2024 (7) TMI 1641 - AT - Income Tax

Validity of reopening of assessment - Notice issued by non- jurisdictional ITO - jurisdiction of the AO issuing notice u/s.148 and framing the assessment accordingly u/s. 147 r/w sec 144B - as argued assessment framed by the AO without application of mind and without controverting the explanation given by the assessee HELD THAT - We find that undisputedly the returned income of the assessee was Rs. 39, 72, 460/- and the jurisdiction to issue notice and to frame the assessment vested with the ACIT/DCIT whereas the notice u/s. 148 of the Act dated 30.06.2021 has been issued by ITO Ward-2(1) Kolkata. Besides the decision of Hon ble Apex Court in the case of DCIT (Exemption) Anr. Vs. Kalinga Institute of Industrial Technology 2023 (6) TMI 1076 - SC ORDER as relied on by the Ld. DR to defend his arguments is not applicable as the assessee has objected to the issuance of notice within 30 days from the issuance of the notice u/s 148 of the Act itself. Therefore in our opinion the assessment so framed is invalid for the want of jurisdiction. Accordingly we quash the assessment made by the AO. Issue of assessment being barred by limitation as no notice u/s. 148 could be issued post 31.03.2021 - We have perused the provisions of the Act carefully and found that the old regime of reassessment has undergone a sea change and section 148 of the Act has been repealed and abrogated and replaced by new sections of 148 and 148A w.e.f. 01.04.2021 by the Finance Act 2021. In the instant case before us the notice u/s. 148 of the Act dated 30.06.2021 was apparently issued after 31.03.2021 under new regime of reassessment as provided under the Act in respect of AY 2014-15 on the ground that the time limit to issue notice u/s. 148 of the Act (old unamended) stood extended upto 31.06.2021. In our opinion the notice issued u/s 148 of the Act on after 1.4.2021 is clearly barred by limitation. If this is accepted this would result in dichotomy of two system in operation for the same period which are in conflict interse. The case of the assessee is also squarely covered by the decision of M/s. Arati Marketing Pvt. Ltd. Vs. Union of India Ors. 2024 (2) TMI 704 - CALCUTTA HIGH COURT wherein as held that the provisions of old regime of section 148 of the Act including (TOLA) are not applicable post 31.3.2021. Thus we are inclined to hold that the notice issued u/s 148 of the Act dated 30.06.2021 is barred by limitation and so is the consequent assessment framed. Whether AO was not having any books of account/document/evidence which revealed that income escaping assessment amount to or is likely to amount to Rs. 50 lakh or more? - we observe that apparently the addition in this case has been made of Rs. 35.50 lakh and thus AO has no jurisdiction to issue notice u/s. 148 of the Act in terms of provision of section 149(1)(b) as the AO was not having any books of account/document/evidence which revealed that income escaping assessment amount to or is likely to amount to Rs. 50 lakh or more. The case of the assessee finds support from the decision of Hon ble Jharkhand High Court in the case of Ratan Bej 2024 (2) TMI 546 - JHARKHAND HIGH COURT . Thus set aside the order of Ld. CIT(A) and quashing the assessment so framed on this count as well. Notice issued u/s 148A(b) that assessee has received and is beneficiary of accommodation entries received from the concerns belonging to or operated by Shri Mukesh Banka - The notice issued by the Ld. AO u/s. 148A(b) of the Act has been comprehensively replied as stated above controverting the allegations of the AO as incorrect and baseless. However the AO has not applied his mind to the reply given by the assessee and not controverted the arguments of the assessee. Thus apparently the assessment framed by the AO without application of mind and without controverting the explanation given by the assessee is bad in law. The case of the assessee is squarely covered by the decision of Excel commodity Derivative Pvt. Ltd. Vs. Union of India Ors. 2024 (1) TMI 1337 - CALCUTTA HIGH COURT in which the Hon ble Court has held that the assessment framed u/s. 148A(d) without application of mind and without controverting the explanation of the assessee is bad in law and is accordingly being quashed. Assessment framed by the AO is non est and bad in law - The facts in brief are that the AO issued notice u/s 148 on 20.4.2021 and u/s 148A(b) of the Act on 23.05.2022. The amount mentioned by the AO in the notice issued u/s 148A(b) was only 13.00 lacs received from Snow Fall Impex Pvt Ltd. and accordingly the assessee is beneficiary of the said amount. The addition made by the AO in the impugned assessment was also Rs. 13 lakh thereby assessing the income at Rs. 13.00 lacs as the assessee has shown nil income in the return of income which is below Rs. 50 lakh and the AO was not having in his possession any books of account/other documents or evidence which reveals that income chargeable to tax which has escaped assessment amounts to or is likely to amount to Rs. 50 lakh or more. Decided in favour of assessee.

Summary

The core legal issues considered by the Appellate Tribunal pertain to the validity and jurisdictional competence of the Assessing Officer (AO) in issuing notices under sections 148 and 148A of the Income Tax Act, 1961 (the Act), framing assessments under section 147 read with section 144B, and the limitation period applicable to such reassessment proceedings. The Tribunal also examined the application of CBDT instructions regarding pecuniary jurisdiction, the impact of legislative amendments effective from 01.04.2021 on reassessment notices, and the adequacy of the AO's application of mind in accepting or rejecting the assessee's explanations regarding alleged accommodation entries.

First, the Tribunal addressed whether the AO issuing the notice under section 148 and framing the reassessment had the requisite jurisdiction, particularly in light of CBDT Instruction No. 1/2011, which prescribes monetary limits for the assignment of cases to Income Tax Officers (ITOs) or Assistant/Deputy Commissioners of Income Tax (AC/DCs). The assessee declared income exceeding Rs. 15 lakhs, which under the instruction mandates that the assessment be conducted by ACIT/DCIT, not by an ITO. The notices in question were issued by ITO, Ward-2(1), Kolkata, who lacked jurisdiction. The assessee objected to this lack of jurisdiction in a timely manner, but the AO proceeded with the assessment without rectifying the jurisdictional defect.

In analyzing this issue, the Tribunal relied extensively on precedents including decisions by coordinate Benches and the Calcutta High Court, which consistently hold that issuance of notice by an officer lacking jurisdiction renders the entire proceeding void. The Tribunal cited the decision in PCIT vs. Shree Shoppers Ltd., where it was held that a notice under section 143(2) issued by a non-jurisdictional officer is invalid and vitiates subsequent proceedings. Similarly, in Smita Biswas and other cases, the absence of valid transfer orders under section 127 and non-compliance with CBDT instructions on pecuniary jurisdiction resulted in quashing of assessments. The Tribunal underscored that the jurisdictional defect is a legal issue going to the root of the matter and cannot be cured by subsequent proceedings or participation by the assessee. The Tribunal rejected the Revenue's reliance on the Supreme Court decision in DCIT (Exemption) vs. Kalinga Institute of Industrial Technology, clarifying that the assessee had objected within the prescribed period, thereby preserving the jurisdictional challenge.

Second, the Tribunal considered whether the reassessment notices issued under section 148 of the Act were barred by limitation, especially in light of the legislative changes effective from 01.04.2021. The Finance Act, 2021 repealed and replaced the old provisions of sections 147, 148, 149, and 151 with new provisions effective from that date, including the insertion of section 148A. The assessee contended that notices issued post 31.03.2021 under the old section 148 were invalid and barred by limitation. The Revenue argued that notifications issued under the Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) extended the limitation period.

The Tribunal undertook a detailed examination of the legislative history, including the promulgation of TOLA, subsequent notifications extending limitation periods, and the enactment of the Finance Act, 2021. It noted that the Finance Act, 2021 introduced a new reassessment regime without any savings clause for the old provisions, rendering the old provisions inoperative from 01.04.2021. The Tribunal relied on the recent Supreme Court judgment in M/s. Arati Marketing Pvt. Ltd. vs. Union of India & Ors., which held that applying the old regime, including TOLA extensions, beyond 31.03.2021 is impermissible and arbitrary. The Court emphasized that the new regime's provisions must be applied to notices issued after 01.04.2021, and any notice issued under the old section 148 after that date is barred by limitation. Consequently, the reassessment framed on the basis of such notice was held invalid.

Third, the Tribunal examined whether the AO had jurisdiction under the amended section 149(1)(b) to issue the reassessment notice, which requires that the escaped income amount to or likely amount to Rs. 50 lakhs or more if the notice is issued after three years but within ten years from the end of the relevant assessment year. In the instant case, the addition made was Rs. 35.50 lakhs, below the Rs. 50 lakh threshold. The Tribunal relied on the Jharkhand High Court decision in Ratan Bej vs. PCIT, which held that the AO must have in possession books of account or evidence revealing escaped income of Rs. 50 lakh or more to issue such notice beyond three years. Since the AO lacked such evidence, the reassessment was invalid.

Fourth, the Tribunal addressed the adequacy of the AO's application of mind in considering the assessee's objections to the notice under section 148A(b). The AO alleged that the assessee was a beneficiary of accommodation entries totaling Rs. 92.50 lakhs, citing transactions with various parties. The assessee provided detailed rebuttals supported by books of account, demonstrating discrepancies in the AO's allegations, including incorrect transaction dates and parties, and showing that the amounts were short-term loans duly repaid. The Tribunal noted that the AO failed to consider or controvert these explanations and passed a non-speaking order under section 148A(d), reflecting non-application of mind. The Tribunal relied on the jurisdictional High Court decision in Excel Commodity & Derivative Pvt. Ltd. vs. Union of India, which held that assessments framed without application of mind and without addressing the assessee's explanations are bad in law and liable to be quashed.

In the second appeal (ITA No. 1417/Kol/2023), the facts and issues were substantially similar, involving reassessment framed on a smaller addition of Rs. 13 lakhs, below the Rs. 50 lakh threshold, and the AO lacked requisite evidence to justify reopening beyond three years. The Tribunal applied the same reasoning and quashed the assessment.

Significant holdings include the following:

"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."

"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. Therefore, the CBDT having regard to the income as per return has fixed the jurisdiction of the Assessing Officers."

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

"The Finance Act, 2021 completely reformed the system of reassessment by bringing in a completely new procedure of reassessment with effect from April 1, 2021... the old Sections 147, 148, 149 and 151 stood repealed/abrogated and replaced by a new set of provisions."

"The provisions of TOLA applied only to the pre-amended law as applicable till 31.03.2021... The question of application of provisions of TOLA by the revenue in the case of notices on or after 1st April, 2021... does not arise and such exercise by the authority under TOLA... is wholly unwarranted and bad in law."

"The assessment framed by the AO without application of mind and without controverting the explanation given by the assessee is bad in law."

In conclusion, the Tribunal held that the reassessment notices issued by the non-jurisdictional ITO were invalid, the notices issued post 31.03.2021 under the old regime were barred by limitation, the AO lacked jurisdiction under section 149(1)(b) to issue notices for escaped income below Rs. 50 lakh beyond three years, and the AO failed to apply mind to the assessee's explanations. Accordingly, the reassessments framed on these grounds were quashed and the appeals allowed.