Assessment Order by ACIT Quashed for Lack of Inherent Jurisdiction as Per CBDT Instructions on Nil Income.

Issue:

Whether an assessment order framed by an Assistant Commissioner of Income Tax (ACIT) is valid when the assessee has declared nil income, and as per CBDT Instruction No. 1/2011, the jurisdiction for such cases (with nil or low income) vests specifically with the Income Tax Officer (ITO).

Facts:

For Assessment Year 2014-15, the assessee filed its return of income declaring nil income. Subsequently, notices under section 143(2) and section 142(1) were issued. The assessee contended that since they had disclosed nil income, the jurisdiction for framing the assessment, as per CBDT Instruction No. 1/2011, vested with the Income Tax Officer (ITO). However, the assessment order in question had been framed by the ACIT. The assessee argued that the assessment order was therefore without jurisdiction and deserved to be quashed. The Tribunal considered a similar decision in Bhagyalaxmi Conclave (P.) Ltd. v. Dy. CIT [IT Appeal No. 2517/Kol/2019, dated 3-2-2021], where it was held that assessments framed by an Assessing Officer lacking inherent jurisdiction should be set aside.

Decision:

In favor of the assessee: The Tribunal was held to be right in allowing the assessee’s appeal and setting aside the order passed by the Assessing Officer on the ground of lack of inherent jurisdiction. The core reasoning was that CBDT Instruction No. 1/2011, which specifies pecuniary limits for assigning cases to ITOs and ACITs based on declared income, is binding on the income tax authorities. Since the assessee declared nil income, the jurisdiction, as per the instruction, lay with the ITO, not the ACIT. Therefore, the assessment framed by an officer inherently lacking jurisdiction was invalid.

Key Takeaways:

Binding Nature of CBDT Instructions: CBDT Instructions issued under Section 120 (and other relevant sections like 119) are binding on all income tax authorities, including Assessing Officers. These instructions delineate the jurisdiction of various officers, including pecuniary limits.
Pecuniary Jurisdiction and Nil/Low Income: CBDT Instruction No. 1/2011 (dated January 31, 2011) specifically sets out monetary limits for the jurisdiction of ITOs and ACITs/DCs. For non-corporate assessees, for instance, income up to Rs. 15 lakhs (mofussil areas) or Rs. 20 lakhs (metro cities) falls under the ITO’s jurisdiction. If an assessee declares nil income, it clearly falls below these thresholds.
Inherent Lack of Jurisdiction: An assessment order passed by an officer who inherently lacks jurisdiction over the case (e.g., an ACIT assessing a nil income case meant for an ITO as per CBDT instructions) is considered void ab initio (null and void from the beginning). This is a fundamental flaw that cannot be cured.
Distinction from Administrative Allocation: While CBDT instructions also deal with administrative allocation of work, the pecuniary limits defined in Instruction No. 1/2011 are considered jurisdictional in nature for the purpose of valid assessments.
Importance of Judicial Precedents: The Tribunal’s reliance on its own previous decision in Bhagyalaxmi Conclave (P.) Ltd. v. Dy. CIT highlights the importance of consistent application of legal principles regarding jurisdiction by appellate bodies.

HIGH COURT OF CALCUTTA

Principal Commissioner of Income-tax

Raghvendra Mohta

CHAITALI CHATTERJEE (DAS), J.
and T.S. Sivagnanam, CJ.

ITAT No. 51 OF 2025
IA NO. GA 1 and 2 OF 2025

MAY 5, 2025

Prithu Dudhoria, Adv. for the Appellant. Abhratosh Majumder, Avra Mazumder, Ms. Alisha Das, Suman Bhowmik, Samrat Das, Ms. Elina Dey and Sourendra Nath Banerjee, Advs. for the Respondent.

ORDER

1. There is a delay of 117 days in filing the appeal. As the delay has been properly explained the same is condoned. The application is allowed.

2. This appeal filed by the revenue under Section 260A of the Income Tax Act, 1961 (the Act) is directed against the order dated 8.4.2024 passed by the Income Tax Appellate tribunal “B” Bench, Kolkata (the Tribunal) in ITA/2416/Kol/2017 for the assessment year 2014-15.

3. The revenue has raised the following substantial questions of law for consideration :

“a. WHEATHER in facts and in the circumstances of the case the Ld. Income Tax Appellate Tribunal was justified in law in quashing the assessment order passed by the Assessing Officer under Section 143(3) of the Income Tax Act, 1961 on 29.12.2016 based on an incorrect understanding of the provisions of Section 120 of the Income Tax Act, 1961 read with CBDTs Instruction No. 1/2011 issued vide F. No.187/12/2010-IT(A-1) dated 31.01.2011 which does not fix any rigid jurisdiction but is made for equitable distribution of work and thereby failing to appreciate that the Notice under Section 143(2) was correctly issued by the ACIT, Circle-36, Kolkata who was the Assessing Officer having PAN jurisdiction over the assessee and that the subsequent assessment completed by the Assessing Officer was a valid assessment?

b. WHETHER in facts and in the circumstances of the case the Ld. Income Tax Appellate Tribunal was justified in law in quashing the assessment order passed by the Assessing Officer under Section 143(3) of the Income Tax Act, 1961 on 29.12.2016 purely on technical grounds and deleting the additions of Rs. 42,27,500/- made u/s. 68 and Rs.1,48,657/- made U/s. 69C of the Income Tax Act by disallowing the assessee’s claim of exemption of bogus LTCG without going into the merits of the case and examining the assessee’s attempt to evade taxes in an organized way by obtaining accommodation entries from entry operators in the garb of Penny Stocks of “Ashika Credit Capital Ltd.?”

4. We have heard Mr. Prithu Dudhoria, learned advocate for the appellant and Mr. Abhratosh Mazumder, learned senior counsel assisted by Mr. Avra Mazumder, learned advocate for the respondent.

5. The assessee preferred appeal before the learned Tribunal challenging the order passed by the Commissioner of Income Tax (Appeals)-10, Kolkata [CIT(A)] dated 26.9.2017. One of the grounds urged before the learned Tribunal was that the Assessing Officer, who passed the assessment order did not have jurisdiction over the case of the assessee and, therefore, the notice as well as the assessment order are bad in law. The learned Tribunal took note of the facts and circumstances of the case and found that the assessee filed its return of income declaring the income to be nil. Subsequently, notice under section 143(2) was issued on 10.9.2015 and notice under section 142(1) dated 13.6.2016 was issued along with the questionnaire. The assessee contended that the notices were without jurisdiction and relied upon section 120 of the Act. In this regard, the assessee referred to the notification issued by the CBDT in Instruction No.1 of 2011. The learned Tribunal took into consideration the facts of the case and found that the assessment has been framed by the Assessing Officer, who inherently lacks jurisdiction to do so.

6. The learned Tribunal took note of the decision of a Co-ordinate Bench of the learned Tribunal in the case of Bhagyalaxmi Conclave (P) Ltd. v. DCIT [IT Appeal No. 2517/Kol/2019, dated 3-2-2021] Apart from other decisions and allowed the assessee’s appeal, the revenue had challenged the order passed in the case of Pr. CIT v. Bhagyalaxmi Conclave (P) Ltd. [ITAT No. 221 of 2022, dated 6-12-2022] etc. and by a judgment reported in 2022 (12) TMI 1514, the appeal filed by the department was dismissed wherein one of the questions framed is identical to the substantial questions of law suggested by the revenue in the instant case. Thus, we find that the learned Tribunal was right in allowing the assessee’ appeal and setting aside the order passed by the Assessing Officer on the ground of lack of inherent jurisdiction.

7. For the above reason, the appeal is dismissed and the substantial questions of law are answered against the revenue.