2025 (12) TMI 744 - HC - Income Tax

CIT(A) must decide s.251 jurisdiction issue on missing s.143(2) notice in s.144/147 reassessment appeals directly itself

HC held that CIT(A), while exercising powers under s. 251, erred in remanding the matter to the AO without adjudicating the assessee's specific challenge ... Assessment order passed under section 144 read with section 147 without issuing notice u/s 143(2) - HELD THAT:- CIT(A) without dealing with the submissions, has primarily by observing that the appellant had submitted that the assessment order was passed u/s 144 without issuing notice u/s 143(2) of the Act, has remanded the matter back to the AO. There is no finding of the CIT(A) on the said aspect inasmuch as it ought to have to come to the conclusion whether such a notice had in fact been issued, if not what is the effect and also, in such circumstances, the matter could have been remanded back to the AO, as it is the case of Mr. Krishnan that as no valid order under Section 144 of the Act was passed, the matter could not have been remanded back to the AO. Similarly, the ITAT has also without deciding the issue as raised by the appellant, upheld the order passed by the CIT(A). Since an infirmity has arisen at the level of the CIT(A), who was exercising jurisdiction u/s 251 of the Act, the issue raised need to be decided by the CIT(A) and not by the AO. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether an assessment order purportedly passed under section 144 read with section 147 of the Income-tax Act, 1961, without satisfying the statutory preconditions of section 144 (including the issuance of notice under section 143(2) where applicable), could be treated as a valid assessment capable of being set aside and remanded by the appellate authority to the Assessing Officer for fresh adjudication. 1.2 Whether the appellate authorities erred in remanding the assessment to the Assessing Officer without first adjudicating the jurisdictional objection that the assessment order itself was a nullity for non-issuance of mandatory notice under section 143(2) and non-fulfilment of the conditions of section 144. 1.3 Whether, in the facts of the case, the remand ought to have been made to the appellate authority (CIT(A)) rather than to the Assessing Officer, where the infirmity arose from failure of the CIT(A) to decide jurisdictional grounds under section 251. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Validity of assessment under section 144/147 and power to remand without deciding jurisdictional objection Legal framework (as discussed) 2.1 The Court proceeded with reference to sections 144, 147, 142(1), 143(2) and 251(1)(a) of the Act, as they were invoked and referred to in the orders of assessment, first appeal and second appeal. Section 144 prescribes three situations in which a 'best judgment' assessment can be made, including non-filing of return, non-compliance with notice under section 142(1), or non-compliance with notice under section 143(2). Section 251(1)(a) empowers the first appellate authority to confirm, reduce, enhance or annul an assessment and, by its proviso, to set aside an assessment and refer the case back to the Assessing Officer for making a fresh assessment. Interpretation and reasoning 2.2 The assessee's consistent case was that: (i) a return had been filed; (ii) notice under section 142(1) had been complied with by filing replies; and (iii) no notice under section 143(2) was issued in the reassessment proceedings. On this basis, it was urged that none of the pre-conditions of section 144 existed and, therefore, the order passed under section 144 read with section 147 was invalid and could not form the foundation for a remand to the Assessing Officer. 2.3 The Court noted that the CIT(A) recorded the assessee's submission that the assessment was passed under section 144 'without issuing notice u/s 143(2)' and that there was also a change between the show cause (proposed section 68 addition) and the ultimate assessment (section 69C addition). However, the CIT(A) merely observed that the assessee's explanation had not been submitted before the Assessing Officer and, on that basis, held it to be 'a fit case for setting aside to the file of AO for fresh adjudication', without deciding: (a) whether a notice under section 143(2) had, in fact, been issued; and (b) if not issued, what was the legal effect on the validity of the assessment under section 144/147 and on the competence to remand the matter. 2.4 The Court found that the CIT(A) failed to render any finding on the core jurisdictional objection of the assessee. The appellate authority did not determine whether the assessment order was vitiated for non-issuance of notice under section 143(2), nor whether in such circumstances an order under section 144 could validly be passed and then set aside under section 251(1)(a) for fresh assessment. 2.5 The ITAT, in upholding the CIT(A)'s remand, also did not adjudicate the assessee's jurisdictional pleas. It focussed on the assessee's failure to file reply to the show cause dated 23.12.2019 and upheld the remand as being within the proviso to section 251(1)(a), stating that the Assessing Officer, in the fresh assessment, must consider all facts including non-issuance of notice under section 143(2) and examination of evidences. The Court held that this approach overlooked the threshold question raised by the assessee-whether in absence of a valid assessment under section 144 (for want of mandatory notice under section 143(2) and non-satisfaction of section 144 conditions), any remand to the Assessing Officer was legally permissible. 2.6 The Court emphasised that when a jurisdictional ground is specifically raised (such as non-issuance of mandatory notice under section 143(2) and consequent invalidity of an order under section 144/147), it must be decided by the appellate authority. The CIT(A) could not bypass this determination and simply remit the matter to the Assessing Officer for fresh adjudication. Similarly, the ITAT could not sustain such remand without itself deciding the jurisdictional challenge. Conclusions 2.7 The Court held that both the CIT(A) and the ITAT erred in not adjudicating the assessee's specific jurisdictional objection concerning non-issuance of notice under section 143(2) and the consequent validity of the order under section 144/147. 2.8 The Court further held that the power to remand under section 251(1)(a) presupposes a validly made assessment order; absent adjudication on the validity of the assessment (in light of the section 143(2)/section 144 objections), the matter could not have been properly remanded to the Assessing Officer. 2.9 The substantial questions of law framed-relating to the correctness of the ITAT and NFAC (CIT(A)) in treating the power to remand as available when the very assessment under section 144 was under challenge, and in remanding without adjudicating jurisdictional issues-were answered in favour of the assessee and against the Revenue. Issue 3: Proper forum for remand where infirmity lies in non-exercise of appellate jurisdiction Interpretation and reasoning 3.1 The Court observed that the defect in the present matter arose at the level of the CIT(A), who, while exercising jurisdiction under section 251, failed to decide the core issues raised, particularly regarding the validity of the assessment under section 144/147 in the absence of notice under section 143(2). 3.2 Since the infirmity related to non-adjudication by the appellate authority of jurisdictional pleas, the appropriate course was not to leave the matter with the Assessing Officer as directed by the CIT(A) and sustained by the ITAT, but to restore the appeal to the stage where the error occurred and require the CIT(A) to decide all issues, including the jurisdictional challenges. Conclusions 3.3 The orders of the ITAT and the CIT(A) were set aside. 3.4 The matter was remanded to the CIT(A) to decide the appeal afresh, including specifically the plea regarding non-issuance of notice under section 143(2), the satisfaction of the conditions of section 144, and the effect thereof on the legality of the assessment and any remand. 3.5 The appeal before the Court was disposed of with the substantial questions of law answered in favour of the assessee and against the Revenue.