2020 (11) TMI 702 - AT - Income Tax

Tribunal emphasizes notice requirement for scrutiny assessments under Income Tax Act

The Tribunal ruled in favor of the appellant, emphasizing the necessity of issuing a notice under section 143(2) of the Income Tax Act before conducting a ... No mandatory notice u/s 143(2) issued by eligible ITO - ITO jurisdiction to frame the scrutiny assessment u/s 143(3) without issuing notice u/s 143(2) - assessee objected to the jurisdiction of ITO, Ward-3, Shillong to have issued the statutory notice wherein it was stated that the assessee society is in Tezu which is situated in the State of Arunachal Pradesh and ITO, Ward-2, Digboi has territorial jurisdiction u/s 124 - HELD THAT:- It is an admitted fact that the assessment was framed by the ITO, Ward-2, Digboi and that he has not issued notice u/s 143(2) of the Act which is discernible from the order sheet as well as from perusal of the assessment order - scrutiny assessment u/s 143(3) was framed without issuing notice u/s 143(2) by the ITO, Ward-2, Digboi. The legal issue raised before me is no longer res integra. As in Hotel Blue Moon [2010 (2) TMI 1 - SUPREME COURT] has held that issue / serving notice u/s 143(2) of the Act is sinequa- non before framing of scrutiny assessment u/s 143(3) - Therefore, relying on the said decision of Hon’ble Supreme Court, we allow the legal issue raised by the assessee. PAN jurisdiction of assessee - Coming to the contention of the ld D.R that PAN jurisdiction of assessee was with ITO, Ward-3, Shillong and therefore he issued notice u/s 143(2) of the Act after taking note of CASS in the case of assessee ; and later when he came know that jurisdiction was with ITO, Ward-2, Digboi , he has transferred the case to the jurisdiction of ITO at Digboi and since the assessee has participated in the assessment proceedings, there is no prejudice caused to the assessee. This submission of Ld. D.R cannot be accepted since the statute does not recognize PAN jurisdiction. Jurisdiction recognized by the Act are based on territory, residence, pecuniary, classes of assessee like companies, firms etc. Since the PAN jurisdiction must be an internal arrangement of the Department which does not have the sanction of law and since it is not recognized by the Statute, therefore this contention of the revenue cannot be accepted and so it is rejected. Thus ITO, Ward-2, Digboi could not have framed the assessment order u/s 143(3) without issuing notice u/s 143(2) - Decided in favour of assessee. Issues Involved:1. Challenge to jurisdiction due to non-issuance of mandatory notice u/s 143(2) of the Income Tax Act, 1961.Analysis:1. The appellant challenged the action of the Assessing Officer (AO) in confirming the order without issuing the mandatory notice u/s 143(2) of the Act. The appellant argued that the AO lacked jurisdiction as the notice was not served. The AO, Ward-3, Shillong initially issued the notice, but upon objection by the appellant citing territorial jurisdiction of ITO, Ward-2, Digboi, the case was transferred without proper authorization. The AO, Ward-2, Digboi proceeded with assessment without issuing the mandatory notice. The appellant relied on the Supreme Court precedent in ACIT Vs. Hotel Blue Moon, emphasizing the necessity of the notice u/s 143(2) before a scrutiny assessment u/s 143(3) can be conducted.2. The Tribunal examined the facts and noted that the appellant's business fell under the territorial jurisdiction of ITO, Ward-2, Digboi, as per Section 124 of the Act. It was observed that the AO, Ward-2, Digboi did not issue the required notice u/s 143(2) before finalizing the assessment. Referring to the Supreme Court decision in Hotel Blue Moon, the Tribunal emphasized the essentiality of the notice u/s 143(2) for a valid scrutiny assessment u/s 143(3). Consequently, the Tribunal upheld the appellant's legal challenge on jurisdictional grounds.3. The Respondent argued that the AO's action was valid based on PAN jurisdiction and the appellant's participation in the assessment proceedings. However, the Tribunal rejected this argument, highlighting that PAN jurisdiction is not legally recognized, and jurisdiction under the Act is determined by factors such as territory and classes of assesses. The Tribunal concluded that the AO, Ward-2, Digboi acted without jurisdiction by not issuing the mandatory notice u/s 143(2), leading to the nullity of the assessment order. Consequently, the Tribunal allowed the appeal and quashed the assessment order dated 10.12.2018.4. In the final decision, the Tribunal found in favor of the appellant, emphasizing the importance of adhering to statutory procedures, specifically the issuance of notice u/s 143(2) before conducting a scrutiny assessment. The judgment highlighted the significance of jurisdictional requirements and the legal precedent set by the Supreme Court, ultimately leading to the quashing of the assessment order due to lack of jurisdiction arising from the non-issuance of the mandatory notice.