The Jurisdictional Assessing Officer and Faceless Assessments: A Balanced Perspective by Delhi High Court

Written By: Muskan Goel, Gaurav Singh, Apoorv Agarwal

The implementation of the Faceless Assessment Scheme, 2022, marks a significant evolution in the Indian Income Tax framework. This scheme, designed under Section 151A of the Income Tax Act, 1961, (“Act”) was introduced to address long-standing issues of subjectivity, inefficiency, and possible bias in tax assessments and reassessments. By leveraging automated systems, random allocation of cases, and technology-based workflows, the scheme aims to create a more transparent, efficient, and objective tax administration process. However, the transition has not been without its challenges. Central to this debate is the extent of authority retained by the Jurisdictional Assessing Officer (“JAO”) within this new framework.

The Hon’ble Delhi High Court’s judgment in the T.K.S. Builders Pvt. Ltd. v. Income Tax Officer Ward 25,[1] has brought this issue into sharp focus. The case examined whether JAOs, who traditionally initiated reassessment proceedings, retain the power to issue notices under Section 148 of the Act in a post-faceless assessment regime. The scheme’s provisions emphasize the use of automated allocation and faceless mechanisms managed by the National Faceless Assessment Centre (“NFAC”) for all reassessment processes. However, ambiguity surrounding the residual powers of JAOs has led to conflicting interpretations and practices.

Evaluating the Scheme’s Intent

The High Court began by analysing the legislative intent behind the faceless scheme, which prioritizes eliminating direct interaction between taxpayers and tax officers to reduce potential biases. The scheme mandates that all assessments, reassessments, and related processes, including notices under Section 148 of the Act, adhere to a faceless and technology-driven framework. The use of advanced algorithms and a Risk Management Strategy (“RMS”) for case selection is integral to achieving objectivity and fairness.

While earlier judgments[2], such as those by the Telangana and Bombay High Courts, interpreted the faceless scheme as wholly replacing the JAO’s authority, the present judgment adopts a nuanced approach. The court emphasized that completely sidelining JAOs in the reassessment process could render certain statutory provisions ineffective. Instead, the judgment identifies a complementary relationship between the roles of the JAO and NFAC, aligning traditional and faceless mechanisms to achieve a seamless and efficient assessment framework.

Reconciling Jurisdictional Authority

The court scrutinized the argument that JAOs retain concurrent jurisdiction with NFAC, particularly in initiating reassessments. Contrary to the petitioners’ contentions and earlier precedents like Hexaware Technologies Ltd. v. ACIT[3], the court held that JAOs are not entirely excluded from the reassessment process under the faceless scheme. Clause 3 of the Faceless Reassessment Scheme, 2022, was interpreted as dividing the reassessment process into two distinct stages:

Initial Inquiry and Formation of Opinion: This stage involves the JAO scrutinizing data and materials using tools like the RMS and Insight Portal to form an opinion on the necessity of reassessment.
Faceless Assessment: Once reassessment is warranted, the process transitions to the NFAC, where assessments are conducted in a faceless and automated manner.

This bifurcation strikes a balance between traditional practices and the faceless scheme, ensuring that JAOs can still perform critical functions like data evaluation without undermining the broader objectives of transparency and automation.

The JAO‘s powers should be understood as integraland not in conflict with faceless assessment. Rather, it represents afoundational jurisdictional safeguard, enabling the JAO to initiatereassessment based on independent, credible sources of information.This concurrent authority of the JAO reinforces the integrity andadaptability of the faceless system, ensuring that both centralized andjurisdictional assessments operate cohesively within the larger statutoryframework.

A Holistic Approach to Interpretation

The court underscored the principles of beneficial construction, favoring interpretations that give effect to all statutory provisions and avoid rendering any part of the Act or scheme superfluous. It rejected the argument that the faceless scheme completely eliminates the JAO’s role, as this would conflict with provisions designed to enhance data-driven decision-making at the preliminary stages of reassessment.

Instead, the judgment highlighted that the JAO’s access to RMS and Insight Portal information is pivotal in identifying cases for reassessment. Depriving the JAO of jurisdiction to evaluate such data would hinder the comprehensive analysis envisioned by the scheme. By allowing JAOs to perform this initial scrutiny, the court preserved the intent of the faceless framework while ensuring that traditional functions remain relevant and effective.

Disposition and Conclusion

Ultimately, the court dismissed the petitions, holding that the issuance of notices by the JAO does not inherently violate the faceless assessment framework. It clarified that the faceless scheme and the JAO’s functions are not mutually exclusive but are designed to work in tandem. This integrated approach reflects the legislative intent to create a unified tax administration system that combines traditional scrutiny with automated, faceless assessments.

The judgment also left open the possibility for petitioners to raise objections to the reassessment process in independent proceedings, thereby ensuring that taxpayers retain their right to challenge procedural or substantive issues in specific cases.

A Balanced Conclusion

The High Court’s judgment in T.K.S. Builders (P) Ltd. (supra) underscores a critical evolution in interpreting the faceless assessment regime. By rejecting an overly rigid interpretation that sidelines JAOs entirely, the court has provided a balanced framework that harmonizes traditional practices with modern technological advancements. This approach ensures that the faceless scheme achieves its objectives of efficiency, transparency, and fairness without compromising the foundational role of JAOs in preliminary assessments.

As India’s tax administration continues to modernize, this judgment serves as a guidepost for integrating innovation with established practices. By affirming the complementary roles of JAOs and NFAC, the court has laid the groundwork for a tax system that is both equitable and efficient, aligning with the broader goals of contemporary governance.

T.K.S. Builders Pvt. Ltd. v. Income Tax Officer Ward 25, 2024 SCC OnLine Del 7508, Decided on 28-10-2024

Judgment by Justice Yashwant Varma and Justice Ravinder Dudeja
Advocates who appeared in this case :
Kapil Goel, Sandeep Goel, Prakash Kumar & Rupinder Kumar, Advs. for the Petitioner.
Aseem Chawla, Abhishek Maratha, Gaurav Gupta, Senior Standing Standing Counsels

Apoorv Agarwal, Parth Semwal, , Shivendra Singh & Yojit Pareek, Junior Standing Standing CounselsPratishta, Nivedita, Priya Sarkar, Gaurav Singh, Bhanukaran Singh, Muskaan Goel, Advs. for the Respondent.

[2]Bombay High Court in Hexaware Technologies Ltd. v. Assistant Commissioner of Income Tax, 2024 SCC OnLine Bom 1249 and High Court of Telangana in Venkataramana Reddy Patloola vs. Deputy Commissioner of Income Tax and Others 2024 SCC OnLine TS 1792

[3]2024 SCC OnLine Bom 1249