2021 (6) TMI 945 - AT - Income Tax

Assessment order void due to jurisdictional defects and time-barred Section 143(2) notice making revision order nullity

Nirmal Gupta Versus Pr. CIT-9

The ITAT Delhi held that the assessment order was void-ab-initio due to jurisdictional defects and time-barred notice under Section 143(2). The first ... Revision u/s 263 - Jurisdiction of AO - AO failed to verify the genuineness of the exemption of Long Term Capital Gain claim - proceedings u/s. 143(3) the notice u/s. 143(2) dated 16/09/2016 was issued by the ITO, Ward 72(5), Delhi, while assessment proceedings u/s. 143(3) for the preceding Assessment Year 2014-15 were still going on before DCIT, Circle 25(2), New Delhi - HELD THAT:- The first notice under Section 143(2) was issued on 01.08.2016 which by the non-jurisdictional AO and jurisdictional AO issued the notice on 10.03.2017 which is beyond the limitation period as per the statutory provisions of the Act. Thus, the notice is time barred and hence, the assessment itself becomes void-ab-initio. Besides this, the proper jurisdiction of the Assessing Officer in the present case is that of DCIT, Circle 25(2) as the assessment for A.Y. 2014-15 was proceeded before the said Assessing Officer in assessee's case. There was no change of jurisdiction sought by the Revenue as per Section 124 read with Section 120 of the Income Tax Act, 1961. Thus, on the point of jurisdiction relating to issuance of notice also makes the notice under Section 143(2) void-ab-initio. These aspects were not challenged by the assessee as the Assessing Officer assessed the income of the assessee at Nil and the assessee therefore, never challenged the assessment order at any stage. As the assessment itself becomes bad in law and therefore, the order of the Principal CIT under Section 263 of the Income Tax Act, 1961 itself becomes nullity as there is no assessment order in the eyes of law. Therefore, the additional grounds are allowed. Bogus LTCG - The notice which was issued by the Principal CIT stating therein that the Assessing Officer failed to verify the genuineness of the exemption of Long Term Capital Gain claim on the sale of shares of M/s. Channel - Nine and also that of the Assessing Officer failed to enquire about the persons who have purchased the above mentioned shares at a high rate of ₹ 439 per share, appears to be incorrect. The Principal CIT has not at all taken into consideration the reconciliation in respect of Long term capital gain. AO in the instant case has verified all the aspects and therefore, the view taken by the Principal CIT is only a second view which is not permissible under Section 263 of the Act. It is the settled proposition of law that for invoking jurisdiction under Section 263, the twin conditions, namely, the order is erroneous and the order is prejudicial to the interest of the Revenue must be satisfied. In the instant case, since the Assessing Officer has called for various details and after verification of the same has passed the order, therefore, the same cannot be treated as erroneous, as held by Hon'ble Supreme Court in the case of Malabar Industrial Co. Ltd. [2000 (2) TMI 10 - SUPREME COURT] Hence, the Assessment order though does not sustain in eyes of law in light of the defective notice under Section 143(2), the proceedings under Section 263 also does not survive on merit. Therefore, the appeal of the assessee is allowed. The core legal issues considered by the Tribunal in this appeal primarily relate to the validity and jurisdictional competence of the assessment proceedings under the Income Tax Act, 1961, specifically concerning the issuance of notices under section 143(2), the correctness and prejudicial nature of the assessment order under section 143(3), and the consequent exercise of revisionary powers under section 263 of the Act. The issues can be summarized as follows:1. Whether the assessment order passed under section 143(3) was erroneous and prejudicial to the interest of the Revenue, justifying its revision under section 263.2. Whether the notice under section 143(2) initiating the assessment proceedings was issued by the jurisdictional Assessing Officer within the prescribed limitation period.3. Whether the Principal Commissioner of Income Tax (PCIT) had jurisdiction and valid grounds to invoke section 263 to revise the assessment order.4. Whether the Assessing Officer conducted adequate verification and enquiry regarding the long-term capital gains exemption claimed by the assessee on the sale of shares, and whether the PCIT's observations about deficiencies in such verification were justified.Issue-wise Detailed Analysis1. Validity and Jurisdiction of Notice under Section 143(2)Legal Framework and Precedents: Section 143(2) of the Income Tax Act mandates that a notice to initiate scrutiny assessment must be issued within six months from the end of the financial year in which the return is filed. Jurisdictional competence of the Assessing Officer is governed by Sections 120 and 124 of the Act, which prescribe the authority entitled to issue such notices and conduct assessments.Court's Interpretation and Reasoning: The Tribunal examined the timeline and jurisdictional facts. The return was filed on 2nd September 2015. The first notice under section 143(2) was issued on 1st August 2016 by ITO Ward 72(5), who was not the jurisdictional Assessing Officer. Subsequently, the jurisdictional officer, DCIT Circle 25(2), issued a notice on 10th March 2017, which was beyond the six-month limitation period.The Tribunal noted that the jurisdiction for assessment was properly vested with DCIT Circle 25(2), as the preceding year's assessment was pending before the same officer, and there was no formal change of jurisdiction. The initial notice by the non-jurisdictional officer was thus invalid, and the later notice by the jurisdictional officer was time-barred.Key Evidence and Findings: The assessee's correspondence dated 20th December 2016 pointed out the jurisdictional error, and subsequent notices and letters confirmed the jurisdictional position. The statutory limitation period was not adhered to by the jurisdictional officer.Application of Law to Facts: Since the notice under section 143(2) was either issued by a non-jurisdictional officer or issued beyond the prescribed limitation period, the assessment proceedings initiated thereunder were invalid and void ab initio.Treatment of Competing Arguments: The Revenue contended that centralized filing justified the initial notice and that the limitation period was complied with. The Tribunal rejected this, emphasizing the statutory provisions and absence of formal jurisdictional change.Conclusion: The notice under section 143(2) was invalid due to jurisdictional and limitation defects, rendering the assessment order void ab initio.2. Legality and Merits of the Assessment Order under Section 143(3)Legal Framework and Precedents: Section 143(3) allows the Assessing Officer to make a detailed assessment after scrutiny. The order must be free from errors and not prejudicial to the Revenue's interest. The power of revision under section 263 can be exercised only if the order is erroneous and prejudicial.Court's Interpretation and Reasoning: The Principal CIT held that the assessment order was erroneous and prejudicial because the Assessing Officer failed to verify the genuineness of the long-term capital gain exemption and did not inquire about the buyers of shares sold at a high price. However, the Tribunal found that the Assessing Officer had called for and examined extensive documents including purchase and sale details, contract notes, bank statements, and reconciliations related to the shares and capital gains.Key Evidence and Findings: The assessee had submitted detailed reconciliations, purchase bills, contract notes, and transaction statements, which were on record and considered by the Assessing Officer. The Tribunal observed that the Principal CIT's assertion that the Assessing Officer did not verify these aspects was incorrect.Application of Law to Facts: The Tribunal applied the settled principle that a second opinion or difference of view does not justify revision under section 263. Since the Assessing Officer had conducted verification and passed the order after considering relevant documents, the order was not erroneous.Treatment of Competing Arguments: The Revenue relied on various Supreme Court and Tribunal decisions to support the revision under section 263. The Tribunal distinguished these by emphasizing the factual verification undertaken by the Assessing Officer and the absence of any procedural lapses or failure to consider material evidence.Conclusion: The assessment order was neither erroneous nor prejudicial to the Revenue's interest, and the revision under section 263 was not justified on merits.3. Validity of Revision under Section 263Legal Framework and Precedents: Section 263 allows the Principal Commissioner to revise an assessment order if it is erroneous and prejudicial to the Revenue. The power is to be exercised sparingly and not to substitute the Assessing Officer's judgment with a second opinion.Court's Interpretation and Reasoning: The Tribunal held that since the assessment order was void due to defective notice, the revision order under section 263 also became a nullity. Additionally, on merits, the revision was unwarranted as the Assessing Officer had properly verified the claims.Key Evidence and Findings: The Tribunal noted that the Principal CIT had failed to consider the reconciliation and documents filed by the assessee, and the revision was based on a second view rather than any material irregularity or illegality.Application of Law to Facts: The Tribunal applied the principle that revision under section 263 is not a substitute for regular appellate or revision proceedings and cannot be invoked merely because the Principal CIT disagrees with the Assessing Officer's findings.Treatment of Competing Arguments: The Revenue argued the revision was necessary due to lack of enquiry on key issues. The Tribunal rejected this, finding that enquiry had been conducted and the revision was unjustified.Conclusion: The revision order under section 263 was invalid both on jurisdictional grounds and on merits.Significant Holdings'The notice under Section 143(2) can be issued after an income tax return has been filed but within a period of six months from the end of the financial year in which the return was filed. Thus, the first notice under Section 143(2) was issued on 01.08.2016 which by the non-jurisdictional Assessing Officer and jurisdictional Assessing Officer issued the notice on 10.03.2017 which is beyond the limitation period as per the statutory provisions of the Act. Thus, the notice is time barred and hence, the assessment itself becomes void-ab-initio.''The Principal CIT has not at all taken into consideration the reconciliation in respect of Long term capital gain. The Assessing Officer in the instant case has verified all the aspects and therefore, the view taken by the Principal CIT is only a second view which is not permissible under Section 263 of the Act.''It is the settled proposition of law that for invoking jurisdiction under Section 263, the twin conditions, namely, the order is erroneous and the order is prejudicial to the interest of the Revenue must be satisfied.''Therefore, the Assessment order though does not sustain in eyes of law in light of the defective notice under Section 143(2), the proceedings under Section 263 also does not survive on merit.'The Tribunal thus established the core principles that an assessment order passed pursuant to a notice issued without jurisdiction or beyond limitation is void ab initio; that revision under section 263 requires the order to be both erroneous and prejudicial to Revenue; and that a mere difference of opinion or second view cannot justify revisionary powers. The final determination was to allow the appeal, quash the revision order under section 263, and hold the assessment order invalid on jurisdictional grounds.