2025 (7) TMI 1798 - AT - Income Tax

CIT(A) Wrongly Set Aside Section 144 Assessments Without Addressing Jurisdictional Grounds Under Section 251(1)

Tours5 Com Versus The Income Tax Officer, Ward –9 (1), Hyderabad

The ITAT Hyderabad held that the CIT(A) erred in summarily setting aside the best judgment assessment orders passed u/s 144 and referring the matter back ... Reopening of assessment - CIT set aside best judgment assessment orders passed u/s 144 - exercise of power by CIT powers vested with him under sub-section (1) of Section 251 powers vested with him under sub-section (1) of Section 251 HELD THAT:- We are of the firm conviction that the purpose of insertion of the 'Proviso' to Section 251(1) by the legislature vide the Finance (No.2) Act, 2024 w.e.f 01.10.2024 can by no means be stretched to the extent of using it for validating an assessment or reassessment framed de hors valid assumption of jurisdiction by the A.O. We are of the firm conviction that in the totality of the facts involved in the present appeal before us, the CIT(A) instead of summarily setting aside the matter to the file of the AO for making a fresh assessment, ought to have taken a call regarding the specific ground based on which the validity of the jurisdiction that was assumed by the AO for framing the reassessment was assailed by the assessee-appellant before him. Our aforesaid conviction that it is not obligatory on the part of the CIT(A) to set aside all best judgment assessment orders passed u/s 144 of the Act to the file of the AO is further fortified on looking at the language used by the legislature in the 'Proviso' to Section 251(1) of the Act, i.e, ' may set aside the assessment and refer the case back to the Assessing Officer for making a fresh assessment ' which, thus, does not compulsorily require the CIT(A) to set aside and refer the assessment in every case where it is made u/s 144 of the Act. Set aside the order of the CIT(A), and restore the matter to his file with a direction to adjudicate the specific 'Ground of appeal No.2' based on which the jurisdiction assumed by the A.O for framing the impugned reassessment order u/s 147 r.w.s 144 r.w.s 144B of the Act dated 04.03.2024 was assailed by the assessee firm before him. As we have set aside the matter to the file of the CIT(A) for fresh adjudication, we refrain from adverting to the specific issues based on which the impugned addition has been assailed before us, which, thus are left open. ISSUES: Whether the Assessing Officer validly assumed jurisdiction to initiate reassessment proceedings under Section 147 read with Sections 144 and 144B of the Income Tax Act, 1961.Whether the Commissioner of Income Tax (Appeals) was obligated to adjudicate the validity of the jurisdictional assumption by the Assessing Officer before setting aside the best judgment assessment order under Section 144.Whether the best judgment assessment order passed under Section 144 can be set aside and referred back to the Assessing Officer without adjudicating on the jurisdictional challenge.Whether the penalty imposed under Section 271(1)(b) of the Income Tax Act for non-compliance with notices under Section 142(1) is justified.Whether the Commissioner of Income Tax (Appeals) erred in refusing to condone the delay in filing the appeal against the penalty order.Whether the notice issued under Section 148A(b) of the Income Tax Act was validly issued by the Assessing Officer. RULINGS / HOLDINGS: The Assessing Officer's initiation of reassessment proceedings under Section 147 read with Sections 144 and 144B was challenged, but the appellate authority failed to adjudicate on the validity of jurisdiction; the matter is remanded for fresh adjudication with directions to address the jurisdictional issue.The Commissioner (Appeals) is vested with the power under Section 251(1) of the Act to 'confirm, reduce, enhance or annul the assessment' and cannot avoid adjudicating on the validity of jurisdiction assumed by the Assessing Officer; setting aside the assessment without deciding on jurisdiction amounts to an evasive approach.The proviso to Section 251(1)(a), inserted by the Finance (No.2) Act, 2024, enabling the Commissioner (Appeals) to set aside and refer back best judgment assessments under Section 144, 'may' be exercised but does not absolve the Commissioner (Appeals) from adjudicating jurisdictional challenges, nor does it compel setting aside in every case.The penalty under Section 271(1)(b) for failure to comply with notices under Section 142(1) was upheld, as the assessee exhibited an 'absolute non-compliance attitude' despite issuance of multiple show cause notices and opportunities to respond.The refusal by the Commissioner (Appeals) to condone a 26-day delay in filing the appeal was set aside; a 'justice oriented and liberal approach' must be adopted, and the assessee was granted liberty to file an application for condonation with supporting affidavit for consideration on merits.The notice issued under Section 148A(b) was held to be validly issued by the Assessing Officer, contrary to the assessee's contention and the High Court ruling cited by it. RATIONALE: The Court applied the amended Section 251(1) of the Income Tax Act, 1961, as inserted by the Finance (No.2) Act, 2024, which empowers the Commissioner (Appeals) to set aside best judgment assessments under Section 144 and refer cases for fresh assessment, while emphasizing that this power is discretionary ('may') and does not override the Commissioner (Appeals)'s duty to adjudicate jurisdictional validity.The Court relied on the principle that the validity of jurisdiction assumed by the Assessing Officer is a fundamental legal issue that must be addressed and, if found invalid, requires annulment of the assessment rather than mere referral for fresh assessment.The Court referred to the 'Memorandum Explaining the Provisions in the Finance Bill, 2024' to clarify legislative intent behind the proviso to Section 251(1), underscoring that it was not meant to validate assessments made without jurisdiction.In penalty proceedings, the Court recognized that repeated non-compliance with statutory notices and failure to respond to show cause notices justify imposition of penalty under Section 271(1)(b).The Court invoked the Supreme Court precedent mandating a 'justice oriented and liberal approach' in condonation of delay applications, emphasizing procedural fairness and the right to be heard.The Court rejected the assessee's reliance on a High Court decision regarding jurisdiction to issue notice under Section 148A(b), affirming the Assessing Officer's jurisdiction in the instant case based on the facts and record.