2024 (5) TMI 92 - AT - Income Tax

Assessment quashed as ITO lacked pecuniary jurisdiction over income exceeding Rs. 30 lakhs under section 143(3)

ITAT Delhi held that assessment framed u/s 143(3) by ITO was invalid due to lack of pecuniary jurisdiction. The assessee's returned income for A.Y. ... Validity of assessment framed u/s 143(3) by Non- jurisdictional ITO - Jurisdiction of AO based on income threshold / monetary limits as per the return of income - ITO transferred the jurisdiction of the assessee from him to DCIT since the returned income for A.Y. 2015-16 is more than 30,00,000/- - jurisdiction will be that of DCIT or ITO - DR pointed out to the provisions of section 124(3) wherein it was mentioned that assessee should challenge within one month about the jurisdiction of the AO on receipt of the notice - HELD THAT:- This argument of the DR is wrong in as much as section 124(3) of the Act talks only about territorial jurisdiction, whereas the issue involved here is pecuniary jurisdiction. Provisions of section 124(3) of the Act could be taken shelter by the Revenue only when legal valid notice u/s 143(2) of the Act has been issued by the Revenue. In the instant case, notice issued u/s 143(2) on 12.04.2016 by ITO is not legal as he did not possess jurisdiction over the assessee for A.Y. 2015-16 in as much as the returned income for A.Y. 2015-16 had exceeded Rs. 30,00,000/-. We find that the issue in dispute is no longer res integra by the decision of Ashok Devichand Jain [2022 (3) TMI 1466 - BOMBAY HIGH COURT] as held where income declared/returned by any Non-Corporate assessee is up to Rs. 20 lakhs, then the jurisdiction will be of ITO and where the income declared returned by a Non Corporate assessee is above Rs. 20 lakhs, the jurisdiction will be of DC/AC. Thus we have no hesitation to hold that the assessment framed under section 143(3) of the Act deserves to be quashed in the instant case as the initial scrutiny notice issued under section 143(3) of the Act dated 12.04.2016 by ITO was without jurisdiction as he did not possess jurisdiction over the assessee for the A.Y. 2015-16. Decided in favour of assessee. ISSUES PRESENTED AND CONSIDERED 1. Whether the assessment framed under section 143(3) is void for want of pecuniary jurisdiction where the initial notice under section 143(2) was issued by an ITO despite the returned income exceeding the monetary threshold that vests jurisdiction in ACIT/DCIT under the Board's administrative instruction. 2. Whether additional grounds challenging jurisdictional competence and scope of appellate enhancement can be admitted at the appellate stage when facts relevant to those grounds are on record. 3. Whether, if the assessment is held void for lack of jurisdiction, it is necessary to adjudicate the substantive disallowances and enhancements raised in the original grounds of appeal. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Validity of assessment where initial section 143(2) notice issued by officer lacking pecuniary jurisdiction Legal framework: The allocation of scrutiny and assessment jurisdiction among Income-tax Officers and DCIT/ACIT is governed by the Board's administrative instruction setting monetary thresholds (pecuniary limits). A valid scrutiny/assessment proceeding requires that the notice initiating the scrutiny be issued by an officer who, at the relevant time, has competence under those thresholds. Jurisdictional defect in issuance of a statutory notice is a jurisdictional/voidness issue affecting the validity of subsequent assessment. Precedent treatment: The Court followed existing higher-court authority which (i) permits admission of additional jurisdictional grounds where facts are on record and (ii) has held that a jurisdictional notice issued by an officer without pecuniary jurisdiction is invalid and the resultant proceedings are void. The decision treated that High Court authority as directly applicable and controlling on the question of pecuniary jurisdiction vis-à-vis the Board's instruction. Interpretation and reasoning: The returned income in the year under consideration exceeded the monetary threshold in the Board's instruction that assigns corporate-return cases above the threshold to DCIT/ACIT. The initial section 143(2) notice was issued by an ITO who, per the instruction, no longer possessed pecuniary jurisdiction. The assessing officer who framed the assessment under section 143(3) was not the officer competent under the instruction and did not issue a fresh valid section 143(2) notice after transfer. The Revenue's reliance on statutory provision addressing territorial jurisdictionary objections (section 124(3) as framed in the record) was rejected by the Court because that provision relates to territorial jurisdiction and presupposes a legally valid notice; it does not cure a defect in pecuniary competence of the issuing officer. The Court considered administrative attempts (e.g., migration of PAN) irrelevant to the legal requirement that the competent officer under the instruction must issue the jurisdictional notice. Ratio vs. Obiter: Ratio - A notice under section 143(2) issued by an officer who, in light of the Board's pecuniary allocation instruction, does not have competence to deal with the case, is invalid; consequentially, an assessment framed pursuant to such a notice is void ab initio. Obiter - Observations on operational difficulties (such as administrative PAN migration) as not curing jurisdictional defect are supportive but incidental. Conclusion: The assessment framed under section 143(3) is quashed as void ab initio because the initial section 143(2) scrutiny notice was issued by an officer lacking pecuniary jurisdiction under the Board's instruction; therefore the assessment does not survive. Issue 2 - Admission of additional grounds challenging jurisdiction and scope of appellate enhancement at appellate stage Legal framework: Appellate tribunals have jurisdictional discretion to admit additional grounds at any stage where the issues are legal in nature, go to the root of the matter, and the facts and materials necessary for adjudication are on record. Admission is permissible particularly for pure legal issues and where no prejudice will be caused to the opposing party. Precedent treatment: The Court applied controlling precedents permitting admission of additional grounds of a jurisdictional character at the appellate stage when the factual matrix is already on record, and when such grounds challenge the very competence of the adjudicating authority. Interpretation and reasoning: The additional grounds raised directly attacked pecuniary jurisdiction and asserted that the correct officer (DCIT/ACIT) should have issued the fresh notice; these were legal questions founded on facts already on record (returned income exceeding threshold, transfer memo). The Court found no prejudice to Revenue because the material to decide the grounds was available and the questions were legal. Accordingly, the additional grounds were admitted for adjudication. Ratio vs. Obiter: Ratio - Additional grounds challenging jurisdiction and founded on facts already in the record may be admitted at appellate stage; they need not be confined to the original grounds if they go to the root of the matter. Obiter - Practical considerations about prejudice and opportunity to be heard are explanatory. Conclusion: The additional grounds challenging pecuniary jurisdiction and scope of enhancement were properly admitted and considered. Issue 3 - Effect of quashing assessment on adjudication of substantive grounds Legal framework: If an assessment is quashed as void for want of jurisdiction, subsequent substantive determinations rooted in that assessment lack legal foundation; appellate adjudication of substantive issues becomes academic unless a valid assessment is in existence. Precedent treatment: The Court applied ordinary jurisprudential principle that jurisdictional invalidation nullifies contingent adjudications premised on the invalid proceeding. Interpretation and reasoning: Having quashed the assessment as void ab initio, the Court held that the original grounds (disallowances of salaries, travel/hotel/conveyance expenses, depreciation, disallowance of interest) and the challenge to the scope of enhancement are rendered academic because there is no valid assessment order in existence to which those grounds relate. The Court therefore refrained from expressing any opinion on the substantive merits and left those issues open for future proceedings, if permissible. Ratio vs. Obiter: Ratio - Quashing an assessment for want of jurisdiction renders subsidiary substantive adjudications academic and unnecessary to decide. Obiter - None additional. Conclusion: The substantive grounds of appeal were not adjudicated after quashing the assessment; they were left open as academic issues.