2024 (10) TMI 848 - AT - Income Tax

Validity of order passed u/s 143(3) - notice u/s 143(2) was not issued by jurisdictional AO within prescribed time - Whether Case of the assessee falls within the jurisdiction of ACIT/DCIT-4(1), Raipur, having pecuniary jurisdiction over the case of the assessee, therefore, the issuance of notice by ITO itself makes the first notice, invalid? - HELD THAT - Admittedly, in the present case the mandatory notice u/s 143(2) for initiating the assessment proceedings was issue by ITO Ward 1(1) vide notice dated 13.04.2016, who at relevant point of time was not vested with valid jurisdiction over the case of the assessee, since the cases having declared income above Rs. 15,00,000/- in the case of corporate assessee s are under the jurisdiction of ACIT/DCIT, whereas the assessee s returned income was a loss which as discussed hereinabove is more than Rs.15 Lac, since the income includes losses or the losses are at par with income. In view of aforesaid CBDT s instructions followed by communication by the Ld. CCIT, Raipur, it is held that the first notice u/s 143(2) issued by the ITO Ward- 1(1), Raipur, was clearly against the mandate of instructions issued. Regarding, the subsequent notice u/s 143(2) issued by the jurisdictional AO i.e., ACIT-4(1), Raipur on 28.07.2017, the same cannot be considered as a valid notice, which was issued beyond the specified date under the provisions of Sec. 143(2), which was expired on 30.09.2016. Regarding the objection raised by Ld. CIT DR that the assessee has not objected to the jurisdiction of the ITO-1(1) within the stipulated time period of one month from the date on which the notice was served on the assessee. The issue has been duly considered in the case of Durga Manikanta 2023 (1) TMI 1099 - ITAT RAIPUR as held the assessee s objection to the validity of the jurisdiction assumed by the Income- Tax Officer, Ward-2(2), Bhilai is by no means an objection to his territorial jurisdiction, but in fact an objection to the assumption of jurisdiction by him in contravention of the CBDT Instruction No.1/2011, dated 31.01.2011, therefore, the provisions of sub- section (3) of Section 124 would not assist the case of the revenue. In terms of foregoing observations of the tribunal, wherein the objection raised by the revenue are specifically dealt with, therefore, in the present case the same contention raised by the revenue cannot be decided differently. We, therefore, in absence of any cogent material brought on record by the revenue w.r.t. facts in the present case to dislodge the aforesaid conviction are unable to convince ourselves with the objections raised, accordingly the objections are disposed-off against the revenue. Respectfully following the decision of M/s Durga Manikanta Trader 2023 (1) TMI 1099 - ITAT RAIPUR adverting to the facts of the present case, wherein admittedly, the first notice u/s 143(2) was issued by ITO Ward-1(1), Raipur, on 13.04.2016, who was not vested with valid jurisdiction over the case of the assessee, therefore, the assessment framed on the foundation of such invalid notice is liable to be struck down. Even the subsequent notice issued u/s 143(2) of the Act, by the ACIT 4(1), Raipur after the lapse of stipulated time period i.e., beyond the specified date i.e., 30.09.2016, has to be treated as an invalid notice as issued against the mandate of law, therefore, the assessment order framed u/s 143(3) cannot survive on the basis of subsequent notice u/s 143(2), also. We, therefore, are of the considered view that assessment order passed u/s 143(3) dated 20.12.2017 by ACIT, Circile-4(1), Raipur, on the basis of proceedings initiated vide notice u/s 143(2) dated 13.04.2016 by ITO,W-1(1),Raipur, who at the relevant point of time was not vested with valid jurisdiction over the case of the assessee, cannot be sustained - Assessee appeal allowed.

Summary

Issues Involved:

1. Validity of the assessment order due to jurisdictional errors.
2. Deletion of addition under Section 68 of the Income Tax Act.
3. Delay in filing the cross-objection by the assessee.
4. Application of the doctrine of res judicata in income tax matters.
5. Adequacy of the proof of identity, genuineness, and creditworthiness of investors.

Issue-wise Detailed Analysis:

1. Validity of the Assessment Order Due to Jurisdictional Errors:

The primary issue addressed was the jurisdictional validity of the assessment order. The assessee challenged the legality of the assessment proceedings on the ground that the notice under Section 143(2) was issued by a non-jurisdictional Assessing Officer (AO). The Tribunal observed that the first notice was issued by ITO-1(1), Raipur, who did not have the jurisdiction over the assessee, as the returned loss exceeded Rs. 15 lakhs, thus falling under the jurisdiction of ACIT/DCIT-4(1), Raipur. The subsequent notice issued by the ACIT/DCIT was beyond the statutory time limit, rendering the assessment order illegal and unsustainable. The Tribunal relied on precedents that emphasized the importance of jurisdictional validity and quashed the assessment order for being issued without proper jurisdiction.

2. Deletion of Addition Under Section 68 of the Income Tax Act:

The revenue contested the deletion of the addition of Rs. 5.81 crore made under Section 68 by the CIT(A). The CIT(A) had vacated the addition on the grounds that the investor had a substantial net worth and the investment was out of genuine sources. The Tribunal did not delve into this issue in detail due to the quashing of the assessment order on jurisdictional grounds, leaving the merits of the deletion open for consideration if required in future proceedings.

3. Delay in Filing the Cross-Objection by the Assessee:

The Tribunal addressed the delay of 192 days in filing the cross-objection by the assessee. It was submitted that the delay occurred due to the non-receipt of the appeal memo from the tribunal and subsequent engagement of a new counsel. The Tribunal condoned the delay, considering it unintentional and beyond the control of the assessee, thereby allowing the cross-objection for admission.

4. Application of the Doctrine of Res Judicata in Income Tax Matters:

The revenue argued that the doctrine of res judicata is not applicable in income tax matters and that the CIT(A) erred in relying on previous assessments of the investor company to justify the deletion of the addition. The Tribunal did not explicitly address this issue separately, as the assessment was quashed on jurisdictional grounds, and hence, the applicability of res judicata was not determinative in the outcome of this case.

5. Adequacy of the Proof of Identity, Genuineness, and Creditworthiness of Investors:

The revenue's appeal questioned whether the CIT(A) was justified in accepting the identity, genuineness, and creditworthiness of the shareholders. The Tribunal noted that the CIT(A) had relied on the net worth and investment activities of the investor company. However, due to the jurisdictional quashing of the assessment order, the Tribunal refrained from making a substantive ruling on this issue, leaving it open for future consideration if necessary.

Conclusion:

The Tribunal quashed the assessment order due to the lack of valid jurisdiction by the AO, thereby allowing the assessee's cross-objection and dismissing the revenue's appeal. The substantive issues regarding the addition under Section 68 and the adequacy of the proof of the investor's credentials were left open due to the jurisdictional decision.