Telangana HC Quashes Section 148A/148 Proceedings for Not Following Faceless Assessment Norms

The Telangana High Court’s recent decision to quash reassessment proceedings under Sections 148A and 148 of the Income Tax Act, 1961, for failing to comply with the faceless assessment mandate, marks a pivotal moment in Indian tax administration. This ruling not only clarifies the procedural standards for tax authorities but also sets a strong precedent for judicial discipline and taxpayer rights across the country.

Faceless Assessment: The New Normal in Tax Administration

The faceless assessment regime was introduced with the aim of bringing greater transparency, objectivity, and efficiency to the income tax process. By eliminating physical interface between taxpayers and tax officials, the government sought to curb discretion, reduce corruption, and ensure uniformity in tax administration. The legislative backbone for this transformation is Section 151A of the Income Tax Act, which mandates that certain proceedings—including reassessment under Sections 148A and 148—must be conducted in a faceless manner, as per the directions of the Central Board of Direct Taxes (CBDT).

The facts leading to the Telangana High Court’s ruling are straightforward but significant. Despite the clear statutory mandate and CBDT Notification No. 18/2022, several Assessing Officers continued to issue reassessment notices and conduct proceedings in the traditional, physical manner. Taxpayers challenged these actions, arguing that such non-faceless proceedings were not just procedural lapses but fundamental violations of the law.

For both taxpayers and tax authorities, the stakes are high. For taxpayers, the assurance of a faceless process is a safeguard against arbitrary action. For the Department, strict adherence to the faceless regime is now a non-negotiable compliance standard.

Dissecting the Telangana High Court’s Ruling

The objective here is to break down the High Court’s decision, its legal reasoning, the precedent it sets, and the practical impact on future reassessment proceedings.

Statutory & Regulatory Framework: The Faceless Mandate

Section 148A/148 & Amendments

Section 148A, introduced by the Finance Act, 2021, revamped the reassessment process. It requires the Assessing Officer to conduct an inquiry, provide an opportunity to the assessee, and pass a speaking order before issuing a notice under Section 148. Crucially, Section 151A empowers the CBDT to notify that such proceedings must be carried out in a faceless manner.

Notification 18/2022: The Compliance Blueprint

CBDT Notification No. 18/2022, dated 29 March 2022, operationalised the faceless regime for reassessment. It explicitly requires that all notices and proceedings under Sections 148A and 148, from 1 April 2022 onwards, must be issued and conducted through the faceless system. This means that local Assessing Officers are barred from initiating or handling such proceedings physically; everything must flow through the centralised faceless platform.

For Assessing Officers, this notification is not a mere guideline—it is a binding protocol. Any deviation is not just a technical error but a breach of jurisdiction.

The Crux of the Challenge: Procedural Lapses & Judicial Findings

Identified Procedural Lapses

The Telangana High Court pinpointed the following critical lapses:

• Non-faceless Issuance: Notices under Sections 148A and 148 were issued by jurisdictional Assessing Officers in a physical, non-faceless manner, despite the clear mandate of Section 151A and Notification 18/2022.
• Jurisdictional Overreach: Local officers, who no longer had the authority post-notification, continued to initiate and pursue reassessment proceedings.
• Contravention of Statutory Mandate: The process adopted was in direct violation of the amended law and the CBDT’s binding instructions.

Consequences of Non-Compliance

The Court held that such procedural lapses are not minor or curable defects. Since the very foundation of the proceedings was contrary to law, all subsequent actions—including assessment orders—stood vitiated. The notices and orders were declared void ab initio, meaning they were invalid from the outset.

This approach underscores a vital principle: when the law prescribes a specific procedure as a condition precedent, any action taken in breach of that procedure is a nullity.

Judicial Discipline & Precedential Continuity

Binding Nature of Judicial Pronouncements

A key feature of the Telangana High Court’s ruling is its emphasis on judicial discipline. The Court reiterated that its own decisions, as well as those of other High Courts on the same issue, are binding on the Income Tax Department unless specifically stayed by the Supreme Court. The mere pendency of Special Leave Petitions (SLPs) before the Supreme Court does not dilute the binding force of these judgments.

The Court cited not only its earlier decision in [(2023) 156 taxmann.com 178 (Telangana)] but also consistent rulings from the Bombay, Gauhati, Punjab & Haryana, Calcutta, Himachal Pradesh, Jharkhand, and Rajasthan High Courts, such as Calcutta HC Quashes IT Order under Sec 148A(d). This uniformity in judicial interpretation fortifies legal certainty and administrative discipline.

Repercussions for Ignoring Precedent

The judgment also took a stern view of the Department’s continued disregard for binding precedents, warning that such conduct leads to unnecessary litigation, judicial backlog, and harassment of taxpayers. The Court reminded the Revenue that judicial orders must be followed “unreservedly,” and that administrative convenience or disagreement with a judgment is no excuse for non-compliance.

Legal Rationale: The Faceless Mandate as a Jurisdictional Prerequisite

The Telangana High Court’s reasoning is rooted in the principle that statutory procedure is not a mere formality but a jurisdictional requirement. The faceless assessment regime, as mandated by Section 151A and Notification 18/2022, is not optional—it is the very foundation upon which reassessment proceedings must stand. The Court made it clear: if the initial notice or subsequent proceedings are not conducted in a faceless manner, the entire process is void ab initio. In other words, when the law prescribes a specific mode of action, any deviation is fatal. The Court refused to entertain arguments about the merits of the case or other grounds, holding that once the jurisdictional defect is established, all subsequent orders automatically fall.

This approach is consistent with the broader legal doctrine that when the “root” is tainted, the “fruit” cannot survive. The High Court’s focus remained strictly on the jurisdictional flaw, reserving all other issues for future proceedings if the Department chooses to initiate them afresh in compliance with the law.

Rejection of Revenue’s Litigation Tactics

The Income Tax Department argued that, since multiple SLPs on the same issue are pending before the Supreme Court, the High Court should keep writ petitions pending or at least not quash the impugned notices and orders. The Court firmly rejected this plea. It pointed out that unless the Supreme Court grants a specific stay, High Court judgments remain binding and must be followed. The mere pendency of an SLP does not dilute the force of precedent.

The Court also highlighted the practical consequences of the Department’s approach: keeping hundreds of writ petitions pending would only clog the judicial system, delay justice, and create uncertainty for taxpayers. The absence of any interim protection from the Supreme Court further reinforced the need for immediate compliance with existing High Court orders.

Compliance Clarity & Immediate Takeaways

For tax authorities, the message is unambiguous. Post-amendment, every notice and proceeding under Sections 148A and 148 must be initiated and conducted through the faceless system. Local Assessing Officers have no authority to issue physical notices or conduct physical hearings in these matters. The Court’s ruling serves as a practical checklist for compliance:

• Issue all Section 148A/148 notices via the faceless platform.
• Ensure all communications, hearings, and orders are routed through the centralised system.
• Strictly follow CBDT notifications and instructions.

The Court also called for policy-level intervention by the CBDT to ensure uniform compliance and prevent further litigation. Administrative inertia or lack of coordination is no longer a valid excuse.

For expert assistance on these processes, including faceless assessment compliance, businesses and taxpayers can consult professionals in cities like Chandigarh and Ghaziabad, where experienced chartered accountants provide tailored services.

Implications for Taxpayers

Taxpayers who have received non-faceless Section 148A/148 notices or orders now have a clear remedy. They can challenge such proceedings before the High Court, relying on the Telangana HC’s ruling and similar judgments from other High Courts. If the proceedings are quashed, the Department may initiate fresh reassessment, but only in strict compliance with the faceless regime. Taxpayers retain the right to raise all other legal objections in any new proceedings.

It is important for affected taxpayers to act promptly—file writ petitions or representations highlighting the procedural defect, and seek interim protection where necessary. Practitioners should monitor the evolving legal landscape, especially as the matter is now before the Supreme Court. For detailed procedural insights on reassessment notices, see our blog on Decoding Section 148A: Strategic Responses and Procedural Insights.

Limitation Periods and Procedural Strategy

A key concern is the interplay between quashed proceedings and statutory limitation periods. The High Court, while quashing the non-compliant notices, preserved the Revenue’s right to initiate fresh proceedings in accordance with the law, as permitted by the Supreme Court in the Ashish Agarwal case. However, the Court cautioned against the Department using litigation delays as a tactic to circumvent limitation periods. The “revival” of rights is not open-ended; both Revenue and taxpayers must be vigilant about statutory timelines and procedural fairness.

Systemic Issues: Administrative Conduct and Governance

The judgment does not shy away from critiquing the administrative conduct of the Income Tax Department. The Court expressed grave concern over the “docket explosion” caused by the Department’s refusal to follow binding precedent. This not only burdens the judiciary but also erodes public confidence in the tax administration. The Court called for greater accountability, respect for judicial pronouncements, and a robust compliance infrastructure within the Department.

Experts offering income tax litigation services emphasize the importance of judicial discipline and compliance to avoid such systemic issues.

Conclusion

The Telangana High Court’s decision is a watershed moment for reassessment jurisprudence in India. It reinforces the primacy of procedural compliance, judicial discipline, and institutional accountability. By quashing non-faceless proceedings, the Court has sent a strong message: legal certainty and respect for statutory mandates are non-negotiable. As the matter awaits final resolution by the Supreme Court, all stakeholders would do well to prioritise compliance, transparency, and prudence in their approach.

If you require assistance with compliance or representation relating to faceless assessment or other income tax matters, firms with expertise in regions such as Delhi and Jodhpur are well-positioned to provide professional support.