2019 (4) TMI 1364 - AT - Income Tax

Tax Tribunal Invalidates Assessment Orders Due to Lack of Section 143(2) Notices

The Tribunal found that the assessment orders for A.Y. 2012-13 and A.Y. 2013-14 were invalid and unsustainable in law due to the absence of valid notices ... Jurisdictional defect in assumption of authority - validity of notice under section 143(2) - validity of assessment under section 143(3) - objection to jurisdiction under section 124 - transfer of cases and recording of reasons under section 127 - curative effect of section 292BJurisdictional defect in assumption of authority - validity of notice under section 143(2) - validity of assessment under section 143(3) - objection to jurisdiction under section 124 - transfer of cases and recording of reasons under section 127 - curative effect of section 292B - Whether assessments for A.Y. 2012-13 and A.Y. 2013-14 are valid when notices under section 143(2) were issued by officers who had allegedly not been shown to have lawful jurisdiction and transfers (if any) lack recorded reasons - HELD THAT: - The Tribunal found that the assessee had e-filed returns with the Assessing Officer, Range IV, and had validly objected within the statutory time to assumption of jurisdiction by officers of Circle 1. Once the assessee raised the objection under the statutory procedure, the assessing officer who was not satisfied was obliged to refer the question of jurisdiction to the appropriate authority as required by the provision governing objection to jurisdiction; no such reference appears on the record. A purported transfer of jurisdiction inferred from electronic records was not supported by any order of the Board or by any recorded reasons as mandated for transfers, and there is no material explaining transfer from Range IV to Circle 1 or the subsequent transfer back to Circle IV. Notices issued by officers who had not been shown lawfully to hold jurisdiction therefore suffered from a jurisdictional defect. Because a valid assessment under section 143(3) presupposes issuance of a valid notice under section 143(2), the assessments based on such defective notices are invalid. The Tribunal rejected the CIT(A)'s view that section 292B could cure the defect: section 292B can only cure mistakes where the notice or assessment is in substance and effect in conformity with the Act, and cannot validate a defect going to jurisdiction. Applying these principles, the Tribunal held that the assessments for the two years were vitiated by lack of jurisdictional foundation and the notices being issued beyond the time by the proper AO where applicable, and accordingly quashed the assessments without adjudicating the merits of additions. [Paras 11, 12, 13, 17, 18]Assessments for A.Y. 2012-13 and A.Y. 2013-14 are quashed as invalid for want of lawful jurisdiction and defective notices; the question of the merits of additions is left undecided.Final Conclusion: The Tribunal allowed the appeals for A.Y. 2012-13 and A.Y. 2013-14, quashed the assessments under section 143(3) due to jurisdictional defects in the issuance of notices under section 143(2), and declined to adjudicate the merit of the additions. Issues Involved:1. Validity of the assessment order due to non-issuance and non-service of statutory notice under Section 143(2) by the Assessing Officer (A.O) holding jurisdiction.2. Justification of sustaining the addition made by the A.O out of agricultural income.Detailed Analysis:1. Validity of the Assessment Order:Background:The assessee, running a hotel and a club, filed its return of income for A.Y. 2012-13 and A.Y. 2013-14, declaring losses. The return was processed under Section 143(1) of the Income Tax Act, 1961. The case was later selected for scrutiny, and notices under Section 143(2) were issued by the Dy. Commissioner of Income Tax, Circle 1, Jalandhar. The assessee objected, claiming that the jurisdiction remained with the A.O, Range-IV, Jalandhar.Contentions:The assessee argued that the assessment framed without a valid notice under Section 143(2) by the jurisdictional A.O was invalid, relying on the Supreme Court judgment in ACIT Vs. Hotel Blue Moon. The CIT(A) rejected this, stating that the jurisdiction was with the ACIT, Circle-1, Jalandhar, and that the provisions of Section 292B would rectify any jurisdictional issues.Tribunal's Findings:The Tribunal observed that:- The assessee had e-filed its return with the A.O, Range-IV, Jalandhar.- Objections to the jurisdiction were raised timely.- The A.O failed to refer the jurisdictional issue to the appropriate authority as required under Section 124(4).The Tribunal highlighted several serious infirmities:- No order vesting jurisdiction with ACIT/DCIT, Circle-1, Jalandhar, was presented.- The statutory requirement of recording reasons for transferring the case was not fulfilled.- The notices issued by ACIT, Circle-1, Jalandhar, were beyond the specified time period and thus invalid.The Tribunal concluded that the assessment framed under Section 143(3) without a valid notice under Section 143(2) was invalid and not sustainable in law. The Tribunal quashed the assessment orders for both A.Y. 2012-13 and A.Y. 2013-14.2. Justification of the Addition Made by the A.O:Since the Tribunal quashed the assessment orders on jurisdictional grounds, it refrained from adjudicating the merits of the addition made by the A.O out of agricultural income.Conclusion:The Tribunal allowed the appeals for both A.Y. 2012-13 and A.Y. 2013-14, quashing the assessment orders due to the invalidity of the notices issued under Section 143(2) by the non-jurisdictional A.O. The issue of the addition made by the A.O was not addressed due to the quashing of the assessment on jurisdictional grounds.Order Pronounced:The order was pronounced in the open court on 15.01.2019.