2020 (5) TMI 618 - AT - Income Tax

Validity of notice u/s 143(2) - scrutiny assessment - issuance of notice u/s. 143(2) by correct AO - monetary limits for assigning the cases for the purpose of scrutiny u/s 143(3) - Assessing Officer Jurisdiction - Whether notice of scrutiny u/s 143(2) was issued by the ITO, Ward-5(2), Kolkata who does not have jurisdiction to issue scrutiny notice to the assessee company ? - HELD THAT - Notice u/s 143(2) of the Act is a sine qua non for an assessment to be framed u/s 143(3) of the Act, which must be issued by the jurisdictional Assessing Officer. The CBDT has issued instruction no. 01/2011 wherein the CBDT has declared the monetary limits for assigning the cases for the purpose of scrutiny u/s 143(3) of the Act by the Income Tax Officer, Deputy Commissioner and Assistant Commissioner. As per CBDT instruction no. 01/2011 the scrutiny notice u/s 143(2) must be issued by the Deputy Commissioner or Assistant Commissioner, but in the assessee s case the scrutiny notice u/s 143(2) was issued by Income Tax Officer, Ward-5(2), Kolkata therefore the assessment framed by Deputy Commissioner of Income Tax, Circle10(2), Kolkata is invalid and void, and hence we quash the assessment order u/s 143(3) dated 28.03.2015. Since we have quashed the assessment order and cross objections raised by the assessee are allowed on the legal issue therefore we do not adjudicate the Revenue s appeal on merits. - Decided in favour of assessee.

Issues Involved:
1. Deletion of addition of ?7,18,90,315/- for loss in National Multi Commodity Exchange (NMCE).
2. Deletion of addition of ?3,00,00,000/- as unexplained cash credit.
3. Violation of the rule of audi alteram partem.
4. Jurisdictional issue regarding the issuance of notice under Section 143(2) of the Income Tax Act, 1961.

Issue-wise Detailed Analysis:

1. Deletion of Addition of ?7,18,90,315/- for Loss in NMCE:
The Revenue contended that the Commissioner of Income Tax (Appeal) [CIT(A)] erred in deleting the addition of ?7,18,90,315/- based on the information received from the Forward Markets Commissions (FMC) indicating that the assessee had taken accommodation entries in the form of bogus losses through NMCE. The Revenue argued that the CIT(A)'s decision was not based on correct facts and that the loss was independently adjudicated as bogus.

2. Deletion of Addition of ?3,00,00,000/- as Unexplained Cash Credit:
The Revenue challenged the deletion of ?3,00,00,000/- as unexplained cash credit, asserting that the CIT(A)'s order ignored the pernicious practice of converting unaccounted money through the channel of investment in the share capital of a company. The Revenue sought a reversal or a de novo decision to address the violation of the rule of audi alteram partem.

3. Violation of the Rule of Audi Alteram Partem:
The Revenue raised concerns about the violation of the rule of audi alteram partem, implying that the assessee was not given a fair opportunity to present their case. They sought to set aside the CIT(A)'s order to ensure compliance with this fundamental principle of natural justice.

4. Jurisdictional Issue Regarding Issuance of Notice Under Section 143(2):
The assessee raised a crucial jurisdictional issue, arguing that the conditions precedent for issuing notice under Section 143(2) of the Income Tax Act were not complied with. Specifically, the notice was issued by the Income Tax Officer (ITO), Ward-5(2), Kolkata, who did not have jurisdiction over the assessee company. The assessment order was framed by the Deputy Commissioner of Income Tax (DCIT), Circle-10(2), Kolkata, without proper jurisdiction. The Tribunal noted that the scrutiny notice under Section 143(2) is a sine qua non for an assessment under Section 143(3). Since the notice was issued by a non-jurisdictional officer, the assessment order was deemed invalid and void.

Condonation of Delay:
The cross objection filed by the assessee was barred by a delay of 600 days. The Tribunal condoned the delay, admitting the cross objection for hearing, considering the reasons provided by the assessee, including the lack of intimation about the appeal and the belief that the issue could be raised under Rule 27 of the Income Tax Rules, 1962.

Tribunal's Decision:
The Tribunal quashed the assessment order under Section 143(3) dated 28.03.2015 due to the jurisdictional defect. The scrutiny notice under Section 143(2) was issued by the ITO, Ward-5(2), Kolkata, instead of the Deputy Commissioner or Assistant Commissioner, as specified in the CBDT Instruction No. 01/2011. Consequently, the assessment framed by the DCIT, Circle-10(2), Kolkata, was invalid and void. As the assessment order was quashed on jurisdictional grounds, the Tribunal did not adjudicate the Revenue's appeal on merits.

Conclusion:
The Tribunal allowed the cross objection filed by the assessee and dismissed the Revenue's appeal as a necessary corollary, emphasizing the importance of proper jurisdiction in the issuance of notices under Section 143(2) of the Income Tax Act, 1961. The order was pronounced in the Court on 18.03.2020.

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