2024 (6) TMI 1278 - AT - Income Tax

Assessment order under section 143(3) quashed due to invalid notice issued by officer lacking jurisdiction over corporate assessee

ITAT Raipur held that assessment order passed u/s 143(3) by DCIT Circle-2(1), Bilaspur was invalid as the mandatory notice u/s 143(2) was issued by ITO ... Issuance of notice u/s 143(2) by non jurisdictional AO/ITO - As argued no notice u/s 143(2) was issued by the jurisdictional AO i.e., DCIT-2(1), Bilaspur who had framed and passed the assessment order - contention of Ld. Sr. DR that the notice u/s 143(2) of the Act was issued by the ITO Ward 1(1), Bilaspur, since the PAN of the assessee was lying with him at the time of issuance of notice - As soon as ITO 1(1) has realized that the amount of returned income filed by the assessee exceeds Rs. 15 Lacs, he transferred the said case to DCIT-1(1) Bilaspur HELD THAT:- Admittedly, in the present case the mandatory notice u/s 143(2) for initiating the assessment proceedings was issue by ITO Ward 1(1), Bilaspur vide notice dated 17.03.2016, who at relevant point of time was not vested with valid jurisdiction over the case of the assessee, since the cases having returned income above Rs. 15,00,000/- in the case of corporate assessee’s are under the jurisdiction of ACIT/DCIT. The assessee’s returned income was Rs. 21,44,050/-, which as discussed hereinabove is more than Rs. 15 Lac, therefore the valid jurisdiction was with ACIT/DCIT. In view of aforesaid CBDT’s instructions referred to supra, followed by communication by the Ld. CCIT, Raipur, we hold that the first notice u/s 143(2) issued by the ITO Ward-1(1), Raipur, was clearly against the mandate of instructions issued and thereafter subsequently no notice u/s 143(2) was issued by the jurisdictional AO i.e., DCIT-2(1), Bilaspur who had framed and passed the assessment order. Objection raised by DR that the assessee has not objected to the jurisdiction of the ITO-1(1) within the stipulated time period as per provisions of section 124(3) of one month from the date on which the notice was served on the assessee - The issue has been duly considered in the case of Durga Manikanta [2023 (1) TMI 1099 - ITAT RAIPUR] held as the assessee’s objection to the validity of the jurisdiction assumed by the Income- Tax Officer, Ward-2(2), Bhilai is by no means an objection to his territorial jurisdiction, but in fact an objection to the assumption of jurisdiction by him in contravention of the CBDT Instruction No.1/2011, dated 31.01.2011, therefore, the provisions of sub- section (3) of Section 124 would not assist the case of the revenue. Thus admittedly, the first notice u/s 143(2) was issued by ITO Ward- 1(1), Bilaspur, on 17.03.2016, who was not vested with valid jurisdiction over the case of the assessee, therefore, the assessment framed on the foundation of such invalid notice is liable to be struck down. It is pertinent to mention that the DCIT, Circle-2(1), Bilaspur, who had framed the assessment have never issued any notice u/s 143(2) of the Act, therefore, the assessment order framed u/s 143(3) cannot survive on the basis of the first notice u/s 143(2). Thus assessment order passed u/s 143(3) by DCIT, Circile-2(1), Bilaspur, on the basis of proceedings initiated vide notice u/s 143(2) dated 17.03.2016 by ITO, W-1(1), Bilaspur, who at the relevant point of time was not vested with valid jurisdiction over the case of the assessee, cannot be sustained, thus, the same is liable to be quashed, and we do so. Appeal of assessee allowed. Issues Involved:1. Validity of the jurisdiction assumed by the Assessing Officer (AO) who issued the notice under Section 143(2).2. Disallowance of various expenses by the AO, including development expenses, stamp expenses, registry expenses, and typing expenses.Detailed Analysis:1. Validity of the Jurisdiction Assumed by the AO:The primary issue raised by the assessee was the validity of the jurisdiction assumed by the AO who issued the notice under Section 143(2) of the Income Tax Act, 1961. The assessee argued that the notice dated 17.03.2016 was issued by the ITO, Ward 1(1), Bilaspur, who did not have the jurisdiction over the case as the returned income was more than Rs. 15 lakhs, which meant the jurisdiction should have been with the ACIT/DCIT.The Tribunal noted that the jurisdiction for cases with a returned income above Rs. 15 lakhs for corporate assessees lies with the ACIT/DCIT as per CBDT Instruction No. 1/2011 dated 31.01.2011 and the subsequent instruction by the CCIT, Raipur. The ITO, Ward 1(1), Bilaspur, issued the notice under Section 143(2) without proper jurisdiction, and no subsequent notice was issued by the jurisdictional AO, i.e., DCIT, Circle-2(1), Bilaspur, who eventually passed the assessment order.The Tribunal referred to several judgments, including 'Mata Road Carriers vs DCIT' and 'Durga Manikanta Traders vs ITO,' which held that assessments framed on the basis of notices issued by non-jurisdictional officers are void ab initio. The Tribunal concluded that the assessment order passed by DCIT, Circle-2(1), Bilaspur, based on the notice issued by ITO, Ward 1(1), Bilaspur, was illegal and void ab initio.2. Disallowance of Various Expenses:The AO disallowed several expenses claimed by the assessee, including:- Development Expenses: Rs. 1,16,73,020/-- Stamp Expenses: Rs. 27,65,260/-- Registry Expenses: Rs. 4,20,181/-- Typing Expenses: Rs. 88,000/-The assessee argued that these expenses were genuine and supported by bills and vouchers. However, the AO did not find the explanations convincing and made the disallowances. The CIT(A) upheld the AO's disallowances, noting that the assessee failed to provide sufficient evidence to rebut the AO's findings. The AO observed discrepancies in the books of accounts, bills, and vouchers and noted that some notices issued under Section 133(6) returned unserved.The Tribunal, however, did not delve into the merits of these disallowances as it quashed the assessment order for want of valid jurisdiction. Therefore, the issues related to the disallowance of expenses were left open.Conclusion:The Tribunal allowed the appeal of the assessee, quashing the assessment order passed under Section 143(3) dated 23.12.2017 by DCIT, Circle-2(1), Bilaspur, on the grounds that the initial notice under Section 143(2) was issued by an officer without valid jurisdiction. The Tribunal refrained from addressing the other contentions related to the disallowance of expenses, leaving them open for consideration if required in future proceedings.