2024 (4) TMI 1220 - AT - Income Tax

Jurisdiction of the AO to initiate scrutiny proceedings - jurisdiction to issue notice u/s 143(2) of the Act in respect of income declared up to 20 lacs - HELD THAT - As relying on M/s. Kevin International 2023 (12) TMI 1414 - ITAT DELHI we are of the considered view in the present case as notice u/s 143(2) has been issued by the Assessing Officer having no jurisdiction over the assessee and subsequently the assessment order has been passed in consequence to the said defective notice we have no hesitation to quash the assessment order passed in violation of the circular No. 1/2011 dated 31.01.2011.Appeal filed by the assessee is allowed.

Summary

ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

1. Whether the Assessing Officer had the jurisdiction to initiate scrutiny proceedings against the assessee, given the CBDT Instruction No. 1/2011 regarding income limits for assigning cases.

2. The legitimacy of disallowances made under Section 37(1) of the Income Tax Act, 1961, including expenses related to exhibitions, conferences, foreign travel, car maintenance, advertising, and other business-related expenses.

ISSUE-WISE DETAILED ANALYSIS

1. Jurisdiction of the Assessing Officer

Relevant legal framework and precedents: The jurisdictional issue revolves around CBDT Instruction No. 1/2011, which delineates monetary limits for assigning cases to different tax officers. According to this instruction, corporate returns up to Rs. 20 lakhs fall under the jurisdiction of the Income Tax Officer (ITO).

Court's interpretation and reasoning: The Tribunal examined whether the scrutiny notice issued by the Assistant Commissioner of Income Tax (ACIT) was valid, given that the assessee declared NIL income. The Tribunal referenced a prior decision (M/s. Kelvin International Vs. DCIT) where a similar issue was adjudicated, determining that notices issued contrary to the CBDT instruction were void due to lack of jurisdiction.

Key evidence and findings: The Tribunal noted that the notice under Section 143(2) was issued by an officer not having jurisdiction over the assessee, as per the CBDT instruction.

Application of law to facts: The Tribunal applied the CBDT instruction and concluded that the notice issued by the ACIT was contrary to the instruction and thus void ab initio.

Treatment of competing arguments: The Departmental Representative argued for the dismissal of the ground, relying on the lower authorities' orders. However, the Tribunal found the assessee's argument, supported by precedent, more compelling.

Conclusions: The Tribunal quashed the assessment order due to the improper issuance of the notice, which was not in compliance with the jurisdictional guidelines set by CBDT Instruction No. 1/2011.

2. Disallowances under Section 37(1) of the Income Tax Act, 1961

Relevant legal framework and precedents: Section 37(1) pertains to the allowance of business expenses, provided they are not personal or capital in nature. The Tribunal did not delve into the merits of these disallowances due to the quashing of the assessment order on jurisdictional grounds.

Court's interpretation and reasoning: The Tribunal did not provide detailed reasoning on these grounds, as the jurisdictional issue rendered them moot.

Key evidence and findings: Not applicable due to the decision on jurisdiction.

Application of law to facts: Not applicable due to the decision on jurisdiction.

Treatment of competing arguments: The Tribunal did not address these arguments as the primary ground was dispositive.

Conclusions: The Tribunal did not adjudicate these grounds, having resolved the appeal on the jurisdictional issue.

SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "By respectfully following the aforesaid order of the Tribunal and the various Judgments referred in the said order of the Tribunal in the case of M/s. Kevin International Vs. DCIT (supra) we are of the considered view in the present case as notice u/s 143(2) has been issued by the Assessing Officer having no jurisdiction over the assessee and subsequently the assessment order has been passed in consequence to the said defective notice, we have no hesitation to quash the assessment order passed in violation of the circular No. 1/2011 dated 31.01.2011."

Core principles established: The Tribunal reaffirmed the principle that jurisdictional guidelines set by the CBDT must be adhered to, and any deviation renders the proceedings void.

Final determinations on each issue: The Tribunal quashed the assessment order based on the jurisdictional issue and did not address the substantive grounds related to disallowances under Section 37(1).