Assessment under s.143(2) held void where CBDT Instruction No.1/2011 assigns cases over Rs.30,00,000 to ACs/DCs without s.127 transfer

ITAT held that, per CBDT Instruction No.1/2011, assessments where declared income exceeds Rs.30,00,000 fall within ACs/DCs jurisdiction; the ITO completed assessment without any s.127 transfer order. The s.143(2) notice issued by the ITO was therefore beyond jurisdiction and void, and the resulting assessment order was invalid. The ITAT set aside the assessment and allowed the assessee's jurisdictional grounds.

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ISSUES:

Whether an assessment order passed by an Assessing Officer (AO) lacking pecuniary jurisdiction is valid.Whether issuance of notice under section 143(2) of the Income-tax Act by a non-jurisdictional AO renders the assessment invalid.Whether the absence of an order under section 127 for transfer of jurisdiction affects the validity of assessment proceedings.Whether the limitation period under section 124(3) applies to objections regarding pecuniary jurisdiction of the AO.Whether additions under section 68 are justified in respect of bank deposits made out of opening cash balance when no credit is recorded in books and the assessee is not required to maintain books of account.Whether an inadvertent clerical error in reporting cash in hand in the Income Tax Return (ITR) can justify addition of unexplained cash.Whether failure to file a revised return after discovering an error in reporting cash in hand affects the validity of addition made by the AO.

RULINGS / HOLDINGS:

The assessment order passed by an AO without pecuniary jurisdiction is "bad in law" and such assessment is to be quashed as void ab initio.Notice under section 143(2) issued by a non-jurisdictional AO is invalid, and consequently, any assessment based on such notice is invalid.In the absence of any order under section 127 transferring jurisdiction, the AO who completed the assessment lacked authority, rendering the assessment void.Section 124(3) pertains only to territorial jurisdiction and does not apply to pecuniary jurisdiction; thus, objections to pecuniary jurisdiction are not barred by the one-month limitation under section 124(3).Additions under section 68 are not applicable where bank deposits are made out of opening cash balance, no credit is recorded in books, and the assessee is not required to maintain books of account.An inadvertent clerical error in reporting cash in hand in the ITR does not justify addition of unexplained cash when sufficient evidence (cash book and balance sheet) supports the cash balance.Failure to file a revised return after discovering a reporting error does not validate the addition when the error had no impact on declared income and the return was assessed before the error was pointed out.

RATIONALE:

The court applied the statutory framework under sections 143(2), 127, and 124(3) of the Income-tax Act, 1961, along with CBDT Instruction No. 1/2011 dated 31.01.2011, which prescribes pecuniary limits for jurisdiction of Income Tax Officers (ITOs) and Assistant/Deputy Commissioners (ACs/DCs).Precedents from various judicial decisions, including Supreme Court rulings and coordinate Bench decisions, were relied upon to affirm that jurisdictional limits must be strictly adhered to and cannot be waived by consent or participation of the assessee.The court distinguished between territorial jurisdiction (covered by section 124(3)) and pecuniary jurisdiction, holding that limitation under section 124(3) does not preclude challenges to pecuniary jurisdiction at any stage.The principle that a statutory power must be exercised strictly in accordance with the statute was emphasized, referencing cases such as Vijay Nathulal Sharma vs. DCIT and Malay Kar vs. Union of India.The court noted that delegated legislation in the form of CBDT instructions and circulars is binding on assessing authorities and must be followed to maintain legality of proceedings.On the merits, the court observed that additions under section 68 require unexplained credits in books of account; deposits made from opening cash balance without credit entries and where no books are required to be maintained do not attract section 68.The court accepted that inadvertent clerical errors in ITR reporting, when supported by documentary evidence, should not lead to adverse additions.

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