Re-assessment order struck down for jurisdictional defects under CBDT Instruction No.1/2011 - section 148 notice invalid

The ITAT Raipur held that a re-assessment order was invalid due to jurisdictional defects. Under CBDT Instruction No.1/2011, the ITO Ward 1(3) Raipur had exclusive jurisdiction over the assessee's case for AY 2010-11 based on declared income of Rs. 9,47,500. However, the section 148 notice was issued by DCIT-1(1) Raipur, who lacked jurisdiction under the instruction. Since the jurisdictional ITO proceeded based on this invalid notice from a non-jurisdictional officer, the subsequent assessment order was void and struck down. The appeal was decided in favor of the assessee.

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Issues Involved:
1. Validity of the jurisdiction assumed by the Assessing Officer (AO) for framing the assessment.
2. Errors in framing the assessment order under Section 147 without passing a speaking order.
3. Incorrect estimation of sales and gross profit.
4. Addition on account of personal expenses under Section 37(1).
5. Disallowance of interest under Sections 36(1)(iii) and 37(1).
6. Validity of the notice issued under Section 148 by a non-jurisdictional officer.
7. Failure to issue notice under Section 143(2) before making the assessment.

Detailed Analysis:

1. Validity of the Jurisdiction Assumed by the AO:
The primary issue raised by the assessee was the validity of the jurisdiction assumed by the Income Tax Officer (ITO), Ward-1(2), Raipur, for framing the assessment under Section 143(3) of the Income-tax Act, 1961. The assessee argued that the assessment was framed based on a notice under Section 148 issued by the Deputy Commissioner of Income Tax (DCIT)-1(1), Raipur, who did not have jurisdiction over the case. The CBDT Instruction No.1/2011, effective from 01.04.2011, revised the monetary limits for assigning cases to ITOs and DCs/ACs, indicating that the jurisdiction over the assessee's case, who declared an income of Rs. 9,47,500, was vested with the ITO, Ward-1(3), Raipur, later transferred to ITO-1(2), Raipur. Consequently, the notice issued by DCIT-1(1), Raipur, was invalid, and the assessment framed by ITO-1(2), Raipur, based on this notice, was quashed.

2. Errors in Framing the Assessment Order under Section 147 Without Passing a Speaking Order:
The assessee contended that the AO erred in framing the assessment order under Section 147 without passing a speaking order about any disagreement with the explanations provided by the assessee. The Tribunal did not delve into this issue in detail, as the primary ground of invalid jurisdiction was sufficient to quash the assessment.

3. Incorrect Estimation of Sales and Gross Profit:
The AO estimated the sales at Rs. 11,00,00,000 against the sales shown in the audited accounts at Rs. 9,97,97,240, without providing any basis for the estimation. Additionally, the AO made an addition of Rs. 8,99,546 by applying a gross profit rate of 6% on the estimated sales. The Tribunal did not address this issue separately due to the quashing of the assessment on jurisdictional grounds.

4. Addition on Account of Personal Expenses Under Section 37(1):
The AO made an addition of Rs. 4,00,000 on account of personal expenses under Section 37(1) of the Act. This issue was also not separately adjudicated by the Tribunal due to the primary ground of invalid jurisdiction.

5. Disallowance of Interest Under Sections 36(1)(iii) and 37(1):
The AO disallowed Rs. 9,90,902 on account of interest under Sections 36(1)(iii) and 37(1) of the Act. Similar to other issues, this was not separately addressed by the Tribunal due to the quashing of the assessment on jurisdictional grounds.

6. Validity of the Notice Issued Under Section 148 by a Non-Jurisdictional Officer:
The Tribunal emphasized that the notice under Section 148 was issued by DCIT-1(1), Raipur, who did not have jurisdiction over the assessee's case as per the revised monetary limits outlined in CBDT Instruction No.1/2011. The jurisdiction was vested with ITO-1(3), Raipur, later transferred to ITO-1(2), Raipur. Therefore, the notice issued by DCIT-1(1), Raipur, was invalid, and the subsequent assessment based on this notice was quashed.

7. Failure to Issue Notice Under Section 143(2) Before Making the Assessment:
The assessee also raised the issue of the AO's failure to issue a notice under Section 143(2) before making the assessment under Section 147 read with Section 143(3). The Tribunal did not address this issue separately, as the assessment was quashed on the primary ground of invalid jurisdiction.

Conclusion:
The Tribunal quashed the assessment framed by ITO-1(2), Raipur, under Section 143(3) dated 31.03.2015, on the basis of the notice under Section 148 dated 18.06.2013 issued by DCIT-1(1), Raipur, due to the lack of valid jurisdiction. Consequently, other contentions raised by the assessee were left open and not adjudicated. The appeal of the assessee was allowed.

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