2022 (6) TMI 227 - AT - Income Tax

Validity of assessment - no notice u/s 143(2) - Jurisdiction of AO u/s 124 - competent officer to proceed with the assessment by way of issue of notice u/s 143(2) - unexplained cash credit u/s 68 - HELD THAT - As in this case, the competent officer to proceed with the assessment by way of issue of notice u/s 143(2) of the Act was DCIT/ACIT, whereas, the notice u/s 143(2) has been issued by the ITO, Ward-1(1), Kolkata who did not have any jurisdiction to issue the aforesaid notice. As has been held by the various courts of the country including the Apex Court, the issuance of notice u/s 143(2) by the concerned Assessing Officer of a competent jurisdiction is mandatory to assume jurisdiction to proceed to frame assessment u/s 143(3) - when the notice u/s 143(2) was issued by an officer who did not have jurisdiction to proceed with the assessment and the assessment was framed by the other officer who did not issue the notice u/s 143(2) before proceeding to frame the assessment, then such an assessment order was bad in law. See BHAGYALAXMI CONCLAVE PVT. LTD., DHANLAXMI CONCLAVE PVT. LTD., BINDHYAWASINI DEVELOPERS PVT. LTD. VERSUS DCIT, CIRCLE-13 (1) , KOLKATA 2021 (2) TMI 181 - ITAT KOLKATA . Thus the assessment order passed by the Assessing Officer (DCIT) was bad in law for want of issuance of notice u/s 143(2) of the Act. Jurisdiction of Assessing Officers - assessment order passed by the DCIT, Kolkata - Since, in this case, the assessee not only mentioned in the return of income his address as Gandhidham, Gujarat but also brought the said fact into the notice of concerned authorities well in advance in response to the notice u/s 142(1) itself, stating therein that the principal place of business of the assessee was at Gandhidham and the entire operation of the assessee was carried out in the State of Gujarat only, however, neither the Commissioner acted on the aforesaid objection/application of the assessee nor did the DCIT/Assessing Officer referred the matter to the competent authority for transfer of the case to the officer of competent territorial jurisdiction. In view of the provisions of section 124 of the Act, the DCIT, Kolkata did not have any territorial jurisdiction to frame the impugned assessment order, therefore, the assessment order passed by the DCIT, Kolkata is bad in law. In view of the above discussion, since the legal issue relating to the jurisdiction to frame the assessment not only for want of issue of notice u/s 143(2) of the Act but also for want of competent territorial jurisdiction to frame the assessment is decided in favour of the assessee, therefore, the assessment order passed without jurisdiction is bad in law and is hereby quashed. Appeal of the assessee stands allowed.

Issues Involved:
1. Jurisdiction of the Assessing Officer (AO) to issue notice under section 143(2) of the Income Tax Act.
2. Territorial jurisdiction of the AO to frame the assessment order.
3. Violation of principles of natural justice.
4. Merits of the addition made under section 68 of the Income Tax Act.

Detailed Analysis:

1. Jurisdiction of the Assessing Officer to Issue Notice Under Section 143(2):
The assessee contested the jurisdiction of the AO to issue a notice under section 143(2) of the Income Tax Act. The assessee argued that the notice was issued by the Income Tax Officer (ITO), Ward-1(1), Kolkata, who did not have the pecuniary jurisdiction as the returned income was more than Rs. 30 lakhs, which fell under the jurisdiction of the Deputy Commissioner of Income Tax (DCIT). The tribunal referred to the decision in ACIT vs. M/s Hotel Blue Moon and other similar cases, emphasizing that the issuance of notice under section 143(2) by the competent jurisdictional AO is mandatory to assume jurisdiction to frame an assessment under section 143(3). The tribunal concluded that the notice issued by the ITO was invalid, and consequently, the assessment order passed by the DCIT was bad in law.

2. Territorial Jurisdiction of the AO to Frame the Assessment Order:
The assessee argued that the DCIT, Kolkata, did not have territorial jurisdiction to frame the assessment as the principal place of business was Gandhidham, Gujarat. The tribunal examined the address mentioned in the return of income and the assessment order, both indicating Gandhidham, Gujarat. The tribunal also noted that the assessee had informed the Commissioner of Income Tax and the DCIT about the shift in the principal place of business. Despite this, the DCIT, Kolkata, proceeded with the assessment without referring the matter to the competent authority for transfer of jurisdiction. The tribunal held that the DCIT, Kolkata, lacked territorial jurisdiction, rendering the assessment order invalid.

3. Violation of Principles of Natural Justice:
The assessee claimed that the Commissioner of Income Tax (Appeals) [CIT(A)] violated the principles of natural justice by not considering the adjournment application filed by the appellant. The tribunal did not delve deeply into this issue, as the assessment order was already quashed on jurisdictional grounds. However, it highlighted the importance of adhering to natural justice principles in tax proceedings.

4. Merits of the Addition Made Under Section 68:
The assessee challenged the addition of Rs. 6,50,00,000 as unexplained cash credit under section 68, arguing that no inquiry was conducted by the AO. The tribunal did not address this issue in detail, as the assessment order was quashed on jurisdictional grounds, making any discussion on merits academic in nature.

Conclusion:
The tribunal allowed the appeal of the assessee, quashing the assessment order on the grounds of lack of jurisdiction to issue notice under section 143(2) and lack of territorial jurisdiction to frame the assessment. The tribunal did not find it necessary to deliberate on the merits of the other issues, as they were rendered academic due to the quashing of the assessment order.

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