Delhi HC Upholds Reassessment Initiated by Jurisdictional AO – Distinguishes With Hexaware Ruling

Case Details: T.K.S. Builders Pvt. Ltd. v. ITO - [2024] 167 taxmann.com 759 (Delhi)

Judiciary and Counsel Details

• Yashwant Varma & Ravinder Dudeja, JJ.
• Kapil Goel, Sandeep Goel, Prakash Kumar & Rupinder Kumar, Advs. for the Petitioner.
• Aseem Chawla, Abhishek Maratha, Gaurav Gupta, SSCs, Ms Pratishta, Ms Nivedita, Ms.Priya Sarkar, Gaurav Singh, Bhanukaran Singh, Ms Muskan Goel, Ms Parithi Kohli, Himanshu Gaur, Advs. Ms Nupur Sharma, Parth Semwal, Apoorv Agarwal, Shivendra Singh & Yojit Pareek, JSCs for the Respondent.

Facts of the Case

The instant writ petition was filed questioning the validity of the reassessment action initiated under Section 148 by the Jurisdictional Assessing Officer (JAO). The question before the High Court was:

“Whether a notice issued by the JAO would be valid and compliant with the Faceless Scheme of Assessment, which had come to be adopted by virtue of Sections 144B and 151A?”

The Delhi High Court that the provisions 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 assessment process. The scheme clearly contemplates the initial enquiry and formation of opinion to reassess being part of one defined process followed by actual assessment facelessly. It divides the reassessment process into two stages. 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 functions of the JAO and NFAC are complementary and concurrent, as contemplated under the various schemes and statutory provisions. This balanced distribution underscores the legislative intent to create a seamless integration of traditional and faceless assessment mechanisms within a unified statutory framework.
Section 144B, which provides for the faceless assessment, cannot be viewed as the solitary basis for the initiation of reassessment. The statute conceives various scenarios where the case of an individual assessee may be selected for examination and scrutiny based on information and material that falls into the hands of the Jurisdictional Assessing Officer (JAO) directly or is otherwise made available with or without the aid of the Risk Management System (RMS).

The faceless system of assessment does not nullify the JAO’s role in conducting assessments. The Court held that the JAO retains powers that do not conflict with, but rather complement, the objectives of neutrality and efficiency. The faceless assessment scheme centralises processes under the Faceless Assessing Officer (FAO) to reduce direct interaction.

However, this structure does not diminish the JAO’s authority. Instead, the JAO’s retained jurisdiction is vital for ensuring continuity and accountability, acting as a complementary element to the faceless assessment framework. The JAO’s retention of original jurisdiction provides a critical balance, ensuring that human oversight remains available within the faceless assessment structure when needed. Importantly, the Court highlighted that the JAO’s authority is not merely residual but an active, complementary role that reinforces the flexibility of the assessment system.

In Hexaware Technologies [2024] 162 taxmann.com 225 (Bombay), the Bombay High Court ruled that the JAO lost jurisdiction to issue reassessment notices after the introduction of the Faceless E-Assessment Scheme 2022. The Court concluded that there could be no concurrent jurisdiction between the JAO and the FAO.

However, the judgment did not refer to the notification dated August 13, 2020, which gave NFAC officers concurrent powers with the AO. The Delhi High Court disagreed with Hexaware Technologies, considering multiple information sources that could aid a JAO in determining if income escaped assessment.

High Court Held

The High Court held that JAO could not be entirely stripped of the authority to assess or reassess solely due to the introduction of Section 144B and the Faceless Reassessment Scheme.

List of Cases Reviewed

• Hexaware Technologies Ltd. v. Assistant Commissioner of Income-tax [2024] 162 taxmann.com 225 (Bom.)(para 103) distinguished.