2022 (9) TMI 1177 - AT - Income Tax

Invalid Assessment Order Quashed: Jurisdictional Errors Lead to Successful Assessee Appeal

D. Usha Reddy Versus Income Tax Officer, Ward 1 (4) Visakhapatnam

The tribunal concluded that the assessment order was invalid due to jurisdictional errors in the issuance of notice under Section 143(2) and the absence ... Validity of assessment - non-issuance of notice u/s. 143(2) - ITO Ward-1(2) OR Ward-1(4) jurisdiction over the case of the assessee? - HELD THAT:- It is an undisputed fact that the notice u/s. 143(2) was issued by the ITO, Ward-2(3) on 27.09.2013 and the same was served on the assessee on 30.09.2013. The case was received by ITO, Ward-1(2), being the jurisdictional officer on 16.12.2013, on transfer from ITO, Ward-1(4), Visakhapatnam, which was originally received from ITO, Ward-2(3), Visakhapatnam. Due to change in incumbency, notices u/s. 143(2) and 142(1) were issued to the assessee on 19.12.2013 calling for books of accounts, bills and vouchers and other information. An admitted fact that the file was transferred to ITO, Ward-1(4) who has no jurisdiction over the case of the assessee. Subsequently, the ITO, Ward-1(4) came to know about lack of jurisdiction and transferred the case to ITO, Ward-1(2). ITO, Ward-1(2) without issuing notice u/s. 143(2) and without giving any opportunity to the assessee passed assessment order u/s. 143(3). The matter of transfer of the assessee's case was neither intimated to the assessee by the concerned AO nor the Ld. CIT(A) has passed any order as required u/s. 127 of the Act by giving an opportunity of being heard to the assessee after recording the reasons. Therefore, the contention of the assessee is that the order passed u/s. 143(3) is bad in law, void-ab-initio and it is not a valid assessment order. We hold that the notice issued by ITO, Ward 2(3), Visakhapatnam is without jurisdiction and non-est in law and void-ab-initio. The assessment order passed by ITO, Ward-1(2), Visakhapatnam u/s. 143(3) of the Act dated 28.03.2014 was without issuance of mandatory statutory notice u/s. 143(2) of the Act by the AO. Hence the grounds raised by the assessee are allowed. Issues Involved:1. Jurisdiction of the Assessing Officer (AO) issuing notice under Section 143(2) of the Income Tax Act, 1961.2. Validity of the assessment order passed under Section 143(3) without issuing a notice under Section 143(2) by the jurisdictional AO.3. Confirmation of addition towards capital gains without giving the assessee an opportunity to present evidence.4. Validity of the credit in the bank account amounting to Rs. 55,00,000/-.5. Expansion of the scope of limited scrutiny without prior approval.Detailed Analysis:1. Jurisdiction of the Assessing Officer (AO) Issuing Notice under Section 143(2):The core issue pertains to whether the AO, ITO Ward-2(3), had jurisdiction to issue the notice under Section 143(2). The assessee contended that the AO did not have jurisdiction, and hence, the notice and subsequent assessment order should be quashed. The tribunal found that the notice under Section 143(2) was indeed issued by ITO Ward-2(3), who did not have jurisdiction over the assessee. The case was later transferred to ITO Ward-1(2), who did not issue a fresh notice under Section 143(2). The tribunal cited several precedents, including Hillman Hosiery Mills Pvt. Ltd. vs. DCIT and Soma Roy vs. ACIT, which establish that jurisdictional errors invalidate the assessment.2. Validity of the Assessment Order Passed under Section 143(3) Without Issuing a Notice under Section 143(2) by the Jurisdictional AO:The tribunal emphasized that the issuance of a notice under Section 143(2) by the jurisdictional AO is a sine qua non for a valid assessment under Section 143(3). Since ITO Ward-1(2), who had jurisdiction, did not issue a notice under Section 143(2), the assessment order passed was deemed invalid. The tribunal relied on multiple judgments, including those of the ITAT Kolkata and the Hon'ble Supreme Court in ACIT & Anr. vs. Hotel Blue Moon, which underscore the necessity of jurisdictional compliance for the issuance of notices.3. Confirmation of Addition Towards Capital Gains Without Giving the Assessee an Opportunity to Present Evidence:The assessee argued that the CIT(A) confirmed the addition of Rs. 2,70,994/- towards capital gains without providing an opportunity to present evidence. The tribunal noted that the CIT(A) decided the appeal ex-parte, without giving reasonable opportunity to the appellant, which is against the principles of natural justice. The tribunal highlighted that the assessment was made without considering the confirmation letters provided by the assessee and without allowing the assessee to furnish additional evidence.4. Validity of the Credit in the Bank Account Amounting to Rs. 55,00,000/-:The AO added Rs. 55,00,000/- to the income of the assessee as unexplained cash credits, despite the assessee providing a confirmation letter from Sri P. Janardhan Reddy. The tribunal observed that the AO and CIT(A) did not consider the confirmation letter adequately and failed to provide the assessee an opportunity to substantiate the claims. The tribunal emphasized the need for verifiable evidence, which was not adequately sought by the AO.5. Expansion of the Scope of Limited Scrutiny Without Prior Approval:The assessee contended that the AO expanded the scope of limited scrutiny without prior approval from the appropriate authority, rendering the assessment a nullity. The tribunal acknowledged the CBDT circular, which restricts the AO from expanding the scope of limited scrutiny beyond the issues selected under CASS without prior approval. The tribunal found that the AO's actions were in violation of the circular, thus making the additions illegal.Conclusion:The tribunal concluded that the assessment order was invalid due to the lack of jurisdiction of the AO issuing the notice under Section 143(2) and the failure to issue a notice by the jurisdictional AO. The tribunal quashed the assessment order and allowed the appeal of the assessee. The other grounds raised were deemed academic and were not adjudicated due to the quashing of the assessment order on jurisdictional grounds.Order:The appeal of the assessee is allowed. The assessment order passed under Section 143(3) is quashed due to jurisdictional defects and non-compliance with the mandatory issuance of a notice under Section 143(2) by the jurisdictional AO.Pronouncement:Order pronounced in open Court on 28th July, 2022.