Assessment Order Quashed for Lack of Jurisdiction Under Section 143(2) as Per CBDT Circular No.1/2011
The ITAT Kolkata held that the assessment order passed by the ACIT was invalid as the return income of Rs. 16,50,920 fell under the jurisdiction of the ITO per CBDT Circular No.1/2011. Since the notice under section 143(2) and the assessment order were issued by the ACIT, who lacked pecuniary jurisdiction, the proceedings were held to be without jurisdiction and thus bad in law. The assessment order was quashed, and the assessee's appeal was allowed.
1. ISSUES PRESENTED and CONSIDERED
1. Whether the assessment order framed under section 143(3) of the Income Tax Act is valid when the notice under section 143(2) was issued by an Assessing Officer lacking pecuniary jurisdiction as per CBDT Circular No.1/2011.
2. Whether issuance of notice under section 143(2) by a non-jurisdictional officer vitiates the entire assessment proceedings.
3. Whether the procedural irregularity of jurisdictional error can be cured by subsequent actions or by provisions such as section 292BB of the Act.
4. Whether the assessee's failure to object to jurisdiction within the prescribed period under section 124(3)(a) of the Act bars challenge to jurisdiction at the appellate stage.
5. Whether the long-term capital gains claimed by the assessee from share transactions were genuine and properly substantiated.
2. ISSUE-WISE DETAILED ANALYSIS
Issue 1 & 2: Validity of assessment framed under section 143(3) when notice under section 143(2) was issued by an officer without pecuniary jurisdiction
Relevant Legal Framework and Precedents:
- Section 143(2) of the Income Tax Act mandates issuance of a notice to the assessee before framing an assessment under section 143(3).
- CBDT Circular No.1/2011 dated 31.01.2011 prescribes pecuniary limits for jurisdiction of Income Tax Officers (ITOs) and Assistant Commissioners of Income Tax (ACITs) based on the income declared and location (metro or mofussil).
- Section 120 of the Act empowers the CBDT to allocate jurisdiction based on territorial area, persons, incomes, or classes of cases.
- Judicial precedents establish that issuance of notice under section 143(2) by the Assessing Officer having jurisdiction is sine qua non for valid assessment proceedings.
- The Tribunal and High Courts have consistently held that an assessment framed without valid notice by a jurisdictional officer is null and void.
Court's Interpretation and Reasoning:
- The Court noted that the assessee declared income below the pecuniary threshold prescribed for ACIT jurisdiction under CBDT Circular No.1/2011; thus, jurisdiction lay with the ITO and not the ACIT who issued the notice and framed the assessment.
- The issuance of notice under section 143(2) by the ACIT, who lacked jurisdiction, was held to be a procedural irregularity that vitiated the entire assessment.
- Reliance was placed on multiple coordinate bench decisions where similar facts led to quashing of assessments due to jurisdictional defects.
- The Court emphasized that jurisdictional lapses cannot be cured by subsequent actions or by the fact that the assessee participated in proceedings.
Key Evidence and Findings:
- The return of income filed by the assessee was Rs. 16,50,920/- which falls under ITO jurisdiction as per CBDT Circular No.1/2011.
- Notice under section 143(2) and assessment order were issued and framed by ACIT, Circle-28, Kolkata, who did not have pecuniary jurisdiction.
- No valid notice under section 143(2) was issued by the jurisdictional ITO before the ACIT assumed jurisdiction.
Application of Law to Facts:
- The Court applied the CBDT Circular and statutory provisions to determine that the ACIT lacked jurisdiction to issue notice and frame assessment.
- The absence of valid notice by the jurisdictional officer rendered the assessment order void ab initio.
Treatment of Competing Arguments:
- The Revenue argued that no procedural irregularity existed and relied on Supreme Court decisions allowing challenge to jurisdiction only within 30 days under section 124(3)(a).
- The Court distinguished these precedents, holding that the issue here was the jurisdiction of the Assessing Officer framing the assessment, which is a fundamental jurisdictional defect and not a mere procedural lapse.
- The Court rejected the contention that section 292BB could validate the notice, clarifying that this section does not cure complete absence of notice but only defects in service.
Conclusions:
- The assessment order framed under section 143(3) without valid notice under section 143(2) by a jurisdictional officer is invalid and bad in law.
- The procedural irregularity of jurisdictional error vitiates the entire assessment proceedings.
- The appeal on this ground is allowed and the assessment order is quashed.
Issue 3: Applicability of section 292BB and section 124(3)(a) in curing jurisdictional defects
Relevant Legal Framework and Precedents:
- Section 292BB provides that if the assessee participates in proceedings, notices are deemed valid despite defects in service.
- Section 124(3)(a) requires the assessee to object to jurisdiction within 30 days of receipt of notice under section 143(2).
- Supreme Court has held that section 292BB does not cure complete absence of notice.
Court's Interpretation and Reasoning:
- The Court held that section 292BB cannot validate a notice issued by a non-jurisdictional officer as it only applies to defects in service, not absence of jurisdiction.
- The Court also held that section 124(3)(a) does not apply to jurisdictional defects in framing assessment orders, especially when the issue is raised at the appellate stage.
Conclusions:
- Neither section 292BB nor section 124(3)(a) can cure or bar challenge to jurisdictional defects in issuance of notice and framing of assessment.
Issue 4: Challenge to jurisdiction at appellate stage despite no objection within 30 days
Court's Interpretation and Reasoning:
- The Court noted that the issue before it was the jurisdiction of the Assessing Officer who framed the assessment order.
- It distinguished the ratio of Supreme Court decisions requiring objection within 30 days, holding that such provisions do not preclude jurisdictional challenges at the appellate stage.
Conclusions:
- The assessee is entitled to challenge jurisdiction of the Assessing Officer framing the assessment even if no objection was raised within 30 days of notice issuance.
Issue 5: Merits of long-term capital gain addition and genuineness of share transactions
Court's Interpretation and Reasoning:
- The Court observed that since the assessment order was quashed on jurisdictional grounds, merits of the additions and genuineness of share transactions were rendered academic and need not be adjudicated.
Conclusions:
- No decision was rendered on the merits of the additions under sections 68 and 69 read with section 115BBE.
3. FINAL CONCLUSIONS
- The assessment proceedings initiated by issuance of notice under section 143(2) by an officer lacking pecuniary jurisdiction as per CBDT Circular No.1/2011 are invalid.
- The assessment order framed under section 143(3) without valid notice by the jurisdictional Assessing Officer is void and liable to be quashed.
- Provisions such as section 292BB and section 124(3)(a) do not cure or bar challenges to jurisdictional defects in such cases.
- Since the assessment order is quashed on jurisdictional grounds, other issues raised in appeal are rendered academic.
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