2024 (7) TMI 1674 - AT - Income Tax

Reopening Assessment Under Section 147 Requires Valid Section 148 Notice by Competent Authority Only

The ITAT held that reopening of assessment under section 147 requires issuance of notice under section 148 by a competent authority with pecuniary ... Reopening of assessment u/s 147 - competent authority/jurisdiction to issue notice u/s.148 - HELD THAT:- CBDT vide its instruction No.1/201 has issued specific instruction in regard to pecuniary jurisdiction. If the Sub-ordinate Officer was not competent to issue notice u/s.148 of the Act, it has to be issued by a higher authority, then there was no reason for CBDT to issue such instruction. Senior Officer assumed the jurisdiction of a Sub-ordinate Officer but the reverse is not possible and should that argument is accepted, nothing could stop the Income Tax officer for assuming the duty from a Senior Officer also. Now coming to the issue of Section 292BB, a perusal of the same would clearly show that, that was a case where a valid notice has been issued and the assessee has cooperated in such proceedings. That is a provision to protect the issuance of notice more so service on the AO, it does not protect invalid issuance of notice on account of jurisdiction. Section 292B is for blocking the invalidation for reasons of any mistake, defect or omission to protect a notice which has been issued without jurisdiction. In the present case, admittedly, the AO who has issued the notice u/s.148 of the Act, did not have the pecuniary jurisdiction in view of the instruction issued by CBDT - Appeal of the assessee stands allowed. 1. ISSUES PRESENTED and CONSIDERED Whether the notice issued under section 148 of the Income Tax Act was valid or bad in law on account of lack of pecuniary jurisdiction of the Assessing Officer issuing the notice. Whether the reopening of assessment proceedings under section 147 read with section 148A was valid, including the validity of notice issued under sections 148A(b) and 148A(d), and the sanction obtained under section 151. Whether the notice under section 148 was validly issued in terms of procedural requirements, specifically whether it was issued prior to the passing of order under section 148A(d). Whether additions made in the reassessment proceedings on items not covered by the reasons for reopening were valid. Whether defects in issuance of notice under section 148 can be cured under section 292BB of the Income Tax Act. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of Notice Issued Under Section 148 on Account of Pecuniary Jurisdiction Legal Framework and Precedents: The jurisdiction of an Income Tax Officer (ITO), Assistant Commissioner (AC), or Deputy Commissioner (DC) to issue notices and conduct assessment proceedings is governed by the monetary limits prescribed by the Central Board of Direct Taxes (CBDT). Instruction No. 1/2011 dated 31.01.2011 revised these monetary limits, specifying that for corporate returns in metro cities, cases with declared income above Rs. 30 lakhs fall within the jurisdiction of DCs/ACs, not ITOs. Precedents from the coordinate benches and the Hon'ble Calcutta High Court establish that if a notice under section 143(2) or section 148 is issued by an officer lacking pecuniary jurisdiction, the notice is invalid and the assessment proceedings are liable to be quashed. Notably, decisions in cases following the ratio of the Hon'ble Calcutta High Court in Shree Shoppers Ltd. and the coordinate bench ruling in Shivam Finance emphasize that jurisdictional defects in notices go to the root of the matter and cannot be cured. Court's Interpretation and Reasoning: The Court examined the returned income of the assessee (Rs. 63,08,415/-) and noted that under CBDT Instruction No. 1/2011, the jurisdiction to issue notices for such income in metro cities lies with DCs/ACs. The notice under section 148 was issued by the Income Tax Officer, Ward Bargarh, who did not have pecuniary jurisdiction. The Court held that the issuance of notice by an officer without jurisdiction is bad in law. The Court rejected the Revenue's contention that the defect was curable under section 292BB, reasoning that section 292BB protects notices that are validly issued but suffer from defects in service or compliance, not notices issued by officers lacking jurisdiction. Key Evidence and Findings: The returned income figures, CBDT Instruction No. 1/2011, and judicial precedents were pivotal in establishing the jurisdictional limits. The notice under section 148 was issued by an officer who did not meet these limits. Application of Law to Facts: Applying the CBDT instructions and judicial precedents, the Court concluded that the notice under section 148 was invalid due to lack of pecuniary jurisdiction. Treatment of Competing Arguments: The Revenue's argument of concurrent jurisdiction and curability under section 292BB was rejected based on statutory interpretation and judicial precedents. Conclusion: The notice under section 148 was held to be bad in law, and consequential reassessment proceedings were quashed. Issue 2: Validity of Reopening Proceedings Under Sections 147, 148A(b), 148A(d), and Sanction under Section 151 Legal Framework and Precedents: Reopening of assessments under section 147 requires valid notice under section 148 and compliance with procedural safeguards under section 148A. The sanction under section 151 must be valid and communicated to the assessee. The Supreme Court judgments referenced (Jute Corporation of India and National Thermal Power Corporation) emphasize that reopening must be legally valid and procedural compliance is mandatory. Court's Interpretation and Reasoning: The Court considered the additional grounds challenging the validity of the notices under sections 148A(b) and 148A(d) on the basis of insufficient time to comply and procedural irregularities. It also examined the contention that the sanction under section 151 was not provided to the assessee despite specific requests. However, since the primary notice under section 148 was held invalid due to jurisdictional defect, the Court found it unnecessary to delve deeply into the procedural irregularities in reopening notices and sanction, as the entire reassessment was vitiated by the invalid notice. Key Evidence and Findings: The procedural timelines in notices under section 148A, absence of sanction communication, and the sequence of issuance of notices under sections 148 and 148A(d) were scrutinized. Application of Law to Facts: The Court noted that the notice under section 148 was issued prior to the order under section 148A(d), which is procedurally incorrect. The insufficient time given to comply with notices under section 148A(b) was also a factor. However, these procedural defects were rendered academic due to the invalidity of the primary notice under section 148. Treatment of Competing Arguments: The Revenue did not effectively counter the jurisdictional defect argument and relied on the validity of sanction and procedural compliance, which the Court found immaterial in light of the primary defect. Conclusion: The reopening proceedings were invalid, and procedural defects in notices and sanction were noted but not adjudicated upon due to the fundamental jurisdictional defect. Issue 3: Validity of Notice Under Section 148 Being Issued Prior to Passing of Order Under Section 148A(d) Legal Framework: Section 148A(d) mandates that before issuance of notice under section 148, the Assessing Officer must pass an order recording reasons for reopening. The notice under section 148 should be issued only after such order. Court's Interpretation and Reasoning: The Court observed that the notice under section 148 was issued before the order under section 148A(d), which is contrary to statutory procedure, rendering the notice bad in law. Application of Law to Facts: The chronological sequence of documents was examined and found to be violative of statutory requirements. Conclusion: The notice under section 148 was invalid on this procedural ground as well. Issue 4: Additions Made on Items Not Covered by Reasons for Reopening Legal Framework: Reassessment proceedings under section 147/148 must be confined to the issues for which the assessment was reopened. Additions on unrelated items are impermissible. Court's Interpretation and Reasoning: The Court noted the contention that additions were made on items not specified in the reasons for reopening, while no additions were made on the items for which reopening was initiated. Application of Law to Facts: Since the entire reassessment was quashed on jurisdictional grounds, the Court did not adjudicate this issue on merits. Conclusion: The issue was rendered academic and not decided. Issue 5: Applicability of Section 292BB to Cure Defects in Notice Issuance Legal Framework: Section 292BB protects notices from being invalidated due to defects or omissions in service or procedural compliance, provided the assessee cooperates and the defect is not jurisdictional. Court's Interpretation and Reasoning: The Court distinguished jurisdictional defects from procedural defects protected under section 292BB. It held that invalid issuance of notice by an officer without jurisdiction is not curable under section 292BB. Application of Law to Facts: The notice under section 148 was issued by an officer lacking pecuniary jurisdiction, which is a fundamental defect not covered by section 292BB. Conclusion: Section 292BB does not cure the jurisdictional defect in issuance of notice under section 148.