For decades the Indian Income-tax Authorities (‘Tax Authorities’) have conducted tax audit proceedings in a certain manner, i.e., whereby the Jurisdictional Assessing Officer (‘JAO’) issues a notice to the taxpayer / assessee which then culminates into an assessment order. However, by way of TOLA, Faceless Scheme of Assessment was introduced in India with effect from April 1, 2021, by virtue of Sections 144B and 151A of the IT Act, with the primary objective of eliminating interaction between taxpayers and the Tax Authorities to promote greater transparency. In 2022, this scheme was made applicable to assessment / re-assessment proceedings which inter alia provided for automated allocation of cases in accordance with the risk management strategy (‘RMS’) formulated by the Central Board of Direct Taxes (‘CBDT’) and faceless assessment to the extent provided in Section 144B of the IT Act.

Various High Courts^[1] whilst referring to the Notifications^[2] issued by the CBDT have taken a view that with the introduction of sections 144B and 151A of the IT Act, the JAO would stand denuded of jurisdiction to commence proceedings under Section 148 of the IT Act and, accordingly, all the notices issued by JAO were set aside. Recently, a contrary decision has been rendered by the Delhi HC,^[3] holding the notices issued by JAO under Section 148 of the IT Act as valid.

In this regard, it is worthwhile to refer to the affidavit submitted by the department counsels before the Delhi HC wherein the working and implementation of the RMS, identification of cases on a random basis and selection of cases by the Directorate of Systems (‘DIS’) based on the criteria of the RMS was explained. In essence, it is the  Revenue’s contention that the JAO has no prior way of determining which case would be flagged by the DIS and thus satisfies the criteria of automated allocation. Further, the Revenue counsels also submitted that the Notifications issued by the CBDT contemplate that the case may be transferred to the JAO at any stage of assessment proceedings. Whilst taking a note of the judgments passed by several High Courts and making references to several provisions of the IT Act, Notifications and Circulars issued by the CBDT, the Delhi HC has held that the intention of the Government is to reduce human interaction by use of technology and algorithms thereby ensuring that there is fairness and accountability. However, this does not deprive the JAO of its power to assess/ reassess. The Delhi HC also took cognizance of the fact that under sub-section (7) and (8) of Section 144B of the IT Act, the Principal Chief Commissioner or the Principal Director General may transfer the case to JAO with prior approval of the CBDT. Additionally, the framework of National Faceless Assessment Centre and JAO complement each other during the process of assessment.

This issue is currently sub judice before the SC, where the SC will be called upon to adjudicate as to whether the Notifications issued by the CBDT completely eliminates JAO of its powers or whether a concurrent jurisdiction can persist as affirmed by the Delhi HC.

[1]    Kankanala Ravindra Reddy v. ITO, [2023] 156 taxmann.com 178 (Telangana HC); Hexaware Technologies Ltd. v. ACIT, [2024] 464 ITR 430 (Bombay HC); Jatinder Singh Bhangu v. UOI, 466 ITR 474 (Punjab & Haryana HC) and Ram Narayan Sah v. UOI, [2024] 163 taxmann.com 478 (Gauhati HC).

^[2]    Notification S.O. 1400(E) [NO. 15/2022/F. NO. 370142/13/2022-TPL], dated March 28, 2022 and Notification S.O. 1466(E) [NO. 18/2022/F. NO. 370142/16/2022-TPL(PART1], dated March 29, 2022.

^[3]    T.K.S. Builders Pvt. Ltd v. ITO, [2024:DHC:8330-DB] (Delhi HC).