Assessment order quashed due to non-issuance of mandatory notice under section 143(2) by competent officer

ITAT Kolkata quashed an assessment order where unexplained cash deposits were treated as undisclosed income. The court held that non-issuance of notice under section 143(2) by the competent ACIT rendered the assessment invalid. Following the SC precedent in ACIT vs. Hotel Blue Moon, the tribunal ruled that notice under section 143(2) is mandatory to assume jurisdiction for assessment proceedings. Since the authorized officer failed to issue the required notice, the entire assessment was deemed bad in law and quashed in favor of the assessee.

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The judgment from the ITAT Kolkata addresses several core legal issues concerning the jurisdiction and procedural validity of an assessment order under the Income Tax Act. The primary focus is on whether the assessment order was validly framed given the procedural requirements and jurisdictional mandates.

1. Issues Presented and Considered

The core legal issues considered in this appeal include:

• Whether the assessment order dated 29.12.2019, passed by ACIT, Circle-38, Midnapore, is valid given the procedural requirements under the Income Tax Act.
• Whether the notice under section 143(2) of the Income Tax Act was validly issued by the appropriate jurisdictional authority.
• Whether the pecuniary jurisdiction was correctly applied as per the CBDT instructions and statutory provisions.

2. Issue-wise Detailed Analysis

Jurisdiction and Validity of Notice under Section 143(2)

• Relevant Legal Framework and Precedents: The legal framework revolves around sections 120 and 143(2) of the Income Tax Act, along with CBDT Instruction No.1/2011. The precedents cited include decisions from the Hon'ble Supreme Court in 'ACIT vs. Hotel Blue Moon' and various judgments from the Calcutta High Court and ITAT Kolkata.
• Court's Interpretation and Reasoning: The Tribunal emphasized that the issuance of a notice under section 143(2) by the correct jurisdictional authority is a sine qua non for a valid assessment under section 143(3). The Tribunal referred to section 120 of the Act, which allows jurisdiction to be determined by territorial area, classes of persons, and classes of income. The CBDT Instruction No.1/2011 establishes pecuniary limits for jurisdiction, which were not adhered to in this case.
• Key Evidence and Findings: The Tribunal found that the notice under section 143(2) was issued by the ITO, Ward-38(1), Midnapore, whereas the assessment was completed by ACIT, Circle-38, Midnapore. The returned income exceeded Rs. 15 lakhs, thus necessitating the jurisdiction of ACIT/DCIT as per CBDT instructions.
• Application of Law to Facts: The Tribunal applied the statutory requirements and CBDT instructions to the facts, concluding that the notice issued by a non-jurisdictional officer rendered the assessment invalid. The Tribunal relied on the precedent set by the Calcutta High Court in 'PCIT vs. Shree Shoppers Ltd.' and other similar cases.
• Treatment of Competing Arguments: The Tribunal considered the arguments from both sides. The Department's representative relied on the assessment order's findings, but the Tribunal found these insufficient to overcome the procedural defect identified by the assessee's counsel.
• Conclusions: The Tribunal concluded that the assessment order was invalid due to the lack of a valid notice under section 143(2) issued by the appropriate jurisdictional authority. The procedural defect was deemed incurable, leading to the quashing of the assessment order.

3. Significant Holdings

• Core Principles Established: The Tribunal reaffirmed that the issuance of a notice under section 143(2) by the appropriate jurisdictional authority is mandatory for a valid assessment under section 143(3). The procedural requirements cannot be bypassed, and any assessment made without adhering to these requirements is null and void.
• Final Determinations on Each Issue: The Tribunal determined that the assessment order was void ab initio due to the lack of jurisdiction by the officer who issued the notice under section 143(2). The appeal was allowed, and the assessment order was quashed.

This judgment underscores the importance of adhering to procedural mandates and jurisdictional requirements in tax assessments, reinforcing the principle that procedural defects related to jurisdiction cannot be overlooked or cured post facto.

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