2020 (12) TMI 821 - AT - Income Tax

Scrutiny assessment u/s 143(2) - no valid and legal notice u/s. 143(2) being issued by assessee s Assessing Officer as defined in Section 2(7A) - transfer of case u/s 127 - Jurisdiction of AO to issue notice - HELD THAT - We find that assessee filed its return of income u/s. 139(1) of the Act on 29.8.2013 and the AO i.e. DCIT, Circle 3(1), New Delhi issued notice u/s. 143(2) of the Act on 04.9.2014. Thereafter by transfer memo, AO stated the reason for transfer the case from DCIT, Circle 3(1) to ITO, Ward 5(1), New Delhi is returned income before ₹ 30 lacs which correlates to CBDT Instruction NO. 1/2011 dated 31.1.2011. The correct AO i.e. ITO, Ward 5(1), New Delhi has issued noticed u/s. 143(2) of the Act dated 08.9.2015 which is time barred, hence, the assessment order dated 27.1.2016 passed by the ITO, Ward 5(1), New Delhi is without jurisdiction and void ab initio. The impugned order passed by the Ld. CIT(A) deserve to be cancelled, because it is based upon the illegal assessment order. We find that similar issue has been dealt and adjudicated by the ITAT, SMC Bench, Delhi in the case of Manish Kumar Sons HUF vs. ITO Ward 1(5), New Delhi 2018 (11) TMI 1417 - ITAT DELHI and decided the similar issue in favour of the assessee.

Summary

Issues Involved:
1. Validity of notice issued under Section 143(2) based on CASS.
2. Sustaining of the addition made by AO on an ad-hoc basis without doubting audited books.
3. Non-deletion of the addition made by AO despite evidence provided by the assessee.
4. Additional grounds raised by the assessee.

Detailed Analysis:

1. Validity of Notice Issued Under Section 143(2) Based on CASS:
The primary issue raised by the assessee was the validity of the notice issued under Section 143(2) of the Income Tax Act, 1961. The assessee argued that the notice issued by the DCIT, Circle 3(1), New Delhi on 04.09.2014 was not in accordance with jurisdictional conditions. The case was transferred to ITO, Ward 5(1), New Delhi, who issued a notice under Section 143(2) on 08.09.2015, which was time-barred. The Tribunal found that the notice issued by ITO, Ward 5(1), New Delhi was indeed time-barred and thus, the assessment order dated 27.01.2016 was without jurisdiction and void ab initio. The Tribunal referenced the case of Manish Kumar & Sons HUF vs. ITO Ward 1(5), New Delhi, where a similar issue was adjudicated in favor of the assessee.

2. Sustaining of Addition Made by AO on Ad-hoc Basis:
The assessee contested the addition made by the AO on an ad-hoc basis, specifically the disallowance of 60% of foreign travel expenses and business promotion expenses, which the CIT(A) reduced to 40%. The AO had disallowed these expenses due to incomplete documentary evidence and the presence of spouses of the directors on the foreign trips. The Tribunal, however, did not delve into the merits of these additions as it quashed the assessment on legal grounds.

3. Non-deletion of Addition Made by AO Despite Evidence Provided:
The assessee argued that the CIT(A) erred in not deleting the additions made by the AO despite the evidence provided. The AO had disallowed ?35,23,993/- out of foreign travel expenses and ?6,85,217/- out of business promotion expenses, leading to a total taxable income of ?59,90,669/-. The Tribunal did not address this issue in detail since the assessment itself was declared void ab initio.

4. Additional Grounds Raised by the Assessee:
The assessee raised additional grounds challenging the jurisdiction and validity of the assessment order. The Tribunal admitted these additional grounds, citing the decision of the Hon’ble Supreme Court in NTPC Limited 229 ITR 455, which allows for the consideration of legal grounds that go to the root of the matter. The Tribunal found that the assessment was void ab initio due to the time-barred notice and lack of jurisdiction, thus rendering the additional grounds in favor of the assessee.

Conclusion:
The Tribunal quashed the assessment order dated 27.01.2016 passed by the ITO, Ward 5(1), New Delhi, declaring it void ab initio due to the time-barred notice under Section 143(2) and lack of jurisdiction. Consequently, the Tribunal allowed the appeal filed by the assessee, rendering other grounds on merit academic and not adjudicated. The decision was pronounced on 18.12.2020.