2025 (6) TMI 1924 - AT - Income Tax

Assessment framed u/s.143(3) by non-jurisdictional officer - Income Tax Officer (ITO) Ward-Mahasamund jurisdiction - HELD THAT - It is obvious and trite that any action by the revenue authority without jurisdiction is bad in law void ab initio and hence liable to be struck down on the said count itself. The issue is no more res-integra as per the judicial precedents that any right and liabilities specifically in a case of imposing liability for that matter whether it is income tax or any other financial burden on the assessee through legal dictate the said action can only be pronounced as legally valid if it is exercised within parameter of correct jurisdiction. Reverting to the facts of the present case as examined aforesaid it is clearly evidenced that the return of income was filed by the assessee above Rs. 10 lacs for which the jurisdiction was vested only with the Dy./ACIT-3(1) Raipur and not with ITO Ward-Mahasamund. That since in the present case the assessment has been framed u/s. 143(3) of the Act dated 22.12.2018 by the ITO Ward-Mahasamund who lacked inherent valid jurisdiction therefore the same is held invalid void ab initio and the order of assessment is quashed. Assessment order is quashed. Appeal of the assessee is allowed.

Summary

Issues Presented and Considered

1. Whether the assessment framed under section 143(3) of the Income Tax Act, 1961 by the Income Tax Officer (ITO), Ward-Mahasamund, was without jurisdiction, given the departmental Notification No.1/2014-15 dated 15.11.2014, which vests jurisdiction over the assessee with the Deputy/Assistant Commissioner of Income Tax (Dy./ACIT)-3(1), Raipur.

2. Whether the notice issued under section 143(2) of the Act by the ITO, Ward-Mahasamund, was valid and legally effective, considering it was neither digitally nor manually signed, and whether such notice was properly served.

3. Whether the invocation of section 145(3) without pointing out specific defects in the books of account was legally sustainable.

4. Whether the disallowance of Rs. 8,04,705/- estimated at 25% of purchases was justified on credible evidence or was merely based on suspicion.

5. Whether the addition of Rs. 8,04,705/- was justified given that corresponding sales were accepted, proving the genuineness of purchases.

6. Whether the assessment proceedings were vitiated due to reliance on third-party statements without independent verification, amounting to borrowed satisfaction.

7. Whether the assessee was denied opportunity for cross-examination of statements recorded under section 131, violating principles of natural justice.

8. Whether the disallowance was made without confronting the assessee with brokers' statements, violating section 142(3) and principles of natural justice.

9. Whether the purchases were genuine and supported by verifiable documents, and whether the addition was made without proper appreciation of evidence.

10. Whether the disallowance of Rs. 12,513/- (20% of vehicle expenses) was arbitrary, given the absence of evidence of personal use and non-maintenance of logbook.

Issue-wise Detailed Analysis

1. Jurisdiction of the Assessing Officer and Validity of Assessment

Legal Framework and Precedents: Section 120 of the Income Tax Act empowers the Board to assign jurisdiction to officers. The departmental Notification No.1/2014-15 dated 15.11.2014 clearly delineates jurisdiction among various Assessing Officers of Range-3, Raipur, including Dy./ACIT-3(1), Raipur and ITO Mahasamund. The notification specifies that for non-company assessees whose income exceeds Rs. 10 lakh, jurisdiction lies with Dy./ACIT-3(1), Raipur.

Precedents include the Supreme Court judgment in National Thermal Power Company Ltd. vs. CIT (1998) 229 ITR 383 (SC), which establishes that lack of jurisdiction renders proceedings void ab initio. Further, the Hon'ble High Courts of Calcutta and Bombay and ITAT Raipur have consistently held that assessments framed by officers lacking jurisdiction are void and liable to be quashed.

Court's Interpretation and Reasoning: The Court examined the return of income filed by the assessee for AY 2016-17, which showed total income of Rs. 10,27,640/-, exceeding the Rs. 10 lakh threshold. According to the Notification, such cases fall under the jurisdiction of Dy./ACIT-3(1), Raipur. However, the notice under section 143(2) and assessment order under section 143(3) were issued and framed by ITO, Ward-Mahasamund, who lacked jurisdiction.

The Court emphasized the settled principle that quasi-judicial authorities must act within their jurisdiction and that any act beyond jurisdiction is void ab initio. The Court relied on the departmental Notification and the return of income figures to conclude that the assessment was framed without valid jurisdiction.

Key Evidence and Findings: The notification dated 15.11.2014, the return of income filed by the assessee, the assessment order, and the departmental records were examined. The Court noted the absence of any contrary documentary evidence from the Revenue to challenge the jurisdictional claim.

Application of Law to Facts: Since the assessee's income was above Rs. 10 lakh, the jurisdiction to issue notice and frame assessment lay exclusively with Dy./ACIT-3(1), Raipur. The ITO, Ward-Mahasamund, having no jurisdiction in this case, issued the notice and framed the assessment, rendering the entire proceedings illegal and void ab initio.

Treatment of Competing Arguments: The Revenue failed to produce evidence to counter the jurisdictional challenge. The Senior DR could not refute the facts or the legal position on jurisdiction.

Conclusion: The Court held that the assessment framed by the ITO, Ward-Mahasamund, was without jurisdiction and therefore void ab initio. The notice under section 143(2) was invalid, and the assessment order was quashed accordingly. All subsequent proceedings based on this assessment were also considered non-est in law.

2. Validity and Service of Notice under Section 143(2)

Legal Framework and Precedents: Section 143(2) requires issuance of a valid notice to the assessee for scrutiny assessment. The notice must be properly signed (digitally or manually) and served. Absence of valid notice vitiates the entire assessment proceeding.

Court's Interpretation and Reasoning: The assessee contended that the notice was neither digitally nor manually signed, making it a non-est and invalid document. While this ground was raised, the Court primarily disposed of the appeal on jurisdictional grounds, rendering this issue academic. However, the Court acknowledged the principle that valid service of notice is mandatory.

Key Evidence and Findings: The notice dated 25.09.2017 was scrutinized. The Court noted the absence of valid signature, which is a procedural defect.

Application of Law to Facts: Since the assessment was quashed on jurisdictional grounds, the issue of validity of notice was not adjudicated on merits but was recognized as a valid legal principle.

Treatment of Competing Arguments: No substantive argument was recorded from the Revenue on this point.

Conclusion: The notice under section 143(2) was invalid due to lack of jurisdiction and procedural defects, contributing to the quashing of the assessment.

3. Invocation of Section 145(3) Without Specific Defects in Books of Account

Legal Framework and Precedents: Section 145(3) allows the Assessing Officer to adopt an estimated method of accounting if the books of account are not maintained or are defective. Specific defects must be pointed out to justify its invocation.

Court's Interpretation and Reasoning: The assessee challenged the invocation of section 145(3) without pointing out specific defects. However, as the assessment was quashed on jurisdictional grounds, the Court did not delve into the merits of this issue.

Conclusion: This ground became academic due to the quashing of the assessment.

4 & 5. Disallowance of Rs. 8,04,705/- Estimated at 25% of Purchases and Genuineness of Purchases

Legal Framework and Precedents: Disallowance on estimation basis under section 145(3) must be supported by credible evidence and not mere suspicion. Acceptance of corresponding sales generally supports genuineness of purchases.

Court's Interpretation and Reasoning: The assessee contended that the disallowance was based on suspicion without credible evidence and that corresponding sales were accepted, proving genuineness. The Court did not examine these grounds on merits due to the jurisdictional quashing.

Conclusion: These issues were rendered academic following the quashing of the assessment.

6, 7 & 8. Borrowed Satisfaction, Opportunity for Cross-examination, and Violation of Natural Justice

Legal Framework and Precedents: Assessment proceedings must be based on independent verification, and the assessee must be given opportunity to cross-examine witnesses or statements relied upon, in adherence to principles of natural justice. Failure to do so vitiates the proceedings.

Court's Interpretation and Reasoning: The assessee alleged reliance on third-party statements without independent verification and denial of cross-examination opportunity. The Court did not decide these issues on merits, as the jurisdictional defect rendered the assessment void ab initio.

Conclusion: These grounds were not adjudicated due to the primary jurisdictional issue.

9. Appreciation of Evidence Regarding Genuineness of Purchases

Legal Framework and Precedents: Proper appreciation of evidence is essential before making additions or disallowances. Unsupported additions are liable to be deleted.

Court's Interpretation and Reasoning: The Court did not examine this ground on merits, as the assessment was quashed on jurisdictional grounds.

Conclusion: This ground became academic.

10. Disallowance of Rs. 12,513/- Being 20% of Vehicle Expense

Legal Framework and Precedents: Disallowance of vehicle expenses requires evidence of personal use or non-maintenance of logbook. Arbitrary disallowance without evidence is unsustainable.

Court's Interpretation and Reasoning: This ground was not adjudicated on merits due to the quashing of the assessment.

Conclusion: This issue was rendered academic.

Significant Holdings

"It is established principle of law for any proceeding by the quasi-judicial authority as per the Act, it has to be performed within the parameter of valid jurisdiction."

"Since the assessee's income was above Rs. 10 lakh, the jurisdiction to exercise and perform any function under the Act with regard to such assessee was vested with the Dy./ACIT-3(1), Raipur. Admittedly, the assessment was framed by the ITO, Ward-Mahasamund who inherently lacked valid jurisdiction."

"In exercise of quasi-judicial power as per the Act sans valid jurisdiction such an act has to be struck down as arbitrary, bad in law and void ab initio."

"Any action by the revenue authority without jurisdiction is bad in law, void ab initio and hence, liable to be struck down on the said count itself."

"Once the assessment order is quashed, then all other subsequent proceedings becomes non-est in the eyes of law."

"Since this legal ground is answered in favour of the assessee, therefore, all other grounds on merits including any other legal grounds if any, becomes academic only."

Core Principles Established

1. Jurisdiction is a fundamental precondition for valid assessment proceedings. An assessment framed by an officer lacking jurisdiction is void ab initio.

2. The departmental notifications assigning jurisdiction are binding and must be adhered to strictly.

3. Valid issuance and service of notice under section 143(2) is mandatory for scrutiny assessment; defects in notice vitiate proceedings.

4. Subsequent proceedings flowing from a void assessment order are non-est in law.

5. Legal challenges to jurisdictional defects go to the root of the matter and cannot be cured by subsequent ratification or approval.

Final Determinations on Each Issue

1. The assessment framed by the ITO, Ward-Mahasamund was without jurisdiction and is quashed.

2. The notice under section 143(2) was invalid due to jurisdictional defect and procedural deficiencies.

3-10. All other grounds raised by the assessee relating to merits of additions, disallowances, procedural fairness, and evidentiary issues were not adjudicated on merits and held academic due to the quashing of the assessment on jurisdictional grounds.