Jurisdiction of Section 148 Notices: JAO’s Exclusive Authority and Faceless Assessment Framework Clarified

I. Introduction

This Judgment from the Madras High Court in Mark Studio India Private Limited v. Income Tax Officer (W.P. Nos. 25223 & 25227 of 2024, decided on 20.12.2024) addresses a crucial question concerning who has the authority to issue notices under Section 148 of the Income Tax Act (“the Act”) in the context of newly introduced, technology-driven or “faceless” modalities. The case stems from two Writ Petitions filed by the petitioner, Mark Studio India Private Limited, challenging the legality of Section 148 notices that were issued by the Jurisdictional Assessing Officer (JAO) rather than the National Faceless Assessment Centre (NaFAC) or the Faceless Assessment Officer (FAO).

Both the petitioner and the Revenue marshaled precedents and statutory interpretations regarding Sections 144B, 147, 148, 148A, 151, and 151A of the Income Tax Act, as well as the two schemes introduced in 2022:

• E‑Assessment of Income Escaping Assessment Scheme, 2022 (Notification dated 29.03.2022)
• Faceless Jurisdiction of Income‑tax Authorities Scheme, 2022 (Notification dated 28.03.2022)

The crux of the dispute is whether Section 148 notices for re‑opening or reassessment proceedings must be issued exclusively by NaFAC—or whether it can be issued by the JAO—given the legislative intent to move towards a system of faceless assessments.

II. Summary of the Judgment

In dismissing the petitioner’s challenges, the Court ruled that:

1. The Jurisdictional Assessing Officer (JAO) has the exclusive authority to issue notices under Section 148 of the Income Tax Act, provided these notices adhere to mandates of automated system allocation (risk management) and are disseminated in an electronic or “faceless” manner.
2. After the issuance of notices by the JAO, the National Faceless Assessment Centre (NaFAC) generally assumes jurisdiction from the stage of Section 142(1) or Section 143(2) notices. In other words, while the JAO initiates the reopening by sending out Section 148 notices, NaFAC or a Faceless Assessment Officer (FAO) picks up the proceedings for further assessment, reassessment, or computation.
3. The Court repeatedly emphasized that no statutory provision divests the JAO of the authority to issue Section 148 notices, especially when no separate, post‑2022 scheme explicitly hands that power to NaFAC/FAO alone.
4. Hence, the procedure is a two‑stage process:
   • Stage 1: JAO issues Section 148 or 148A notice upon selection/allocation via an automated system run by the Directorate of Income Tax (Systems).
   • Stage 2: NaFAC takes over from the issuance of Section 142(1) or 143(2) notices and conducts the faceless assessment process as stipulated under Section 144B of the Act.
5. The Court clarifies that referencing the JAO’s name (instead of a code or digitized signature alone) inside the notices is only a minor procedural defect. This by itself does not invalidate the notice or constitute a jurisdictional error if the rest of the procedures for “faceless” communication have been followed (i.e., electronic issuance, digital signature, and automated allocation).

III. Analysis

A. Precedents Cited

During the arguments, both parties relied on various High Court decisions:

• Telangana High Court, Kankanala Ravindra Reddy v. Income‑Tax Officer: Held that after the introduction of the faceless regime, notices must be issued under Section 148 in a “faceless manner.”
• Bombay High Court, Hexaware Technologies Limited v. ACIT: Concluded that the new scheme contemplates issuing Section 148 notices via a faceless process and that the local JAO has no further role in issuing those notices.
• Gujarat High Court, Talati & Talati LLP v. Office of ACIT: Discussed the interplay between “face‑to‑face” and “faceless” regimes, focusing on search/seizure scenarios under Explanation 2 to Section 148.
• Delhi High Court, T.K.S. Builders Private Limited v. ITO: Upheld that the JAO can indeed issue Section 148 notices when guided by risk management system alerts, after which the NaFAC takes charge of actual assessment.

Significantly, the Court here preferred to follow the Delhi High Court view articulated in T.K.S. Builders, emphasizing the two‑stage workflow: the local JAO’s authority to issue notices, and then NaFAC’s authority to carry out a faceless re‑assessment.

B. Legal Reasoning

1. Scope of Section 144B (Faceless Assessments):
   Section 144B governs “faceless assessments.” However, the Court explains that while 144B is broad, it commences primarily after a return has been called for (via Section 142(1) or 143(2)). Before that, especially the act of issuing a notice under Section 148 (to re‑open an assessment) remains in the sole purview of the JAO.
2. Interpretation of the E‑Assessment Schemes (2022):
   The E‑Assessment of Income Escaping Assessment Scheme, 2022 and the Faceless Jurisdiction Scheme, 2022 mention the phrase “issuance of notice under Section 148 … in a faceless manner, to the extent provided in Section 144B.” The Court clarifies that “to the extent provided” means:
   • The check points for risk management and random automated selection are done centrally by the Directorate of Income Tax (Systems).
   • Nevertheless, the final notice under Section 148 is digitally signed and dispatched by the JAO to the assessee’s registered e‑mail — fulfilling the “faceless” criterion (i.e., no direct physical interface).
3. Concurrent Jurisdiction vs. Specific Allocation:
   The Judgment finds that for the limited act of issuing Section 148 notices, the JAO is the exclusive authority. For the subsequent steps of re‑assessment or re‑computation, the JAO and the FAO (via NaFAC) hold concurrent or shared jurisdiction depending on the category of the case.
4. Validity Despite Officer’s Name on Notice:
   The Court treated the mention of the JAO’s personal name on the notices as a procedural lapse that does not invalidate the notice for lack of jurisdiction. The essential “faceless” requirement is the electronic, non‑personal interface, not the complete omission of any officer’s identifier.
5. Guidelines and Notifications (CBDT Circulars):
   The Court recognized that the Central Board of Direct Taxes (CBDT), via section 144B(2), can legitimately issue explanatory or procedural guidelines (like the 24.05.2023 guidelines) without violating the bar in Section 151A(2). This latter provision, which disallows changes after 31.03.2022, is restricted to modifications that would amend or exempt the newly introduced schemes; mere procedural guidelines clarifying concurrency of JAO and NAfac do not cross that line.

C. Impact on Future Cases

This decision has several implications for future litigation and practice of tax assessment:

• Clarifies Two‑Stage Approach: The ruling draws a bright line between the issuance of notice (the JAO’s function) and the subsequent assessment or re‑assessment (often handled by NaFAC/FAO under Section 144B).
• Procedural Validity: Minor deviations in labeling or naming the issuing officer do not nullify the notice. What matters is that the notice is ussued digitally to the assessee's registered account.
• Concurrence vs. Exclusivity: The Court’s distinction that the JAO has “exclusive” authority for issuing the notice but “concurrent” jurisdiction with the FAO for the actual re‑assessment clarifies how different sections of the Act dovetail with technology‑driven processes.
• Persuasive Value Against Contrary Precedents: The Court respectfully disagreed with the Bombay High Court’s stance (in Hexaware) requiring that even the notice under Section 148 be issued only by NaFAC. Practitioners in other jurisdictions may therefore encounter varied results, but this Madras High Court ruling strongly influences how local JAOs will proceed in Tamil Nadu under a “faceless yet JAO‑initiated” framework.

IV. Complex Concepts Simplified

• Section 148 Notice: A legal document by which the Assessing Officer notifies an assessee that their tax filings are being re‑opened for possible underreported or unreported income. Traditionally, this notice is the gateway to re‑assessment under Section 147.
• Jurisdictional Assessing Officer (JAO): The local or territorial officer who traditionally monitors a specific taxpayer’s income tax compliance, identified by the taxpayer’s Permanent Account Number (PAN) and area.
• NaFAC / Faceless Assessment Officer (FAO): A specialized, technology‑driven system/office established to conduct tax assessments without physical human interface, part of the Government’s “faceless” initiative.
• Risk Management Strategy (RMS): A technological system (often integrated with AI or data analytics) for identifying which cases to scrutinize, ensuring that the selection is fair, data‑driven, and not reliant on personal bias.
• Automated Allocation System: An algorithmic system that allocates or assigns cases to different tax officers randomly, again aiming to reduce subjectivity and potential bias.
• Sections 144B(1) and (2): Statutory framework detailing how “faceless assessment” is conducted, how notices are issued in a digital environment, and the Board’s power to specify which classes of persons or cases come under the faceless umbrella.
• Concurrent Jurisdiction: A situation where more than one authority can handle the same matter. In this context, the JAO and FAO can both be involved (sequentially, but with overlapping statutory authority) in re‑assessing a taxpayer’s return.

V. Conclusion

The core takeaway from this significant Judgment is that under the existing statutory framework and the 2022 “faceless” schemes, the Jurisdictional Assessing Officer retains the exclusive authority to issue Section 148 or 148A notices. This issuance, performed digitally and allocated through risk management mechanisms, satisfies the requirement for “faceless.” Once the notice is served, and after appropriate initial responses are obtained, NaFAC (or a Faceless Assessment Officer) takes over from Section 142(1) or 143(2) onward to conduct the actual assessment in a faceless, technology‑driven manner.

As a result, while technology, AI, and automated systems are heavily deployed at multiple junctures of re‑assessment, the Court confirms the legislative intent that local JAOs are not ousted entirely. Rather, the scheme contemplates two distinct phases in which the JAO issues the notice (facelessly, but with the JAO’s digital signature), followed by NaFAC’s role in the continuing inquiry and conclusion of the assessment.

This ruling effectively reconciles the tension between prior decisions in other High Courts, clarifies the concurrency question, and provides a practical blueprint for how taxpayers and authorities should proceed in future re‑assessments. Practitioners should note that the naming convention within the notice does not, by itself, invalidate the notice if all other electronic, risk‑based allotment and digital communication requirements have been satisfied.