AO lacked territorial jurisdiction under CBDT Instruction 1/2011 for nil income return, entire assessment proceedings declared void ab initio

ITAT Kolkata quashed the scrutiny assessment order as void ab initio due to lack of jurisdiction. The AO who issued notice u/s 143(2) and completed assessment u/s 143(3) lacked territorial jurisdiction over the assessee under CBDT Instruction No. 1/2011, as the assessee had filed nil income return. The tribunal held that without proper jurisdiction at the threshold stage of issuing notice u/s 143(2), the entire assessment proceedings became invalid. The assessee's appeal was allowed and the assessment order was declared a nullity.

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Issues Involved:
1. Jurisdiction of the Assessing Officer (AO)
2. Bogus Long Term Capital Gain
3. Bogus Commission
4. Disallowance u/s 14A of the Act
5. Validity of the Assessment Order

Summary:

1. Jurisdiction of the Assessing Officer (AO):
The primary issue raised by the assessee was that the AO, ACIT, Circle-36, Kolkata, did not have jurisdiction over the case as per CBDT Instruction No. 1/2011, which mandates that cases with nil income should be handled by the Income Tax Officer (ITO). The Tribunal noted that the notice u/s 143(2) was issued by the ACIT, who did not have the jurisdiction, rendering the assessment order invalid. The Tribunal relied on the decision in the case of Bhagyalaxmi Conclave (P) Ltd. v. DCIT and other precedents, concluding that the assessment framed by an officer without jurisdiction is null and void. Consequently, the assessment order was quashed.

2. Bogus Long Term Capital Gain:
The assessee contended that the Commissioner of Income Tax (Appeals) erred in holding that the sum of Rs. 42,27,500/- represented bogus long-term capital gain and confirming the AO's action of treating it as income u/s 68 of the Act. However, since the assessment order was quashed on jurisdictional grounds, this issue was not adjudicated upon.

3. Bogus Commission:
The assessee challenged the addition of Rs. 1,48,657/- made on account of bogus commission. This issue was also rendered academic due to the quashing of the assessment order on jurisdictional grounds.

4. Disallowance u/s 14A of the Act:
The assessee disputed the disallowance of Rs. 16,26,558/- made by the AO u/s 14A of the Act. Similar to the other issues, this was not adjudicated upon due to the quashing of the assessment order.

5. Validity of the Assessment Order:
The Tribunal concluded that the assessment order was bad in law due to the lack of jurisdiction of the AO who issued the notice u/s 143(2) and framed the assessment. The Tribunal allowed the additional ground raised by the assessee, holding that the assessment order was a nullity.

Conclusion:
The appeal of the assessee was allowed, and the assessment order was quashed due to the jurisdictional issue. The other grounds raised by the assessee were not adjudicated upon as they were rendered academic.

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