Faceless Procedure Mandatory for Issuance of Notices U/S 148 of the Income Tax Act; No Exemption for International Tax Cases: Telangana HC

In a significant ruling, the Telangana High Court recently adjudicated on three connected writ petitions (W.P. Nos. 13353, 16141, and 16877 of 2024), brought by petitioner Sri Venkataramana Reddy Patloola against the Deputy Commissioner of Income Tax, Circle 1(1), Hyderabad, and others. The crux of these petitions revolved around the issuance of show-cause notices under Section 148 of the Income Tax Act, 1961, in matters related to international tax charges. The petitioner contested the validity of these notices, arguing that they were issued in violation of the mandatory faceless procedure as prescribed by the law.

Parties Involved:

The petitioner, Sri Venkataramana Reddy Patloola, was represented by counsel Sri Dundu Manmohan, Sri A.V. Raghu Ram, and Sri A.V.A. Siva Kartikeya. The respondents, namely the Deputy Commissioner of Income Tax, were represented by Senior Standing Counsel Sri Vijhay K. Punna.

Legal Issues:

The central legal issue presented before the court was whether the show-cause notices issued under Section 148 of the Income Tax Act in relation to international tax cases were exempt from the mandatory faceless procedure established under Section 151A of the Act and related notifications.

Court’s Observations:

Justice Sujoy Paul and Justice Namavarapu Rajeshwar Rao meticulously analyzed the provisions of the Income Tax Act, particularly Section 144B, Section 148, and Section 151A. The court underscored the legislative intent behind the introduction of the faceless assessment scheme, which aims to enhance transparency, efficiency, and accountability in tax administration by eliminating the physical interface between the taxpayer and tax authorities.

The court observed:

– The faceless assessment procedure under Section 151A is applicable to the issuance of notices under Section 148. This was affirmed by the scheme notified on 29th March 2022, which explicitly mandates that the issuance of notices under Section 148 must be conducted in a faceless manner.

– The argument put forth by the respondents, which suggested that international tax cases are exempt from the faceless procedure as per the CBDT’s order dated 6th September 2021, was rejected by the court. The court emphasized that the exemption mentioned in the CBDT’s order pertains only to the completion of assessments and does not extend to the issuance of notices under Section 148.

In a pivotal part of the judgment, the court remarked, “Any other interpretation would amount to doing violence with the language employed in the scheme/notification… The notice issued under Section 148 must comply with the requirement of the Scheme whether or not the Taxpayer is NRI/Indian Citizen.”

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The court ruled in favour of the petitioner, declaring that the show-cause notices issued under Section 148 were invalid due to the failure to adhere to the mandatory faceless procedure. Consequently, the entire proceedings, including the subsequent assessment orders based on these notices, were quashed. The court granted liberty to the respondents to initiate fresh proceedings in compliance with the law.