2024 (9) TMI 1739 - AT - Income Tax

Reopening notice u/s 148 issued by non-jurisdictional AO - HELD THAT - We are bound to follow the same. Moreover as held in the case of ACIT vs. Hotel Blue Moon 2010 (2) TMI 1 - SUPREME COURT that the issue of notice u/s 143(2) is sine qua non to assume jurisdiction to proceed with the assessment in a case. Similarly in our view in the case of the reopening of the assessment u/s 147 of the Act the issue of notice u/s 148 by the AO having jurisdiction is also sine qua non. If the said notices had been issued by the Assessing Officer who did not have the jurisdiction over the assessee then such notices are to be treated as non-est. The assessment carried out in such cases will be bad in law. Thus assessment framed u/s 143(3) r.w.s. 147 of the Act in this case is held to be bad in law and the same is accordingly quashed. Appeal of the assessee stands allowed.

Summary

The core legal questions considered in this judgment revolve around the jurisdictional validity of notices issued under sections 143(2), 148, and the consequent assessments framed under sections 143(3) and 147 of the Income Tax Act. Specifically, the issues include: (i) whether the Assessing Officer (AO) who issued the notice under section 148 had pecuniary jurisdiction over the assessee based on the returned income and CBDT instructions; (ii) whether a notice issued by a non-jurisdictional AO can be considered valid or cured under section 292B of the Act; (iii) the legal effect of issuance or non-issuance of notice under section 143(2) by the AO having jurisdiction; (iv) the validity of reopening assessments based solely on information from the Insight Portal without independent inquiry; and (v) the impact of faceless assessment scheme and transfer of proceedings to the National Faceless Assessment Centre (NaFAC) on jurisdictional issues.

Issue-wise detailed analysis:

1. Jurisdiction of the Assessing Officer to issue notice under section 148 and section 143(2):

The legal framework governing jurisdiction is primarily derived from section 120 of the Income Tax Act, which empowers the CBDT to fix territorial and pecuniary jurisdiction of income-tax authorities. CBDT Instruction No. 1/2011 further clarifies pecuniary limits for assigning cases to Income Tax Officers (ITOs) and Assistant Commissioners of Income Tax (ACITs)/Deputy Commissioners of Income Tax (DCITs). For metro cities such as Kolkata, the instruction prescribes that for non-corporate assessees, cases with declared income up to Rs. 20 lakhs fall under ITO jurisdiction, while those above Rs. 20 lakhs fall under ACIT/DCIT jurisdiction. For corporate assessees, the threshold is Rs. 30 lakhs.

The court examined the facts wherein the assessee had declared income exceeding Rs. 17.9 million (Rs. 1.79 crore), which clearly placed the case under the jurisdiction of ACIT/DCIT as per CBDT instructions. However, the notice under section 148 was issued by ITO Ward 36(1), Kolkata, who lacked pecuniary jurisdiction. The court relied on precedents including the jurisdictional Calcutta High Court's decision in PCIT vs. Shree Shoppers Ltd. and the coordinate bench's ruling in M/s J R Roadlines Pvt. Ltd. vs. DCIT, which held that issuance of notice by an officer lacking pecuniary jurisdiction is invalid. The court emphasized that valid jurisdiction is a sine qua non for assuming jurisdiction to proceed with assessment or reassessment.

Further, the court reviewed the necessity of issuance of notice under section 143(2) by the AO having jurisdiction as a prerequisite to framing assessment under section 143(3). It was found that in many analogous cases, notices under section 143(2) were issued by ITOs lacking jurisdiction, and assessments were framed by DCITs who had not issued such notices, rendering the assessments void. The court cited the Supreme Court decision in ACIT vs. Hotel Blue Moon, which established the mandatory nature of notice under section 143(2) for valid assessment proceedings.

The court rejected the department's argument that section 292BB cures jurisdictional defects, clarifying that section 292BB applies only to infirmities in service of notice, not to complete absence or issuance by a non-jurisdictional officer. The court also distinguished the territorial jurisdiction from pecuniary jurisdiction, holding that while territorial jurisdiction was not disputed, pecuniary jurisdiction fixed by CBDT instructions was binding.

2. Validity of reopening assessment based on Insight Portal information and reasons recorded:

The assessee contended that reopening of assessment by merely quoting information from the Insight Portal without independent inquiry or verification was invalid. The court noted that reopening under section 147 requires satisfaction of the AO based on tangible material indicating income has been understated. The reasons recorded must be factually correct and not based on mere mechanical approval. However, since the court quashed the assessment on jurisdictional grounds, it did not delve deeply into the merits of this issue, rendering it academic.

3. Effect of faceless assessment scheme and transfer of proceedings to NaFAC:

The department argued that even if the initial notice was issued by a non-jurisdictional AO, the faceless assessment scheme empowered the National Faceless Assessment Centre (NaFAC) to complete assessments centrally, thereby validating the proceedings. The court acknowledged the scheme but held that jurisdictional requirements under the Act and CBDT instructions remain paramount. Transfer of proceedings to NaFAC does not cure the fundamental defect of issuance of notice by a non-jurisdictional AO. Thus, assessments completed facelessly without valid jurisdictional notice are bad in law.

4. Treatment of competing arguments:

The department relied on the Allahabad and Madras High Courts' decisions which held that monetary limits fixed by CBDT instructions are not rigid and do not oust inherent jurisdiction of AO. They argued that the AO had territorial jurisdiction and that pecuniary limits serve only for equitable workload distribution. However, the court distinguished these decisions by emphasizing the binding nature of CBDT instructions and the mandatory procedural requirement of valid notice by the AO having pecuniary jurisdiction. The court found the jurisdictional Calcutta High Court decisions and coordinate tribunal benches' rulings more persuasive and binding in the present facts.

5. Conclusions:

The court concluded that the notice under section 148 issued by ITO Ward 36(1), Kolkata, who lacked pecuniary jurisdiction as per CBDT Instruction No. 1/2011, was invalid. Consequently, the reopening of assessment under section 147 and the subsequent assessment order were bad in law. The absence of valid notice under section 143(2) by the AO having jurisdiction further vitiated the assessment proceedings. Section 292BB could not cure these jurisdictional defects. The faceless assessment scheme did not confer jurisdiction where none existed initially. Therefore, the entire assessment proceedings were quashed.

Significant holdings include the following verbatim excerpts and principles:

"It is a settled position of law that for carrying out the assessment proceedings u/s. 143(3) of the Act, the statutory requirement of serving of valid notice u/s. 143(2) of the Act is must and in absence thereof the subsequent proceedings become invalid."

"When a notice is issued by an officer having no jurisdiction, Section 292BB of the Act, does not come into play."

"The notice under section 148 of the Act is jurisdictional notice and any inherent defect therein is not curable."

"The jurisdiction of Income Tax Authorities may be fixed not only in respect of territorial area but also having regard to a person or classes of persons and income or classes of income also."

"If the said notices had been issued by the Assessing Officer who did not have the jurisdiction over the assessee, then such notices are to be treated as non-est and the assessment carried out in such cases will be bad in law."

The court firmly established that pecuniary jurisdiction fixed by CBDT instructions is binding for issuance of notices and assumption of jurisdiction. The issuance of notice under section 143(2) or 148 by an officer lacking pecuniary jurisdiction is null and void, and the subsequent assessments based thereon are invalid. The faceless assessment scheme does not override these jurisdictional requirements. The court also clarified that section 292BB cannot cure the complete absence of valid notice or jurisdictional defects.

Accordingly, the court allowed the appeal, quashed the assessment order passed under sections 143(3) r.w.s. 147, and refrained from adjudicating merits of the case as they were rendered academic by the jurisdictional findings.