In a significant ruling, the Bombay High Court has quashed the reassessment proceedings initiated by the Income Tax Department against CapitalG LP, a United States-based limited partnership, citing the violation of the faceless assessment mechanism mandated under the Income Tax Act. The bench, comprising Justice G. S. Kulkarni and Justice Somasekhar Sundaresan, ruled in favor of the petitioner, holding that the notices issued under Sections 148 and 148A of the Income Tax Act were illegal as they did not comply with the faceless procedure required by law.
Background of the Case
CapitalG LP, the petitioner in the case, had invested approximately INR 34.99 crores in Compulsory Convertible Preference Shares (CCPS) issued by Girnar Software Private Ltd. in the financial year 2018-19. The Income Tax Department initiated reassessment proceedings for the assessment year 2019-20, questioning the source of this investment. Notices were issued under Sections 148A(a) and 148A(b) of the Income Tax Act, and a subsequent draft assessment order added the invested amount to the petitionerโs income, resulting in a substantial demand.
CapitalG LP contended that none of the notices or orders were served upon them and that the entire process was conducted outside the faceless mechanism, rendering it illegal. The petitioner argued that the reassessment notices were issued without jurisdiction, violating Section 151A of the Income Tax Act, which mandates the faceless assessment scheme for such proceedings.
Legal Issues Involved
The key legal issue in this case revolved around the applicability of Section 151A of the Income Tax Act, which requires all reassessment notices to be issued through a faceless mechanism. The petitioner, represented by Senior Advocate Mr. J.D. Mistry and his team, argued that the notices and orders issued by the Jurisdictional Assessing Officer (JAO) were in direct contravention of this mandate, as they bypassed the faceless assessment scheme.
The respondent, represented by Mr. Prathmesh Bhosle, contended that the case fell under an exception provided by an order from the Central Board of Direct Taxes (CBDT) dated March 31, 2021. This order allowed certain cases to be handled outside the faceless mechanism. However, the court found this argument unconvincing.
Court’s Decision and Observations
In its ruling, the Bombay High Court relied heavily on its earlier decision in Hexaware Technologies Limited vs. Assistant Commissioner of Income Tax & Ors., where it had been established that any reassessment notice issued without following the faceless procedure was illegal. The bench emphasized that the faceless mechanism is mandatory for reassessment and issuance of notices under Section 148 of the Income Tax Act.
The court observed:
“The Scheme framed by the CBDT, which covers both the aforesaid aspects of the provisions of Section 151A of the Act, cannot be said to be applicable only for one aspect, i.e., proceedings post the issue of notice under Section 148 of the Act being assessment, reassessment, or recomputation under Section 147 of the Act and inapplicable to the issuance of notice under Section 148 of the Act.”
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Rejecting the Revenue’s argument, the court stated that the entire reassessment process against CapitalG LP was flawed due to the non-compliance with the mandatory faceless assessment requirement. The court allowed the petition and quashed the impugned notices and orders.
The case, CapitalG LP vs. Assistant Commissioner of Income Tax, Int. Tax, Circle 2(1)(1), Mumbai & Ors., Writ Petition (L) No. 15289 of 2024, was presided over by Justice G. S. Kulkarni and Justice Somasekhar Sundaresan, with Senior Advocate J.D. Mistry representing the petitioner.
