Scrutiny Notices Issued By NaFAC Addl. CIT Instead Of AO Under Central Charge Is Valid: Karnataka High Court

The Karnataka High Court upheld the validity of scrutiny notices issued by the National Faceless Assessment Centre (NaFAC) Addl. CIT instead of the Jurisdictional Assessing Officer (JAO) under central charge.

The bench of Justice B. M. Shyam Prasad has observed that if the right to call in question the jurisdiction is left open to be raised at any stage, the proceedings will remain inconclusive, and that could not have been the intention of the legislature.

The petitioner/assessee is a partnership firm engaged in the business of real estate development and has filed Returns of Income under Section 139(1) of the Income Tax Act for the Assessment Year 2020–21.

The petitioner submitted that its jurisdictional Assessing Officer is the Deputy Commissioner of Income Tax, Central Circle 2(1), Bangalore, and as such, the Additional Commissioner of Income Tax, NaFAC, could not have assumed jurisdiction to issue notice under Section 143(2). The jurisdiction of the DCIT has not been decentralized insofar as the petitioner.

The petitioner contended that because notice is issued by an officer without jurisdiction, the entire proceedings culminating with the Assessment Order are without jurisdiction. Hence, the Court must interfere, notwithstanding the fact that the petitioner has availed of statutory remedy against the assessment order.

The department asserted that the Addl. CIT, NaFAC, is vested with the jurisdiction to issue notice in view of the amendment to Section 143(2) with effect from June 1, 2016 and the insertion of Section 144B with effect from April 1, 2021. The Central Board of Direct Taxes (CBDT) has authorized the Addl. CIT, NaFAC, to act as the 'Prescribed Income Tax Authority' for the purposes of Section 143(2).

The history must be seen in four phases:

THE FIRST PHASE:

This phase is prior to May 31, 2016, i.e., before the amendment of Section 143(2) with effect from June 1, 2016. During this phase, the notice under Section 143(2) could be issued only by the concerned assessing officer, and the assessing officer alone could complete the assessment.

THE SECOND PHASE:

This phase is with the amendment of Section 143[2] with effect from June 1, 2016. In this phase, the notice under Section 143[2] could be issued either by the concerned assessing officer or the prescribed income-tax authority, but the assessment must only be completed by the assessing officer. Though this arrangement was put in place with the amendment to Section 143[2] of the IT Act, it was not given effect.

THE THIRD PHASE:

The third phase is when Sections 143 (3A) to (3C) are inserted with effect from April 1, 2018, under the Finance Act of 2018. These amendments empowered the Central Government to make a scheme through notification in the Official Gazette to impart greater efficiency, transparency, and accountability in assessment. The objective of the amendment was to eliminate the interface between the Assessing Officer and the Assessee by using technology to the extent feasible, optimizing the utilization of resources through economies of scale and functional specialization, and introducing a team-based assessment with dynamic jurisdiction.

The Central Government has issued notifications notifying the e-Assessment Scheme. This scheme was in place only for a short period between April 1, 2018 and March 31, 2021, except in cases falling under Section 144(3).

THE FOURTH PHASE:

The fourth phase is the introduction of faceless assessment into the Income Tax Act by the Taxation and Other Laws [Relaxation and Amendment of Certain Provisions] Act, 2020, with effect from April 1, 2021. With this amendment, Section 144B is brought into the Income Tax Act, stipulating that, notwithstanding anything to the contrary contained in any other provisions of the Income Tax Act, the assessment under Section 143 [3] or under Section 144 shall be made in a faceless manner. The golden rule in this phase is for faceless assessment with the prescribed income-tax authority issuing notice under Section 143[2] of the Income Tax Act, subject to exception in the cases of central charges and international taxation charges. In these cases, an exception notice under Section 143[2] of the Income Tax Act must be issued by the prescribed income-tax authority, served by the National e-Assessment Centre, and subsequently directly displayed to the concerned jurisdictional assessee for carrying out further assessment proceedings.

The court rejected the petition, and the petitioner, in terms of the orders of the Principal Commissioner of Income Tax, Central, Bengaluru, shall be at liberty to pay instalments due, but from the month of February 2024.

Counsel For Petitioner: A Shankar

Counsel For Respondent: N Venkataraman

Case Title: Adarsh Developers Versus The Deputy Commissioner Of Income Tax

Case No.: Writ Petition No.1109/2023

Citation No: 2023 LiveLaw (Kar) 09

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