2025 (5) TMI 833 - HC - Income Tax

Assessment order passed u/s 147 r.w.s. 144B - AO jurisdiction to proceed further and make assessment since notice u/s 143(2) - HELD THAT - We find that the issue is squarely covered in favour of the assessee by the decision of M/s. Nopany Sons 2022 (2) TMI 399 - CALCUTTA HIGH COURT taking note of the said letter the Tribunal in our view rightly held that the proviso to Section 292BB would not stand attracted and the said Section cannot be made applicable to the assessee s case. Tribunal thereafter analysed as to the correctness of the submission of the revenue seeking to sustain their stand by referring to a notice issued by the assessing officer who at the relevant point had no jurisdiction over the assessee and on facts found that there is no valid compliance of Section 143(2) of the Act as the notice issued u/s 143(2) of the Act by the AO/Income Tax Officer Ward-3(1) had no jurisdiction over the assessee at the relevant time. The Tribunal to support its conclusion placed reliance in the case of CIT Another Vs. Mukesh Kumar Agarwal 2012 (7) TMI 543 - ALLAHABAD HIGH COURT wherein it was held that the assessing officer did not have jurisdiction to proceed further and make assessment since notice under Section 143(2) of the Act was admittedly not issued. As in the case on hand the revenue sought to take coverage under Section 292BB of the Act which was rejected on the ground that the very foundation of the jurisdiction of the assessing officer was on the issuance of notice under Section 143(2) of the Act and the same having been complied with the revenue cannot take shelter under the provisions of Section 292BB -Decided against the revenue.

1. ISSUES PRESENTED and CONSIDERED

The core legal question considered by the Court was whether the Income Tax Appellate Tribunal (Tribunal) was justified in holding the assessment order passed under Section 147 read with Section 144B of the Income Tax Act, 1961 (the Act) as bad in law. Specifically, the question involved the correctness of the issuance of the notice under Section 148 by the Income Tax Officer (ITO), Ward 36(1), Kolkata, and the validity of the subsequent assessment passed by the Faceless Assessing Officer. The issue centered on the interpretation of Section 120 of the Act and the applicability of the CBDT's Instruction No.1/2011, which governs jurisdictional assignments and distribution of work among assessing officers. The revenue contended that the notice was validly issued by the ITO having PAN jurisdiction over the assessee and that the assessment was valid, while the Tribunal held otherwise.

2. ISSUE-WISE DETAILED ANALYSIS

Jurisdiction and Validity of Notice under Section 148 and Assessment under Section 144B

The legal framework relevant to this issue includes Sections 120, 143(2), 147, 148, and 144B of the Income Tax Act, 1961, alongside CBDT Instruction No.1/2011 and judicial precedents interpreting the mandatory nature of notices under Section 143(2).

Section 120 defines the jurisdiction of assessing officers and the delegation of powers among them. CBDT Instruction No.1/2011 provides guidelines for equitable distribution of work among assessing officers but does not impose rigid jurisdictional constraints.

The Court relied heavily on precedents, particularly the decision in Asst. CIT vs. Hotel Blue Moon, where the Supreme Court held that issuance of notice under Section 143(2) is mandatory and not a mere procedural formality. Failure to issue such notice within the prescribed time renders the assessment invalid and is not curable. Further, the decision in Commissioner of Income Tax vs. Gitsons Engineering Company emphasized that the word "shall" in Section 143(2) imposes a mandatory duty on the assessing officer to issue the notice to ensure proper assessment.

The Court also referred to Section 2(7A) defining "assessing officer" as the officer vested with jurisdiction by virtue of directions under Section 120 or other provisions. The jurisdictional correctness of the officer issuing the notice was a pivotal point.

In the instant case, the Tribunal found that the notice under Section 143(2) was not issued by the assessing officer who had jurisdiction over the assessee within the prescribed time. The revenue could not controvert this factual position. The Tribunal further held that issuance of notice by an officer lacking jurisdiction could not validate the assessment. The Court endorsed this finding, considering the binding nature of the Supreme Court's ruling in Hotel Blue Moon.

The revenue's reliance on Section 292BB, which deems notice to be valid if the assessee has appeared or cooperated in proceedings, was examined. The Tribunal found that Section 292BB was not applicable since the assessee had objected to the validity of the notice under Section 143(2) by a letter dated November 16, 2009, and the assessment year was prior to the effective date of the amendment introducing Section 292BB. The Court agreed with this reasoning, holding that the proviso to Section 292BB did not apply and could not cure the jurisdictional defect.

Additionally, the Tribunal relied on the Allahabad High Court decision in CIT & Another vs. Mukesh Kumar Agarwal, which held that absence of jurisdiction due to non-issuance of valid notice under Section 143(2) invalidates the assessment. The Court found this precedent applicable.

The Court also considered the CBDT Instruction No.1/2011, which was argued by the revenue to support the validity of the notice issued by the ITO having PAN jurisdiction. The Court observed that the Instruction does not fix rigid jurisdiction but only facilitates equitable distribution of workload, and thus cannot override the statutory requirement of jurisdictional notice issuance under Section 143(2).

Application of Law to Facts and Treatment of Competing Arguments

The Court applied the legal principles to the facts, noting that the assessing officer who issued the notice under Section 148 did not have jurisdiction as per Section 120 and the mandatory requirement of Section 143(2) was not complied with. The revenue's contention that the notice was valid due to PAN jurisdiction and CBDT instructions was rejected. The Court found that jurisdictional defect could not be cured by subsequent faceless assessment or by Section 292BB.

The Court also noted that the Tribunal's reliance on the earlier Calcutta High Court decisions, including PCIT vs. Cosmat Traders (P) Ltd., was consistent with the Supreme Court's ruling in Hotel Blue Moon and reinforced the principle that jurisdictional notices must be issued by the proper officer within the prescribed time.

3. SIGNIFICANT HOLDINGS

The Court held that the assessment order passed under Section 147 read with Section 144B was bad in law due to the non-issuance of a valid notice under Section 143(2) by the assessing officer having jurisdiction over the assessee.

It was emphasized that:

"The service of notice under Section 143(2) of the Act within the time limit prescribed is mandatory and it is not a mere procedural requirement."

And further,

"Non-issuance of notice under Section 143(2) is not a procedural irregularity and, therefore, it is not curable."

The Court reaffirmed that jurisdiction under Section 120 and issuance of notice under Section 143(2) are foundational to the validity of any assessment proceeding. The CBDT Instruction No.1/2011 does not confer rigid jurisdiction but serves only for equitable work distribution and cannot override statutory provisions.

The reliance on Section 292BB by the revenue was rejected on the ground that the assessee had objected to the notice and the assessment year predated the amendment introducing Section 292BB. Hence, the proviso to Section 292BB was not attracted.

Consequently, the Court dismissed the appeal filed by the revenue, upholding the Tribunal's order and answering the substantial question of law against the revenue.

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