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

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 to the AO without adjudicating on the specific jurisdictional ground raised by the assessee. The proviso to Section 251(1) does not mandate automatic setting aside of assessments framed u/s 144. The tribunal set aside the CIT(A)'s order and restored the matter to him with directions to decide the specific ground challenging the AO's jurisdiction for reassessment u/s 147 r.w.s 144 r.w.s 144B. The tribunal refrained from addressing the substantive issues, leaving them open for fresh consideration.

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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.

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