2025 (1) TMI 1404 - AT - Income Tax

Non issue of notice u/s 143(2) - HELD THAT - As held in the case of ACIT vs. Hotel Blue Moon 2010 (2) TMI 1 - SUPREME COURT that the issue of notice u/s 143(2) is sine qua non to assume jurisdiction to proceed with the assessment in a case. If the said notice had been issued by the AO who did not have the jurisdiction over the assessee then such notice is to be treated as non-est. The assessment carried out in such cases will be bad in law. In this case since the concerned AO who had pecuniary jurisdiction to frame the assessment did not issue notice u/s 143(2) of the Act therefore the assessment framed was bad in law - Decided in favour of assessee.

Summary

The judgment from the Appellate Tribunal ITAT Kolkata addresses the appeal filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-1, Guwahati. The core issue in the appeal concerns the validity of the assessment order passed by the Assessing Officer (AO) and the addition of Rs. 5,52,956/- to the assessee's income, which was claimed as agricultural income but treated as income from unexplained sources by the AO.

The primary legal question considered was whether the assessment order was valid given the procedural irregularities, particularly the issuance of notice under Section 143(2) of the Income Tax Act by a non-jurisdictional officer. The Tribunal also considered whether the addition made by the AO, and confirmed by the CIT(A), was justified on merits.

Issue-wise Detailed Analysis:

1. Validity of the Assessment Order:

- Legal Framework and Precedents: The Tribunal examined the statutory requirements under Section 143(2) of the Income Tax Act, which mandates the issuance of notice by the jurisdictional AO to assume jurisdiction for assessment under Section 143(3). The Tribunal relied on precedents, including the decisions of the Hon'ble Supreme Court in 'ACIT vs. Hotel Blue Moon' and the jurisdictional Calcutta High Court in 'PCIT vs. Shree Shoppers Ltd.', which emphasize the necessity of a valid notice under Section 143(2) for a lawful assessment.

- Court's Interpretation and Reasoning: The Tribunal noted that the notice under Section 143(2) was issued by the ACIT, Circle-24(1), Hooghly, whereas the assessment order was passed by the ITO, Ward-24(1), Hooghly. The Tribunal highlighted that the issuance of notice by a non-jurisdictional officer renders the notice invalid, thereby vitiating the assessment proceedings.

- Key Evidence and Findings: The Tribunal found that the ACIT, who issued the notice, did not have the pecuniary jurisdiction over the assessee, as the returned income was below the threshold that would confer jurisdiction to the ACIT. This procedural lapse was crucial in determining the validity of the assessment order.

- Application of Law to Facts: Applying the legal principles to the facts, the Tribunal concluded that the assessment order was bad in law due to the lack of a valid notice under Section 143(2) from the jurisdictional AO. The procedural defect was deemed incurable and went to the root of the matter, affecting the legality of the entire assessment process.

- Treatment of Competing Arguments: The Tribunal considered the arguments of the Department, which relied on the findings of the AO. However, the Tribunal found these arguments insufficient to counter the legal requirement of a valid notice under Section 143(2) by the jurisdictional officer.

- Conclusions: The Tribunal concluded that the assessment order was invalid due to the procedural irregularity in the issuance of notice under Section 143(2). Consequently, the assessment order was quashed.

2. Addition of Rs. 5,52,956/- as Income from Unexplained Sources:

- Legal Framework and Precedents: The Tribunal examined the provisions related to agricultural income and the burden of proof on the assessee to substantiate the claim of exemption from taxation.

- Court's Interpretation and Reasoning: While the Tribunal primarily focused on the procedural validity of the assessment, it also considered the merits of the addition. The Tribunal noted the lack of sufficient evidence provided by the assessee to substantiate the claim of agricultural income.

- Key Evidence and Findings: The Tribunal observed that the assessee failed to provide adequate documentation to support the claim that the entire amount was agricultural income, leading to the AO's decision to treat it as income from unexplained sources.

- Application of Law to Facts: The Tribunal applied the relevant legal standards concerning the burden of proof and found that the assessee did not meet the requisite standard to prove the agricultural nature of the income.

- Treatment of Competing Arguments: The Tribunal acknowledged the assessee's arguments regarding the agricultural income but found them insufficiently supported by evidence.

- Conclusions: Although the Tribunal quashed the assessment order on procedural grounds, it indicated that the assessee's claim of agricultural income lacked adequate substantiation.

Significant Holdings:

- The Tribunal held that the issuance of a notice under Section 143(2) by a non-jurisdictional officer renders the assessment order void. This principle was reinforced by the Tribunal's reliance on precedents from higher judicial authorities.

- The Tribunal's decision underscores the importance of adhering to procedural requirements in tax assessments, particularly concerning jurisdictional issues.

- The Tribunal's quashing of the assessment order highlights the significance of procedural compliance in tax proceedings, reaffirming the necessity of a valid notice under Section 143(2) by the jurisdictional officer.

In conclusion, the Tribunal allowed the appeal of the assessee, quashing the assessment order due to the procedural defect in the issuance of notice under Section 143(2) by a non-jurisdictional officer. The Tribunal's decision emphasizes the critical nature of procedural compliance in tax assessments and the invalidity of proceedings initiated without proper jurisdiction.