accordance with the risk management strategy formulated by the Board under Section 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) 13. By the time the Telangana High Court came to pronounce its verdict in Venkataramana Reddy Patloola, it also had the benefit of considering a detailed decision which had come to be pronounced by the Bombay High Court in Hexaware Technologies Ltd. v. Assistant Commissioner of Income Tax 2024 SCC OnLine Bom 1249. In Hexaware Technologies, the Bombay High Court, apart from the various other questions which were formulated, also had an occasion to examine the issue of whether a notice under Section 148, if issued by the JAO, would sustain in light of the scheme formulated in accordance with Section 151A of the Act. Since most of the High Courts have thereafter followed the opinion expressed in Hexaware Technologies, we deem it apposite to extract the following passages from that decision: - "33. The guideline dated August 1, 2022 relied upon by the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Income-tax Department's portal, and does not even claim to be a statement of the Revenue's position/stand on the issue in question. Our observations with respect to the guidelines dated August 1, 2022 relied upon by the Revenue will equally be applicable here. 35. Further, in our view, there is no question of concurrent jurisdiction of the jurisdictional Assessing Officer and the Faceless Assessing Officer 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 jurisdictional Assessing Officer or the Faceless Assessing Officer in the Scheme dated March 29, 2022, then it is to the exclusion of the other. To take any other view in the matter, would not only result in chaos but also render the whole faceless proceedings redundant. If the argument of the Revenue is to be accepted, then even when notices are issued by the Faceless Assessing Officer, it would be open to an assessee to make submission before the jurisdictional Assessing Officer and vice versa, which is clearly not contemplated in the Act. Therefore, there is no question of concurrent jurisdiction of b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder clause 3(b) of the Scheme otiose and to be ignored or contravened, as according to the 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. The respondents, being an authority subordinate to the Central Board of Direct Taxes, cannot argue that the Scheme framed by the Central Board of Direct Taxes, and which has been laid before both Houses of Parliament is partly otiose and inapplicable. The argument advanced by the 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, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of the petitioner having to prove further prejudice before arguing the invalidity of the notice." 14. A reading of the decision in Hexaware Technologies would compel one to notice a detailed reference being made to an Office Memorandum dated 20 February 2023. It, however, becomes pertinent to clarify here that the document dated 20 February 2023, and which has been described to be an "Office Memorandum", was actually instructions provided to counsels for the Revenue in connection with the batch of writ petitions which were pending before that High Court. They were thus rightly construed as not being statutory instructions which the Central Board of Direct Taxes [CBDT] is otherwise, and undoubtedly, empowered to issue under the Act. 15. However, those instructions were duly examined and dealt with by the Bombay High Court in the following terms: - "38. With respect to the Office Memorandum dated February 20, 2023, the said Office Memorandum merely contains the comments of the Revenue issued with the approval of Member (L&S) Central Board of Direct Taxes and the said Office Memorandum is not in the nature of a guideline or instruction issued under section 119 of the Act so as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ution of India as being arbitrary and unreasonable. Randomly selecting cases for reopening without there being any basis or criteria would mean that the section is applied by the Revenue in an arbitrary and unreasonable manner. The word "random" is used in clause 2(1)(b) of the said Scheme in the definition of "automated allocation"."Automated allocation" is defined in the said clause to mean "an algorithm for randomised allocation of cases….". 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. Further, in paragraph 3.2 of the Office Memorandum, with respect to the reassessment proceedings, the reference to "random allocation" has correctly been made as random allocation of cases to the Assessment Units by the National Faceless Assessment Centre. When random allocation is with reference to officer for reassessment then the same would equally apply for issuance of notic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h required the notice under section 148 of the Act to be issued on the basis of random allocation and in a faceless manner. (v) The Revenue has wrongly contended in paragraph 3.1 of the Office Memorandum that "Therefore, whether jurisdictional Assessing Officer or National Faceless Assessment Centre should issue such notice is decided by administration keeping in mind the end result of natural justice to the assessees as well as completion of required procedure in a reasonable time". In our opinion, there is no such power given to the administration under either section 151A of the Act or under the said Scheme. The Scheme is clear and categorical that notice under section 148 of the Act shall be issued through automated allocation and in a faceless manner. Therefore, the argument of the Revenue is clearly contrary to the provisions of the Scheme. (vi) In paragraph 3.3 of the Office Memorandum, it is again erroneously stated that "Here it is pertinent to note that the said notification does not state whether the notices to be issued by the National Faceless Assessment Centre or the jurisdictional Assessing Officer ("JAO")… It states that issuance of notice under section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be issued through automated allocation and in a faceless manner. There is no leeway given on the said aspect and, therefore, there is no question of the administration to device and modify procedures with respect to the issuance of notice." 16. The reasoning assigned by the Bombay High Court in Hexaware Technologies then came to be adopted by the High Court of Gauhati in Ram Narayan Sah v. Union of India and Others 2024 SCC OnLine Gau 1424. This becomes apparent from the following passages of that judgment: - "8. A careful perusal of the scheme reveals that the scope of the scheme is for the purpose of the assessment, reassessment, recomputation under section 147 of the Act and issuance of notices under section 148 of the Act and the same shall be by a process through automated allocation in accordance with the risk management strategy formulated by the Board as referred to in section 148 of the Act for issuance of the notice and in a faceless manner and to the extent provided under section 144B of the Act with reference to making the assessment or reassessment of total income or loss of the assessee. 9. A perusal of section 151A along with the scheme reveals that the statute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 151A clearly provides that scheme would be applicable to notice under section 148. Even otherwise, it is a settled proposition of law that assessment proceedings commence from the stage of issuance of show-cause notice. The object of introduction of faceless assessment would be defeated if show-cause notice under section 148 is issued by the jurisdictional Assessing Officer. The respondents are heavily placing reliance upon the office memorandum and letter issued by the Departmental authorities. It is axiomatic in tax jurisprudence that circulars, instructions and letters issued by the Board or any other authority cannot override statutory provisions. The circulars are binding upon the authorities and the courts are not bound by such circulars. The mandate of sections 144B, 151A read with notification dated March 29, 2022 ((2022) 442 ITR (Stat) 198) issued thereunder is quite lucid. There is no ambiguity in the language of statutory provisions, thus, the office memorandum or any other instruction issued by the Board or any other authority cannot be relied upon. Instructions/circulars can supplement but cannot supplant statutory provisions. 16. In the wake of the above ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from 1 April, 2022. It would be thus difficult to accept a proposition when in paragraph 3(a) of the Scheme defining the scope of the Scheme when the words "assessment", "reassessment" or "re-computation" under Section 147 of the Act are explicitly provided, and further when clause (b) in paragraph 3 of the Scheme provides for issuance of notice under Section 148 of the Act, it would not take within its ambit the provisions of Section 148A which are the initial steps, which in a given case are required to be taken in issuance of notice under Section 148 of the Act. Section 148A provides for "Conducting inquiry, providing opportunity before issue of notice under section 148". Thus, this provision postulates a procedure inextricably linked to Section 148 which would apply to all cases of reassessment with a proviso stipulating exceptions to the rule. In other words, Section 148A in its object, intent and purpose is inextricably connected with the assessment, re-assessment or recomputation, for which a notice under Section 148 may be issued. Any other view would mean that the requirement to adopt the faceless procedure under the Scheme is a mere ministerial requirement for issuance o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctorate of Systems randomly selects a number of cases based on the criteria of the Risk Management Strategy. The Assessing Officer has no role to play in such selection. Consequent to such selection, the information is made available to the Assessing Officer who, with the prior approval of specified authority, determines which of these cases are fit for proceedings under the Section 147 of the Act as per the procedure provided in Section 148A of the Act. This involves conducting an enquiry, if needed and giving the assessee an opportunity of hearing. 7. That the procedure outlined under Section 148A of the Act is a mandatory process (for cases other than search cases) and initiation of proceedings under Section 148A is based on risk assessment strategy and randomness. The notice under Section 148A issued thereafter is naturally based on risk management strategy and automated allocation. 8. That the scheme provides for randomized allocation of cases. The intent behind is to ensure fair and reasonableness in the selection of cases. In the procedure for issuance of notice under Section 148 of the Act this is ensured as cases selected prior to issuance of the said notice are decide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Central Government may notify a scheme for conduct of procedures mentioned therein by:- (a) eliminating the interface between the income-tax authority and the assessee or any other person to the extent technologically feasible; (b) optimizing utilisation of the resources through economies of scale and functional specialisation; (c) introducing a team-based assessment, reassessment, re-computation or issuance or sanction of notice with dynamic jurisdiction. Therefore, the parent Section takes in to account that procedures may be modified under the Act or laid down taking into account their technological feasibility at the time. Further, instead of laying down specifics of the procedure, the Section clarifies that the scheme so notified should make optimal utilisation of resources through economies of scale and functional specialisation. 17. That reading the Section 151A of the Act in tandem with the scheme as given in Notification S.O. 1466(E) dated 29.03.2022, it is quite clear that neither the Section nor the scheme speak about the detailed specifics of the procedure to be followed therein. They lay down the general principles that should be followed so as to impart grea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey assert that cases selected randomly in terms of the RMS are principally picked up by the Directorate of System and which process of selection is undertaken independently and without the involvement of the JAO. It is thus asserted that since the cases are selected in a random manner, the JAO has no way of predicting or determining beforehand which case would come to be flagged by the Directorate of Systems. 23. It is then submitted that the cases so flagged by the Directorate of Systems are then forwarded to the JAO, who remains in seisen of proceedings till the issuance of a notice under Section 148 and whereafter the assessment is randomly allocated to an Assessment Unit by the National Faceless Assessment Center [NFAC] in accordance with Section 144B of the Act. 24. The respondents further assert and seek to emphasize that the Act proceeds on the premise of both the JAO as well as Assessment Units under NFAC being empowered to exercise concurrent jurisdiction. It was their contention that the Act creates no distinction nor does it distinguish between a JAO or the NFAC with respect to a particular case. They take the stand that merely because Assessment Units conduct assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2019 (September 12, 2019) Faceless Assessment Scheme (August 13, 2020) Faceless Assessment (Section 144B of the Act) Faceless Assessment, 2022 (Section 144B of the Act) 1. Nomenclature E-assessment 2019 Faceless assessment scheme, 2019 Faceless assessment Faceless assessment 2. Act/CBDT Notification S.O 3264 (E) S.O 2745 (E) TOLA, 2020 Finance Act, 2022 3. Applicability Regular assessment u/s 143 (3) of the Income Tax, 1961 ("the Act"), selected on pilot basis (i) All assessment specified (except non-residents and search cases) All assessments Section 143 (3), 144, 147 of the Act except 142A of the Act cases 4. Excluded Other than selected Search and non-residents cases Search cases and other relocated cases Search, 142 (2A) of the Act and other relocated cases 5. National Faceless Assessment Centre (NaFC) To facilitate the conduct of make an e-asst. in centralized manner To facilitate the conduct of and make faceless assessment in centralized manner To facilitate the conduct of and make faceless assessment in centralized manner. To facilitate the conduct of and convey assessments 6. Regional E-Faceless Assessment Centres To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounting, forensic, information technology, valuation, transfer pricing, data analytics, management or other technical matters. Technical assistance on audit in addition to legal, accounting, forensic, information technology, valuation, Transfer, pricing, data analytics, management or other technical matters Technical assistance on audit, legal, accounting, forensic, information technology, valuation, Transfer pricing, data analytics, management or other technical matters. Technical assistance on audit, legal, accounting, forensic, information technology, valuation, Transfer pricing, data analytics, management or other technical matters 10. Verification Unit Facilitate conduct of e-assessment, perform function of verification, including inquiry, cross verification, books of witnesses, examination of recording of statements, and other required in verification Facilitate conduct of faceless assessment, perform function of verification, including conduct of verification, inquiry, cross examination of books of witnesses, recording of statements, and other required verification assessment, function of verification, including faceless examination inquiry, cross verification, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C), selected by NFAC on random allocation basis. Prepare 'income/loss determination proposal' Draft Order, considering modification suggested by the Review Unit (RU). Prepare draft send to eligible assessee or finalise in other case as conveyed by NeFC. Or on receipt of DRP directions. 16. Response Time Assessee was required to file his response to draft assessment order, on or before the date and time specified in the notice Scheme suggests provision for extension of time. Scheme suggests provision for extension of time. Scheme suggests provision for extension of time. 17. Transfer of records to Jurisdictional AO NeAC was required, after completion of the assessment, to transfer all the electronic records of the case to the jurisdictional AO AO shall take such action as may be required under the Act. Provision for transfer of the electronic records of the penalty proceedings also, on completion of the same. AO shall take such action as may be required under the Act. Transfer all electronic records of the case to jurisdictional AO for further required action under the Act 18. Power to transfer Assessment cases to the Jurisdictional Assessing Officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nic Record Authentication/signing of the electronic record was to be done by affixing the digital signature Authentication/ signing of the electronic record has to be done by NeAC by affixing its digital signature An electronic record shall be authenticated by ---NFAC and Units affixing digital signature. An electronic be record shall be authenticate d by--- the NFAC by way of an electronic communication, Units by affixing its digital signature; 22. Power to specify format, mode, procedure and processes Principal Chief Commissioner or the Principal Director General, were vested with the power to specify format, mode, procedure and processes under the Scheme. Pr.CC or the Pr. DG are authorised to specify format, mode, procedure and processes only with the prior approval of CBDT. Pr.CC or the Pr. DG are authorised to specify format, mode, procedure and processes with the prior approval of the Board Pr.CC or the Pr. DG, are authorised to specify format, mode, procedure and processes with the prior approval of the Board (CBDT). 29. Mr. Chawla also, and for our convenience, placed on the record a table which depicts the various faceless schemes as envisioned under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s or no deduction of income-tax under Section 197 of the Act, OR • Deeming a person to be an assessee in default under Section 201 (1) or under Section 206C (6A) of the Act, • Issuance of certificate for lower collection of tax under Section 206C (9) of the Act, OR • Passing of order or amended order under Section 210 (3)/(4) of the Act, OR • Reduction or waiver of the amount of interest paid or payable by an assessee under Section 220 (2A) of the Act, OR • Extending the time for payment or allowing payment by instalment under Section 220(3) of the Act, OR • Treating the assessee as not being in default under Section 220(6) or (7) of the Act, OR • Levy of penalty under Section 221 of the Act, OR • Drawing of certificate by the Tax Recovery Officer under Section 222 of the Act, OR • Jurisdiction of Tax Recovery Officer under Section 223 of the Act, OR • Stay of proceedings in pursuance of certificate and amendment or cancellation thereof by the Tax Recovery Officer under Section 225 of the Act, or other modes of recovery under Section 226 of the Act, OR • Issuance of tax clearance certificate under Section 230 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under this sub-section on or before the 31st day of March, 2022, by notification in the Official Gazette.] (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.]" 32. Section 144B came to be inserted for the first time by the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 [TOLA] with effect from 01 April 2021. As the provision originally existed, the non obstante clause in Section 144B initially covered assessments under Sections 143 (3) and 144(2) only. The provision came to be amended thereafter by way of Finance Act, 2022 and the class of assessments to which it was ordained to extend came to be expanded to cover assessment as well as reassessment as contemplated under Sections 143 (3), 144 and 147 of the Act. 33. That provision, as it exists presently, is reproduced hereinbelow:- "144B. [(1) Notwithstanding anything to the contrary contained in any other provision of this Act, the assessment, reassessment or recomputation under sub-section (3) of section 143 or under section 144 or under section 147, as the case may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eference to the technical unit has been made by the assessment unit under sub-clause (c) of clause (iv), the request shall be assigned by the National Faceless Assessment Centre to a technical unit through an automated allocation system; (vii) the National Faceless Assessment Centre shall send the report received from the verification unit or the technical unit, as the case may be, based on the request referred to in clause (vi) to the concerned assessment unit; (viii) where the assessee fails to comply with the notice served under clause (v) or notice issued under sub-section (1) of section 142 or the terms of notice issued under sub-section (2) of section 143, the National Faceless Assessment Centre shall intimate such failure to the assessment unit; (ix) the assessment unit shall serve upon such assessee, as referred to in clause (viii), a notice, through the National Faceless Assessment Centre, under section 144, giving him an opportunity to show-cause on a date and time as specified in such notice as to why the assessment in his case should not be completed to the best of its judgment; (x) the assessee shall, within the time specified in the notice referred to in claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdance with the income or loss determination proposal, which shall thereafter prepare a draft order; or (b) assign the income or loss determination proposal to a review unit through an automated allocation system, for conducting review of such proposal; (xvii) the review unit shall conduct review of the income or loss determination proposal assigned to it by the National Faceless Assessment Centre, under sub-clause (b) of clause (xvi), whereupon it shall prepare a review report and send the same to the National Faceless Assessment Centre; (xviii) the National Faceless Assessment Centre shall, upon receiving the review report under clause (xvii), forward the same to the assessment unit which had proposed the income or loss determination proposal; (xix) the assessment unit shall, after considering such review report, accept or reject some or all of the modifications proposed therein and after recording reasons in case of rejection of such modifications, prepare a draft order; (xx) the assessment unit shall send such draft order prepared under sub-clause (a) of clause (xvi) or under clause (xix) to the National Faceless Assessment Centre; (xxi) in case of an eligible asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment Centre shall, in a case referred to in clause (xxvii), upon receipt of the directions issued by the Dispute Resolution Panel under sub-section (5) of Section 144-C, forward such directions to the assessment unit; (xxix) the assessment unit shall, in conformity with the directions issued by the Dispute Resolution Panel under sub-section (5) of Section 144-C, complete the assessment within the time allowed in sub-section (13) of Section 144-C and initiate penalty proceedings, if any, and send a copy of the assessment order to the National Faceless Assessment Centre; (xxx) the National Faceless Assessment Centre shall, upon receipt of the assessment order referred to in clause (xxvi) or clause (xxix), as the case may be, serve a copy of such order and notice for initiating penalty proceedings, if any, on the assessee, along with the demand notice, specifying the sum payable by, or the amount of refund due to, the assessee on the basis of such assessment; (xxxi) the National Faceless Assessment Centre shall, after completion of assessment, transfer all the electronic records of the case to the Assessing Officer having jurisdiction over the said case for such action as ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rification unit under this section may also be performed by a verification unit located in any other faceless centre set up under the provisions of this Act or under any scheme notified under the provisions of this Act; and the request for verification may also be assigned through the National Faceless Assessment Centre to such verification unit; (iv) such technical units, as it may deem necessary to facilitate the conduct of faceless assessment, to perform the function of providing technical assistance which includes any assistance or advice on legal, accounting, forensic, information technology, valuation, transfer pricing, data analytics, management or any other technical matter under this Act or an agreement entered into under section 90 or 90A, which may be required in a particular case or a class of cases, under this section and the term "technical unit", wherever used in this section, shall refer to an Assessing Officer having powers so assigned by the Board; (v) such review units, as it may deem necessary to facilitate the conduct of faceless assessment, to perform the function of review of the income determination proposal assigned under sub-clause (b) of clause (xvi) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... delivered to the addressee, being the assessee, by way of-- (a) placing an authenticated copy thereof in the registered account of the assessee; or (b) sending an authenticated copy thereof to the registered email address of the assessee or his authorised representative; or (c) uploading an authenticated copy on the Mobile App of the assessee, and followed by a real time alert; (iii) every notice or order or any other electronic communication shall be delivered to the addressee, being any other person, by sending an authenticated copy thereof to the registered email address of such person, followed by a real time alert; (iv) the assessee shall file his response to any notice or order or any other electronic communication, through his registered account, and once an acknowledgement is sent by the National Faceless Assessment Centre containing the hash result generated upon successful submission of response, the response shall be deemed to be authenticated; (v) the time and place of dispatch and receipt of electronic record shall be determined in accordance with the provisions of section 13 of the Information Technology Act, 2000 (21 of 2000); (vi) a person shall not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , with the prior approval of the Board, lay down the standards, procedures and processes for effective functioning of the National Faceless Assessment Centre and the units set up, in an automated and mechanised environment. (7)(a) The Principal Chief Commissioner or the Principal Director General, as the case may be, in charge of the National Faceless Assessment Centre shall, in accordance with the procedure laid down by the Board in this regard, if he considers appropriate that the provisions of sub-section (2A) of section 142 may be invoked in the case,-- (i) forward the reference received from an assessment unit under clause (xxxii) of sub-section (1) to the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner having jurisdiction over such case, and inform the assessment unit accordingly; (ii) transfer the case to the Assessing Officer having jurisdiction over such case in accordance sub-section (8); (b) where a reference has been received by the Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner under sub-clause (i) of clause (a), he shall direct the Assessing Officer, having jurisdiction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (h) "digital signature" shall have the same meaning as assigned to it in clause (p) of sub-section (1) of Section 2 of the Information Technology Act, 2000 (21 of 2000); (i) "designated portal" means the web portal designated as such by the Principal Chief Commissioner or the Principal Director General, in charge of the National Faceless Assessment Centre; (j) "Dispute Resolution Panel" shall have the same meaning as assigned to it in clause (a) of sub-section (15) of Section 144-C; (k) "faceless assessment" means the assessment proceedings conducted electronically in 'e-Proceeding' facility through assessee's registered account in designated portal; (l) "electronic record" shall have the same meaning as assigned to it in clause (t) of sub-section (1) of Section 2 of the Information Technology Act, 2000 (21 of 2000); [(la) "electronic verification code" means a code generated for the purpose of electronic verification as per the data structure and standards specified by the Principal Director General or Director General, as the case may be, in charge of information technology;] (m) "eligible assessee" shall have the same meaning as assigned to in clause (b) of sub-s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideo conferencing or video telephony" means the technological solutions for the reception and transmission of audio-video signals by users at different locations, for communication between people in real-time.]" 34. It is pertinent to note that when Section 144B was originally introduced in the statute book with effect 01 April 2021, it also included sub-section (9) which read as under:- "(9) Notwithstanding anything contained in any other provision of this Act, assessment made under sub-section (3) of section 143 or under section 144 in the cases referred to in sub-section (2) [other than the cases transferred under sub-section (8)] on or after the 1st day of April, 2021, shall be non est if such assessment is not made in accordance with the procedure laid down under this section." Sub-section (9) ultimately came to be deleted by Finance Act, 2022 with retrospective effect from 01 April 2021. The reasons which appear to have weighed upon the Legislature to delete sub-section (9) from Section 144B can be gleaned from Circular No. 23/2022 dated 03 November 2022 and relevant parts whereof are reproduced hereinbelow: - "(II) Sub-section (9) of erstwhile section 144B of the Act p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is section and furnished beyond the period allowed shall not be deemed to be a return under section 139. Explanation 1.--For the purposes of this section and section 148A, the information with the Assessing Officer which suggests that the income chargeable to tax has escaped assessment means,-- i. any information in the case of the assessee for the relevant assessment year in accordance with the risk management strategy formulated by the Board from time to time; or ii. any audit objection to the effect that the assessment in the case of the assessee for the relevant assessment year has not been made in accordance with the provisions of this Act; or iii. any information received under an agreement referred to in section 90 or section 90A of the Act; or iv. any information made available to the Assessing Officer under the scheme notified under section 135A; or v. any information which requires action in consequence of the order of a Tribunal or a Court.] Explanation 2.--For the purposes of this section, where,-- i. a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A, on or after the 1st day of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on (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.]" D. NOTIFICATIONS AND INSTRUCTIONS PERTAINING TO THE FACELESS SCHEME OF ASSESSMENT 36. The Faceless Re-Assessment Scheme, 2022 came to be promulgated on 29 March 2022 and the same is reproduced in its entirety hereunder: - "E-ASSESSMENT OF INCOME ESCAPING ASSESSMENT SCHEME, 2022 NOTIFICATION S.O. 1466(E) [NO. 18/2022/F. NO. 370142/16/2022-TPL(PART1], DATED 29-3-2022" 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:-- Short title and commencement 1. (1) This Scheme may be called the e-Assessment of Income Escaping Assessment Scheme, 2022. (2) It shall come into force wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided to the Revenue by various sources. The information so collected is thereafter stated to form part of a larger database housed in the CIB module under the control of the Directorate of Systems. 39. Mr. Chawla has, along with his compilation, placed for our consideration the Instructions issued by the Department of Revenue from time to time and which assists us in appreciating how these new technological capabilities have been deployed by the Department to aid it in the discharge of its functions. 40. For instance, the instruction of 26 September 2014 deals with the selection of cases for scrutiny under CASS. Similar explanatory instructions appear in the communication of the CBDT dated 29 December 2015 and which was followed by yet another direction pertaining to cases of limited scrutiny on 14 July 2016. Of equal significance is the response of the Hon'ble Minister of State for Finance in the Rajya Sabha, who on 07 December 2021 disclosed the manner in which random scrutiny of taxpayers is undertaken. The extracts of the proceedings of the Rajya Sabha are reproduced hereunder: - "GOVERNMENT OF INDIA MINISTRY OF FINANCE RAJYA SABHA UNSTARRED QUESTION NO-1018 ANSWERED O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19 of the Act dated 06 September 2021 and amending order dated 22 September 2021 which chronicled various categories of cases which would stand excluded from faceless assessment. 42. The order dated 06 September 2021 as amended by the order dated 22 September 2021 is reproduced hereunder:- "ORDER UNDER SECTION 119 OF THE INCOME-TAX ACT, 1961 PROVIDING EXCLUSIONS TO SECTION 144B OF THE ACT ORDER F. NO. 187/3/2020-ITA-I, DATED 6-9-2021 AS AMENDED BY ORDER F. NO. 187/3/2020-ITA-1, DATED 22-9-2021 1. 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. 1-4-2021. 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 under section 144B of the Act, F.No. 187/3/2020-ITA-I dated 31st March, 2021 directed that all the Assessment Order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied by analysing information received under, AIR/CIB data, TDS/TCS Statement etc. and overall taxpayer profile based on the information available in the database. 3. RMS Cycle - 3 for non-filer category of cases has been executed for AY 2020-21 on the basis of rules/parameters thereto approved by the Board under RMS (Risk Management Strategy) for identifying High Risk Non-filer cases with potential tax liabilities. 4. In respect of above, certain high-risk Non-filer cases for relevant assessment year(s) as approved by the Board have been made visible to the Jurisdictional Assessing Officers on Verification module of the Insight Portal with following case type - 'RMS - Non filing of Return PAN cases'. The cases can be accessed on INSIGHT portal using following path- Insight Portal - Verification -Taxpayer - Verification - Case type - RMS -Non filing of Return PAN cases' For detailed description of Case View and underlying Info, User may refer to the Annexure "A" enclosed. 5. Underlying information including various third-party data/information related to PAN of assigned cases may also be accessed on Profile Views of Insight Portal. Profile Views show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ber - 18001034216, Email id: [email protected]). Yours faithfully, (Ankit Verma) Jt. DIT (Systems)-2(3) Copy to: 1. PPS to Chairperson, Member (Admin & Faceless Scheme(s)). Member (A&J), Member (IT & R), Member (Inv.), Member (L & S), Member (TPS), CBDT and DGIT(S), Delhi & DGIT(S)-2, Bangalore, for Information. 2. Nodal officer of ITBA, Insight i-library, https://www.irsofficersonline.gov.in." 44. Of significance is the Notification issued under Section 120 of the Act dated 13 August 2020 and which designates the authorities charged with the conduct of faceless assessment in respect of various territorial areas and the relevant parts of the said notification are reproduced hereunder:- "NOTIFICATION New Delhi, the 13th August, 2020 (INCOME TAX) S.O. 2756(E).-In pursuance of the powers conferred by sub-sections (1 ), (2) and (5) of section 120 of the Income-tax Act, 1961 (43 of 1961) (hereinafter referred to as the said Act), the Central Board of Direct Taxes hereby directs that the Income-tax Authorities of the National e-Assessment Centre (hereinafter referred to as the NeAC) specified in Column (2) of the Schedule below, having its headquarters at the place me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome. The entire schema of assessment, reassessment and recomputation of income is thus based on the information so collected. In view of the aforesaid, a burgeoning need was felt to reform the system of assessment, reassessment and recomputation of income aligning it with contemporary standards of efficiency and transparency. 47. The Hon'ble Finance Minister [FM] in her Budget Speech dated 05 July 2019 for the fiscal year of 2019-20, observed that the system of scrutiny assessments prevalent at that time, involved a high degree of direct interface and interaction between taxpayers and the officers of the Department, which in her view could plausibly lead to "certain undesirable practices on the part of tax officials" and thus undermine the transparency and integrity of the assessment process. To address and eliminate these concerns, the FM expressed the intent of the government to launch, in a phased manner, an electronic scheme of faceless assessment "involving no human interface" which, to begin with, would involve such assessments being carried out in select cases "requiring verification of certain specified transactions or discrepancies" with the purported aim being for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see, both the Notifications of 12 September 2019 as well as of 13 August 2020 had not excluded the involvement of the JAO completely and in the course of the faceless assessment process. As would be manifest from the discussion which ensues, the respondents appear to have been at all times, cautious of not precluding the involvement of JAO within the faceless assessment process. The retention of the JAO in certain phases of the assessment process reflects a balanced approach, aiming to preserve transparency and efficiency while ensuring that complex issues receive appropriate attention from a qualified and experienced assessing officer. 50. For instance, the Notification of 12 September 2019 mandated that NFAC, after the completion of assessment, would transfer all electronic records of the case to the JAO in the following circumstances: "6. Procedure for assessment. -- xxxx xxxx xxxx (xx) The National e-assessment Centre shall, after completion of assessment, transfer all the electronic records of the case to the Assessing Officer having jurisdiction over such case., for - (a) imposition of penalty; (b) collection and recovery of demand; (c) rectification of mistake; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation" under Sections 143 (3), Section 144 or Section 147, as the case may be. The principal question which therefore arises for our consideration is whether Section 144B precludes the JAO from initiating proceedings for reassessment in terms as contemplated under Section 148 and in accordance with the procedure prescribed in Section 148A. 53. It is pertinent to note that Finance Act, 2021 fundamentally altered the procedure for reassessment. These were measures statutorily adopted undisputedly while Section 144B had already come to be inserted in the Act. The reassessment provisions made no specific reference to the faceless scheme of assessment at this stage since the subject of reassessment undisputedly was brought within the ambit of Section 144B only in 2022. It is also relevant to note that the family of provisions dealing with reassessment continued to use the expression "Assessing Officer" throughout. 54. Alongside the introduction of Section 144B by TOLA, Section 151A also came to be inserted in the Act. This provision empowered the Union Government to formulate a scheme for the purposes of assessment, reassessment or recomputation, as the case may be, under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich came to be formulated by the Board as well as other data analytical measures which came to be adopted for the purposes of assessment under the Act. The RMS was preceded by the adoption of various technological tools by the Income Tax Department for the purposes of analysing returns, extracting data and information pertaining to the constituents of the tax base of the country and the selection of appropriate cases for scrutiny and other measures contemplated under the Act. These developments as per the material placed for our consideration by Mr. Chawla, first stood mirrored in a system titled CASS and which finds mention in a communication of the CBDT dated 26 September 2014. The aforesaid system of scrutiny, and where cases came to be selected with the aid of information and data analytical tools, was aided by the creation of AIR, CIB and 26AS data collected by the respondents. Instructions for purposes of scrutiny with the aid of CASS were also issued by the CBDT in terms of its communications dated 29 December 2015 and 14 July 2016. 58. Of equal significance is the response made by the Minister of State in the Ministry of Finance in the Rajya Sabha on 07 December 2021. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the verification module of the Insight Portal. This enabled the JAO to test the completeness of disclosures made by an individual assessee against material aggregated by the system. 60. In addition to the above, the Insight Portal enabled the JAO to access a Transaction Number Sequence [TNS] hyperlink and which would disclose the following information pertaining to that particular assessee:- (a) bank account (b) aggregate gross amount related to the account (c) cash deposits in that account and (d) information with respect to immovable property transactions and other relevant details. This feature allows JAOs to verify if a taxpayer's information is complete and consistent with the data gathered by the system, making it easier to catch any missing links or inaccurate information. 61. What we seek to emphasise and highlight is that the extensive framework of information which is collected, structured and made available on the Insight Portal represents data which is made visible solely to the JAO. This entire spectrum of data, information and comprehensive insight is not digitally pushed to the NFAC in the first instance. From the additional affidavit which has been file ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nformation" and be viewed as suggestive of income chargeable to income having escaped assessment. The material that may be gathered in the course of a search or survey also thus constitutes information which comes to be placed in the hands of the JAO and which may form the basis for formation of opinion of whether reassessment is merited. G. "INFORMATION" RELEVANT FOR ASSESSMENTS 66. It would at this stage be also relevant to take note of the following additional provisions of the Act and which broadly identify sources from which information may be gathered by an AO for the purposes of assessment. An AO, by virtue of Section 133, stands empowered to require any firm or person to furnish information and which may be used in aid of its statutory obligation to discharge the various functions entrusted to it. In terms of Section 133A, an income tax authority, is conferred with the power to survey any place or premises at which a business, profession or activity for charitable purposes is carried out. Section 133A also empowers the income tax authority to inspect books of account, check or verify cash, stock or other valuable articles as well as require the surveyed entity to furnish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o in sub-paragraph (2) of paragraph 3, to the Commissioner of Income-tax (e-Verification)- (i) which was uploaded to the registered account or sent on the registered mobile number, wherever available, of the assessee and not accepted by him or in a case where no response has been received from the assessee within ninety days; (ii) in respect of which no registered e - mail account or mobile number is on record. (3) The Commissioner of Income-tax (e-Verification) shall process the information made available to it for initial e-verification. (4) The initial e-verification by the Commissioner of Income-tax (e-verification) shall be through an automated issuance of communication to the source from where the information is received and the Principal Director General of Income-tax (Systems) or Director General of Income-tax (Systems), as the case may be, shall enable such automated communication. (5) In cases where the mismatch between the amount accepted by the assessee and the amount reported by the reporting entity persists, the information after such initial e-verification shall be run through a risk management strategy laid down by the Board and the information found to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied on 30 March 2022. Clauses 2 and 3 of that scheme are extracted hereinbelow:- "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) issuing notice under sub-section (1) of section 142 of the Act, (b) making inquiry before assessment under sub-section (2) of section 142 of the Act, (c) directing the assessee to get his accounts audited under sub-section (2A) of section 142 of the Act, (d) estimating the value of any asset, property or investment by a Valuation Officer under section142A of the Act, shall be in a faceless manner, through automated allocation, in accordance with and to the extent provided in section 144B of the Act with reference to making fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parts of the judgment, also noticed sub-section (9) as it existed in Section 144B prior to its deletion by virtue of Finance Act, 2022. It would be pertinent to briefly advert to the Memorandum which explained the various clauses of Finance Act, 2022 and which discloses the reasons which weighed upon the Union to ultimately move for the deletion of sub-section (9). The relevant part of that Memorandum is reproduced hereunder:- "(II) Sub-section (9) of section 144B of the Act provides that the assessment proceedings shall be void if the procedure mentioned in the section was not followed. The said sub-section refers to violation of the procedure laid down by the law whereas a large number of disputes have been raised under this sub-section involving technical issues arising due to use of information technology, leading to unnecessary litigation. It is, therefore, proposed to omit this sub-section i.e., sub-section (9) of section 144B from its date of inception. This amendment will take effect retrospectively from 1st April, 2021." Overall, this section captures the legislative intent to create an effective, fair, and flexible tax assessment process that balances structured ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein and which in minute detail provide how returns are, generally under the faceless scheme, liable to be scrutinised and assessed, the random allocation of those cases to different Assessment Units, the conferment of dynamic jurisdiction upon Assessment Units, the internal review procedure pertaining to draft orders, issuance of notices and a host of other facets pertaining to assessment in general. 73. However, of critical significance is the absence of any provision of Section 144B seeking to regulate the commencement of reassessment action as contemplated under Sections 147, 148 and 148A of the Act. The provision is conspicuously silent with respect to commencement of action under Section 147. Of equal importance is the fact that although Section 144B describes the various steps to be taken in the course of assessment and assigns roles to different constituents of the NFAC, it does not, at least explicitly, incorporate any machinery provisions which may be read as intended to regulate the pre-issuance stages of a notice under Section 148. While it is true that Section 144B does specifically refer to reassessment, the significance of that insertion would perhaps have to adjudg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he course thereof being relevant for the purposes of formation of opinion as to whether income had escaped assessment. 76. Thus all the contingencies and situations which are spoken of in Explanations 1 and 2 are not founded on the material or the data which may be available with NFAC. The statute thus clearly conceives of various scenarios where the case of an individual assessee may be selected for examination and scrutiny on the basis of information and material that falls into the hands of the JAO directly or is otherwise made available with or without the aid of the RMS. It would, therefore, in our considered opinion, be erroneous to view Section 144B as constituting the solitary basis for initiation of reassessment. We also, in this regard, bear in consideration the indubitable fact that Section 144B is primarily procedural and is principally concerned with prescribing the manner in which a faceless assessment may be conducted as opposed to constituting a source of power to assess or reassess in itself. 77. Consequently, to ascribe substantive value to Section 144B as the primary basis for reassessment would be to misinterpret its intended meaning. Section 144B is not inten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tages, thereby enhancing fairness and accountability. 80. Section 144B, therefore, plays a crucial role by establishing the procedural mechanisms for faceless assessments, specifically through the random allocation of cases to different Assessment Units. However, to read into Section 144B a substantive basis for assessments and reassessments would extend its role beyond its intended design. The section's true function lies in facilitating an unbiased, algorithm-driven distribution of cases, supporting the overarching objective of minimizing direct human interaction in the assessment process. 81. Additionally, provisions within sub-sections (7) and (8) of Section 144B authorize the Principal Chief Commissioner or the Principal Director General to transfer cases back to the Jurisdictional Assessing Officer (JAO) when appropriate. This flexibility further emphasises that Section 144B cannot be viewed as the exclusive basis for all assessment and reassessment procedures. The randomised allocation, reinforced by tools such as artificial intelligence and machine learning, is intended to reduce direct human interface for reasons of integrity and to prevent individual arbitrariness. Neve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al assessments are not mutually exclusive; instead, they are interwoven aspects of the Act's broader design, intended to operate in tandem to achieve fairness and procedural integrity. 85. The issue of the JAO having concurrent jurisdiction arose directly for the consideration of this Court in Sanjay Gandhi Memorial Trust. One of the arguments which appears to have been addressed before the Court in that case was of the JAO having no authority or jurisdiction to assess. Dealing with the aforesaid, our Court held:- "48. This Court is of the view that though in the year 2019, the concept of e-assessment and in 2020, the concept of faceless assessment were introduced, yet the jurisdictional assessing officer continues to exercise concurrent jurisdiction with faceless assessing officer. In fact, pursuant to exercise of power under Section 120(5) of the Act which empowers CBDT to confer concurrent jurisdiction on two or more assessing officers for proper management of the work, the CBDT has vide Notification No. 64/2020 dated 13-8-2020 conferred power upon the income tax authorities of the National e-Assessment Centre to exercise the power and function of assessment "concurrently" wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the power of transfer by authorising the National e-Assessment Centre to transfer at any stage of assessment the case of the assessee to the assessing officer having jurisdiction over such case i.e. from faceless assessing officer to jurisdictional assessing officer (an assessing officer always having concurrent jurisdiction). 53. To the same effect are the Notifications dated 13-8-2020, which clarify, "The provisions of .... Section 127 of the Act shall apply to the assessment made in accordance the said Scheme subject to the following exceptions, modifications and adaptations " Clause (2) of the Notification Nos. 60 and 61 of 2020 dated 13-8-2020 enable the Principal Chief Commissioner or Principal Director General in charge of National e-Assessment Centre, at any stage of the assessment i.e. during assessment, to send back the case to the assessing officer having jurisdiction over such case, with prior approval of the Board. Clause (2) of the Scheme only authorises a transfer back to the jurisdictional assessing officer holding original jurisdiction, which he never loses as it is only the function of assessment that is to be carried out by the faceless assessing of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... powers under various provisions, is granted access to distinct sources of information that may substantiate grounds for reassessment. Accepting the position advocated by the petitioners--that the JAO's role is entirely overridden by the faceless system--would effectively nullify these provisions, rendering such information inaccessible and unactionable. The Act specifically channels this information to the JAO, who is then statutorily responsible for the initial assessment and evaluation of this data. 88. Therefore, the JAO's powers should be understood as integral and not in conflict with faceless assessment. Rather, it represents a foundational jurisdictional safeguard, enabling the JAO to initiate reassessment based on independent, credible sources of information. This concurrent authority of the JAO reinforces the integrity and adaptability of the faceless system, ensuring that both centralized and jurisdictional assessments operate cohesively within the larger statutory framework. 89. Regard must also be had to the fact that an Assessing Unit of the NFAC derives no authority or jurisdiction till such time as a case is randomly allocated to it and which triggers the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised with it being argued that once the scheme of faceless reassessment had come to be promulgated, the JAO would stand denuded of jurisdiction. It must at the outset be noted that apart from the Faceless E-Assessment Scheme 2022 itself and the instructions which were provided to counsel appearing for the Revenue, most of the High Courts do not appear to have had the benefit of reviewing the copious material which Mr. Chawla has so painstakingly assimilated and placed for our consideration. They also do not appear to have had the advantage of a principled stand of the respondents having been placed on the record of those proceedings. 93. In Hexaware Technologies, the Bombay High Court ultimately came to conclude that there could be no question of a concurrent jurisdiction of the JAO and the FAO for issuance of notice under Section 148. From a reading of the record, it is unclear whether the notifications conferring jurisdiction on authorities of the NFAC for the purposes of conducting faceless assessment was placed before the High Court. At least the decision makes no reference to the notification of 13 August 2020 which has been produced in these proceedings and which in clear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arify ambiguities in both law and fact. This record has allowed for a deeper analysis, addressing key points left unexamined in previous judgments, and has illuminated the legislative and procedural intentions behind the faceless assessment scheme, particularly the concurrent jurisdiction between the JAO and FAO. 96. Although we had reserved judgment on this batch of writ petitions on 04 October 2024, we find that in a recent decision rendered by the Gujarat High Court on 01 October 2024, a view has been expressed which appears to be in tune with the conclusions which we have reached. We thus deem it apposite to refer to the decision of that High Court in Talati and Talati LLP v. Office of Assistant Commissioner of Income Tax, Circle 4(1)(1), Ahmedabad 2024: GUJHC: 54567-DB. 97. The solitary question which arose for consideration in the aforesaid matter was whether the Section 148 notice was rendered invalid on the ground of having been issued by the JAO. In a judgment penned by the learned Chief Justice of that High Court in Talati and Talati LLP, it was held as follows:- "(22) From a further reading of Explanation 1 and Explanation 2 attached to Section 148, it is clear that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess manner, as per the scheme framed vide notification dated 29.03.2022, cannot be applied to the case of Search and Seizure under Section 132, where the Jurisdictional Assessing Officer (JAO) is required to record his satisfaction on the basis of the material for affirmation of opinion in an honest and bona fide manner. (26) We find substance in the submission of the learned counsel for the Revenue that recording of satisfaction by the Assessing Officer on a perusal of the information received by him as a result of search and seizure operation under Section 132 of the Income Tax Act' 1961, requires application of human mind, inasmuch as, reasons affirmed on the part of the Satisfaction Note may also become subject matter of scrutiny by the Court in a case of challenge, where the Court in exercise of power of judicial review may examine as to whether they are actuated by mala fides or passed on extraneous or irrelevant considerations. (27) The decision of the Division Bench of the Bombay High Court in the case of Hexaware Technologies Ltd. (supra) has been rendered in a case, which falls within the arena of Explanation 1 to Section 148 and not where Explanation 2 to Section 148 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n by the respondents. Clause 3 of the said scheme provides that assessment, reassessment or recomputation under Section 147 of the Act as well as issuance of notice under Section 148 would be through automated allocation in accordance with the risk management strategy and in a faceless manner. The respondents rightly draw our attention to the usage of punctuation at various places in Clause 3. A careful reading of that clause shows that the draftsman has used a comma immediately after the phrase "shall be through automated allocation". Yet another comma appears after the phrase "for issuance of notice". It thus appears to have been the clear intent of the author to separate and segregate the phases of initiation of action in accordance with RMS, the formation of opinion whether circumstances warrant action under Section 148 of the Act being undertaken by issuance of notice and the actual undertaking of assessment itself. 100. Beyond the specific use of punctuation within Clause 3, a comprehensive reading of the Faceless Reassessment Scheme 2022, supported by the extensive material presented by the respondents, bolsters the clear intent underlying each phase of the faceless assessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fully cognizant of the contrarian view which was expressed in this respect in Hexaware Technologies and which stands reflected in para 36 of the report which has been extracted hereinabove. However, for reasons assigned in the preceding parts of this decision, we find ourselves unable to concur with the interpretation accorded by the Bombay High Court upon Clause 3 of the Faceless Reassessment Scheme 2022. As was noted by us earlier, Clause 3 clearly contemplates the initial enquiry and formation of opinion to reassess being part of one defined process followed by actual assessment in a faceless manner. It thus divides the process of reassessment into two stages and when viewed in that light it is manifest that it strikes a just balance between the obligation of the JAO to scrutinise information and the conduct of assessment itself through a faceless allocation. The distribution of functions between the JAO and NFAC is complimentary and concurrent as contemplated under the various schemes and the statutory provisions. This balanced distribution underscores the legislative intent to create a seamless integration of traditional and faceless assessment mechanisms within a unified stat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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