AO cannot decide jurisdiction independently without following Section 124(2) procedures when assessee validly objects under Section 124(3)(a)

The ITAT Cuttack held that the AO erred in deciding jurisdictional issues independently without following Section 124(2) procedures. When an assessee validly objects to jurisdiction within the time limit under Section 124(3)(a), the AO must refer the matter to the Director General, Chief Commissioner, or Commissioner for determination before proceeding with assessment. The AO cannot unilaterally decide jurisdiction and proceed with best judgment assessment under Section 144. The assessment order was set aside and remanded to the AO with directions to determine jurisdiction as per Section 124(2) before proceeding. The assessee's appeal was allowed while the Revenue's appeal was dismissed.

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Issues:
1. Challenge to the legality of assessment and jurisdiction of the Assessing Officer under Section 124.
2. Adequacy of opportunity provided to the assessee before passing the order under Section 144.
3. Dispute regarding the estimation of profit and reduction from 12% to 10%.
4. Challenge by the Revenue against the CIT(A) order limiting the net profit estimation to 10%.

Analysis:
1. The assessee raised multiple grounds challenging the assessment's legality and the Assessing Officer's jurisdiction under Section 124. The assessee objected to the jurisdiction within the specified time limit, making the challenge valid. The relevant sections stipulate that if the Assessing Officer is not satisfied with the jurisdiction claim, the matter must be referred for determination. In this case, the Assessing Officer unilaterally decided on jurisdiction without following the prescribed procedure. The Tribunal set aside the assessment and directed a proper determination of jurisdiction before proceeding with the assessment.

2. The assessee contended that the Assessing Officer did not provide adequate opportunity before passing the order under Section 144. The Tribunal's decision to set aside the assessment on jurisdictional grounds obviated the need to address this issue separately.

3. The dispute over the estimation of profit, with the CIT(A) reducing it from 12% to 10%, was a key point of contention. The Assessing Officer had estimated income at 12% of gross receipts, but the CIT(A) reduced it to 10% based on jurisdictional considerations. The Tribunal's decision to set aside the assessment rendered this issue moot.

4. The Revenue challenged the CIT(A) order that restricted net profit estimation to 10% instead of the 12% initially determined by the Assessing Officer. However, since the Tribunal set aside the assessment, the Revenue's appeal became inconsequential. As a result, the assessee's appeal was allowed, and the Revenue's appeal was dismissed.

This judgment underscores the importance of following due process in determining jurisdiction and providing opportunities for fair assessment. The Tribunal's decision to set aside the assessment and direct a proper determination of jurisdiction ensures adherence to legal procedures and safeguards the rights of both parties involved in the dispute.

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