2025 (4) TMI 1571 - HC - Income Tax

Jurisdiction of issuing notice u/s 143 (2) - omission on the part of the DCIT in not issuing notice u/s 143 (2) to the assessee - Whether the assessee can challenge the authority of the ITO who had issued the notice u/s 143 (2) and the authority of the DCIT for issuing the assessment order u/s 143 (3) in view of the limitations prescribed under Sections 292B and 292BB of the I.T. Act? - HELD THAT - Section 292B provides that notice as well as return of income assessment summons etc. issued under the provisions of the I.T. Act cannot be treated as invalid merely by reason of any mistake defect or omission in such notice etc. if the same is in substance and effect in conformity with or according to the intent and purpose of the I.T. Act. ITAT in the present case has interfered with the order passed by the CIT (Appeals) and the assessment order mainly on the ground that there is omission on the part of the DCIT in not issuing notice u/s 143 (2) to the assessee. ITAT has not concluded that the notice issued to the assessee by the Income Tax Officer u/s 143 (2) is not in substance or not in conformity with the intent and purpose of the I.T. Act. In the absence of such finding the ITAT cannot interfere with the notice or the assessment order issued against the assessee. In the present case apart from that the assessee is also debarred from challenging the assessment proceedings for the first time before the ITAT on the ground of issuance of notice under Section 143 (2) by the Income Tax Officer in the light of the provisions of Section 292BB of the I.T. Act. Section 292BB of the I.T. Act clearly provides that where an assessee has appeared in the proceedings relating to assessment or reassessment before the authority concerned without raising any objection before completion of assessment or reassessment it is not open for him to raise such objection after passing of the assessment order. In the present case the notice under Section 143 (2) of the I.T. Act was issued by the Income Tax Officer and was duly served upon the assessee who in turn had appeared before the DCIT to which the proceedings were transferred by the Income Tax Officer without raising any objection till the assessment order was passed. Even in the appeal preferred by the assessee before the CIT (Appeals) no such ground was ever raised by the assessee. In such circumstances we are of the candid view that as per law the respondent/assessee was not within his right to raise the objection regarding issuance of notice by the Income Tax Officer under Section 143 (2) of the I.T. Act or questioning the authority of the DCIT in passing the assessment order while exercising powers under Section 143 (3) of the I.T. Act before the ITAT. Thus in the light of the provisions of Section 292B as well as Section 292BB of the I.T. Act the right of the assessee has been restricted to challenge the validity of a notice issued by the Income Tax Officer or the assessment order passed by the DCIT and in such circumstances the ITAT has illegally passed the impugned order ignoring the said provisions which restricts the right of the assessee. Question of law framed by this Court is answered in affirmative and the impugned order passed by the ITAT is set aside.

Summary

1. ISSUES PRESENTED and CONSIDERED

The High Court framed the following substantial questions of law for consideration:

(a) Whether the Income Tax Appellate Tribunal (ITAT) was justified in not considering the concurrent jurisdiction of the Income Tax Officer (ITO), Ward-4(3), Guwahati and the Deputy Commissioner of Income Tax (DCIT), Circle-4, Guwahati, both operating within the same Range and station over the assessee?

(b) Whether the ITAT was justified in admitting new grounds raised by the assessee without recording reasons for not raising them earlier before the Assessing Officer or Commissioner of Income Tax (Appeals) [CIT (Appeals)]?

(c) Whether the ITAT was justified in ignoring the intent of CBDT Instruction No. 1/2011, which aims to reduce hardship to taxpayers by allowing transfer of cases within the same station and Range, and that issuance of notice under Section 143(2) and assessment under Section 143(3) by officers at the same station and Range fulfills all procedural requirements?

(d) Whether the assessee can challenge the authority of the ITO who issued the notice under Section 143(2) and the DCIT who passed the assessment order under Section 143(3) in light of the limitations prescribed under Sections 292B and 292BB of the Income Tax Act, 1961 (I.T. Act)?

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) and (c): Jurisdiction of ITO and DCIT within the same Range and station, and applicability of CBDT Instruction No. 1/2011

Relevant legal framework and precedents: The CBDT Instruction No. 1/2011 dated 31.01.2011 sets monetary limits for assignment of cases to ITOs and AC/DCs in mofussil and metro areas, aiming to reduce hardship to taxpayers by avoiding transfer of cases to officers at different stations. For mofussil areas, the Instruction provides that ITOs have jurisdiction over non-corporate returns with income up to Rs. 15 lakhs, and AC/DCs have jurisdiction over returns with income above Rs. 15 lakhs.

Court's interpretation and reasoning: The Court noted that the assessee, a non-corporate individual, declared income of Rs. 20,03,070, exceeding the Rs. 15 lakh limit for ITO jurisdiction in mofussil areas. Therefore, as per the Instruction, the pecuniary jurisdiction to assess the assessee lies with the AC/DC and not the ITO. The ITO erroneously issued notice under Section 143(2) and later transferred the case to the DCIT, who issued notice under Section 142(1) but failed to issue notice under Section 143(2) within the prescribed time.

Key evidence and findings: The ITO issued notice under Section 143(2) on 20.09.2016, served to the assessee. Upon realizing lack of jurisdiction, the ITO transferred the case to the DCIT, who issued notice under Section 142(1) on 03.03.2017 but did not issue notice under Section 143(2) within the statutory time limit. The DCIT passed the assessment order under Section 143(3) on 27.12.2017.

Application of law to facts: The Court observed that the DCIT's failure to issue notice under Section 143(2) within the prescribed time rendered the assessment order passed under Section 143(3) invalid, as issuance of notice under Section 143(2) is a sine qua non for valid assessment under Section 143(3). The ITAT had quashed the assessment order on this ground.

Treatment of competing arguments: The ITAT relied on the CBDT Instruction and held that the ITO lacked pecuniary jurisdiction to issue notice under Section 143(2), and the DCIT's failure to issue such notice rendered the assessment order null and void. The High Court, however, examined this in light of Sections 292B and 292BB of the I.T. Act, which limit challenges to notices and assessments.

Conclusions: The ITAT's conclusion that the assessment order was invalid due to jurisdictional defects was accepted by the Court as a factual finding but was later examined in the context of statutory provisions limiting the right to challenge notices.

Issue (b): Admission of new grounds by ITAT without recording reasons for delay

Relevant legal framework and precedents: The Supreme Court has held that appellate authorities have plenary powers to entertain additional grounds even if not raised before the original authority, subject to statutory limitations.

Court's interpretation and reasoning: The ITAT admitted the additional ground raised by the assessee regarding jurisdiction for the first time before it, relying on Supreme Court decisions allowing appellate authorities to consider new grounds if they relate to jurisdictional or legal issues going to the root of the matter.

Key evidence and findings: The additional ground challenged the validity of the notice issued by the ITO and the assessment order passed by the DCIT on jurisdictional grounds.

Application of law to facts: The ITAT considered the ground as a legal issue affecting jurisdiction and entertained it despite it not being raised earlier.

Treatment of competing arguments: The High Court noted that while appellate authorities have such powers, the provisions of Sections 292B and 292BB restrict the right of the assessee to challenge notices and assessments after cooperating in proceedings without raising objections.

Conclusions: The Court held that the ITAT erred in admitting the new ground without considering statutory limitations on such challenges.

Issue (d): Challenge to authority of ITO and DCIT in light of Sections 292B and 292BB of the I.T. Act

Relevant legal framework and precedents: Sections 292B and 292BB of the I.T. Act provide that returns, assessments, notices, summons, or other proceedings shall not be invalid merely due to mistakes or omissions if they conform to the intent of the Act. Section 292BB further provides that if an assessee has appeared or cooperated in proceedings without raising objections before completion, they are precluded from later objecting to defects in notices or service.

Court's interpretation and reasoning: The Court emphasized that the ITAT ignored these provisions, which limit the assessee's right to challenge the validity of the notice issued by the ITO and the assessment order passed by the DCIT. The assessee had appeared and cooperated in the proceedings without raising the jurisdictional objection before the assessment order was passed or before the CIT (Appeals).

Key evidence and findings: The notice under Section 143(2) was duly served by the ITO, and the assessee participated in the proceedings before the DCIT without objecting to jurisdiction. No such objection was raised before the CIT (Appeals).

Application of law to facts: The Court held that in view of Section 292BB, the assessee was precluded from raising the jurisdictional objection for the first time before the ITAT. Section 292B further protects the validity of notices and assessments that substantially conform to the Act's intent.

Treatment of competing arguments: The ITAT relied on the Supreme Court's decision in National Thermal Power Corporation Limited (NTPC) allowing appellate authorities to entertain additional grounds. However, the Court clarified that such powers are subject to statutory restrictions like Sections 292B and 292BB.

Conclusions: The Court concluded that the ITAT erred in entertaining the jurisdictional objection and quashing the assessment order on that ground, ignoring the statutory bar imposed by Sections 292B and 292BB.

3. SIGNIFICANT HOLDINGS

The Court held:

"The ITAT has altogether ignored the provisions of Section 292B as well as the provisions of Section 292BB of the I.T. Act, which limits the right of an assessee of challenging a notice issued under the provisions of the I.T. Act."

"Section 292B provides that notice as well as return of income, assessment, summons, etc., issued under the provisions of the I.T. Act cannot be treated as invalid merely by reason of any mistake, defect or omission in such notice, etc., if the same is in substance and effect in conformity with or according to the intent and purpose of the I.T. Act."

"Section 292BB of the I.T. Act clearly provides that where an assessee has appeared in the proceedings relating to assessment or reassessment before the authority concerned without raising any objection before completion of assessment or reassessment, it is not open for him to raise such objection after passing of the assessment order."

"In the present case, the notice under Section 143(2) of the I.T. Act was issued by the Income Tax Officer and was duly served upon the assessee, who, in turn, had appeared before the DCIT, to which the proceedings were transferred by the Income Tax Officer, without raising any objection till the assessment order was passed."

"In such circumstances, we are of the candid view that as per law, the respondent/assessee was not within his right to raise the objection regarding issuance of notice by the Income Tax Officer under Section 143(2) of the I.T. Act or questioning the authority of the DCIT in passing the assessment order while exercising powers under Section 143(3) of the I.T. Act before the ITAT."

"Hence, the question of law framed by this Court is answered in affirmative and the impugned order passed by the ITAT is set aside. Consequently, the appeal is allowed. The matter is remanded to the ITAT for deciding the appeal preferred by the assessee afresh on other grounds raised by the assessee in the appeal preferred before it."

Core principles established include the binding effect of Sections 292B and 292BB in limiting challenges to notices and assessments, the necessity of raising jurisdictional objections timely before the completion of assessment, and the recognition that appellate authorities' powers to entertain additional grounds are subject to statutory limitations.

The final determination was that the ITAT erred in quashing the assessment order on jurisdictional grounds raised for the first time at the appellate stage, ignoring statutory provisions restricting such challenges. The High Court set aside the ITAT order and remanded the matter for fresh adjudication on other grounds.