Reassessment Order Passed Without Pecuniary Jurisdiction as per CBDT Instructions is Legally Unsustainable and Void

“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 urgedbefore 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 theAssessing 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 theAssessing Officer on the ground of lack of inherent jurisdiction.”

“a. Based on the Central Board of Direct Taxes Instruction No. 1 of 2011 which revised the monetary limit for issuing notice by Income-tax Officers, Deputy Commissioners and Assistant Commissioners stating that in cases of corporates in metro cities declaring income above Rs. 30 lakhs, the jurisdiction of such corporate assessees would lie with the Deputy Commissioners or

b. Assistant Commissioners, held that the notice issued under section 143(2) of the Income-tax Act, 1961 by the Income-tax Officer of the Ward for scrutiny assessment under section 143(3) for the assessment year 2012-13 was with-out jurisdiction.”

“22. We further observe that Hon’ble Apex Court in the case of Union of India v. Rajeev Bansal   has dealt with the power of the Revenue Authorities and held as under:

be exercised or confers a power or imposes a duty on a *30. If a statute expressly co particular authority, then such power or duty must be power in an authority to be exercised in a particular manner, then that performed by that authority itself. Further, when a statute vests certain authority has to exercise its power following the prescribed manner. Any exercise of power by statutory authorities inconsistent with the statutory prescription is invalid. Section 34 of the Income Tax Act 1922 prescribed a duty on Income Tax Officers to seek prior approval of the Commissioner before issuing a reassessment notice. In CIT v. Maharaja Pratapsingh Bahadur of Gidhaur, a three-Judge Bench of this Court held that a notice issued under Section 34 without prior approval of the Commissioner was invalid.

31. The Income Tax Act 1961 also mandates assessing officers to fulfil certain preconditions before issuing a notice of reassessment. Section 149 requires assessing officers to issue a notice of reassessment under Section 148 within the prescribed time limits. Further, Section 151 requires assessing officers to obtain sanction of the specified authority before issuing notice under Section 148. In Chhugamal Rajpal v. S P Chaliha, a three-Judge Bench of this Court held that Section 151 must be strictly adhered to because it contains “important safeguards.”

32. A statutory authority may lack jurisdiction if it does not fulfil the preliminary conditions laid down under the statute, which are necessary to the exercise of its jurisdiction. There cannot be any waiver of a statutory requirement or provision that goes to the root of the jurisdiction of assessment. An order passed without jurisdiction is a nullity. Any consequential order passed or action taken will also be invalid and without jurisdiction. Thus, the power of assessing officers to reassess is limited and based on the fulfilment of certain preconditions.”

23. As the Hon’ble Apex Court in Rajeev Bansal has clearly held that” if a statute expressly confers a power or imposes a duty on a particular authority, then such power or duty must be exercised or performed by that authority itself. Further, when a statute vests certain power in an authority to be exercised in a particular manner, then that authority has to exercise its power following the prescribed manner. Any exercise of power by statutory authorities inconsistent with the statutory prescription is invalid. A statutory authority may lack jurisdiction if it does not fulfil the preliminary conditions laid down under the statute, which are necessary to the exercise of its jurisdiction. There cannot be any waiver of a statutoryrequirement or provision that goes to the root of the jurisdiction of assessment. An nullity. Any consequential order passed or order passed without jurisdiction is action taken will also be invalid and without jurisdiction”. And the Hon’ble Apex Court in Hotel Blue Moon case (supra) laid down the dictum that “the notice under section 143(3) of the Act is mandatory for making the assessment and omission on the part of the assessing authority to issue notice under Section 143(2) cannot be a procedural irregularity and the same is not curable and, therefore, the requirement of notice under Section 143(2) cannot be dispensed with”. And in this case, it is a fact that the notice u/s 143(2) of the Act was not issued by the AC/DC, who ultimately passed the Assessment order, but the same was issued by the Income Tax Officer, who had no authority/competency/ power to make the assessment in the case of the assessee and/or assess the income of the assessee being beyond pecuniary jurisdiction/limit, as prescribed by the CBDT vide Instruction no. 01/2011, therefore we have no hesitation to quash the notice dated 01.08.2017 under section 143(2) of the Act, which is the foundation of the assessment order, along with the assessment order dated 25.05.2023 under section 147 read with section 144 read with section 144B of the Act. Thus, the same are quashed.”

“7.1 In the instant case, the ITO, being the Assessing Officer issued notice u/s 143(2) of the Act and also completed the assessment order u/s 143(3) of the Act. Evidently he assumed wrong jurisdiction over the case as he was empowered to make the assessment as per the extant instruction of CBDT. Respectfully following the decisions of the coordinate Bench and ITAT Mumbai (supra), we are inclined to hold that the jurisdictional notice u/s 143(2) was not issued by appropriate authority i.e. AC/DCIT before completing the assessment u/s 143(3) of the Act. This defect in the assessment proceedings is fatal and uncurable. Accordingly, the assessment order passed in the present case is quashed and the ground in Cross objection raised by the assessee is allowed.”

“16. We have considered the rival submissions, perused the material available on record and the case laws pressed into our service. Regarding admissibility of additional legal ground of the assessee with respect to challenging the jurisdiction of the AO which was not challenged before the AO under the provisions of Section 124(3) of the Act within the stipulated time period of one month from the date of which the notice u/s.143(2) of the Act was served upon the assessee, as opposed by the Id.Sr. DR, we take guidance from the observation of the coordinate bench of this Tribunal in the case of Sudhir Kumar Agrawal, (supra), wherein it has been observed in para 14 as under :-

14. We shall now deal with the objection raised by the Ld. DR that as the assessee had not called in question the jurisdiction of the Income-Tax Officer, Ward-2(2), Bhilai within the stipulated time period of one month Shri Sudhir Kumar Agrawal, Durg v. ITO, Ward- 2(2), Bhilai ITA No. 158/RPR/2017 from the date on which he was served with the notice(s) u/ss.143(2) and 142(1), dated 03.03.2015, therefore, it was not permissible for him to challenge the same for the first time in the course of the proceeding before the tribunal. Having given a thoughtful consideration to the aforesaid claim of the id. DR we are unable to persuade ourselves to subscribe to the same. On a careful perusal of Section 124 of the Act, it transpires that the same deals with the issue of “territorial jurisdiction” of an Assessing Officer. Ostensibly, sub-section (1) of Section 124 contemplates vesting with the A.O jurisdiction over a specified area by virtue of any direction or order issued under subsection (1) and sub-section (2) of Section 120 of the Act. On the other hand sub-section (2) of Section 124 contemplates the manner in which any controversy as regards the territorial jurisdiction of an A.O is to be resolved. Apropos, sub-section (3) of Section 124 of the Act, the same places an embargo upon an assessee to call in question the jurisdiction of the A.O where he had initially not raised such objection within a period of one month from the date on which he was served with a notice under sub-section (1) of Section 142 or sub-section (2) of Section 143. In sum and substance, the obligation cast upon an assessee to call in question the jurisdiction of the A.O as per the mandate of sub-section (3) of Section 124 is confined to a case where the assessee objects to the assumption of territorial jurisdiction by the A.O, and not otherwise. Our aforesaid view is fortified by the judgment of the Hon’ble High Court of Bombay in the case of Peter Vaz v. CIT. Tax Shri Sudhir Kumar Agrawal, Durg v. ITO, Ward- 2(2), Bhilai ITA No. 158/RPR/2017 Appeal Nos. 19 to 30 of 2017, dated 05.04.2021 and that of the Hon’ble High Court of Gujarat in the case of CIT v. Ramesh D Patel  362 ITR 492 (Gujarat). In the aforesaid cases the Hon’ble High Courts have held that as Section 124 of the Act pertains to territorial jurisdiction vested with an AO under sub-section (1) or subsection (2) of Section 120, therefore, the provisions of subsection (3) of Section 124 which places an embargo on an assessee to raise an objection as regards the validity of the jurisdiction of an A.O would get triggered only in a case where the dispute of the assessee is with respectto the territorial jurisdiction and would have no relevance in so far his inherent jurisdiction for framing the assessment is concerned. Also, support is drawn from a recent judgment of the Hon’ble High Court of Calcutta in the case of Principal Commissioner of Income-tax v. Nopany & Sons [2022] 136 t (Calcutta). In the case before the Hon’ble High Court the case of the assessee was transferred from ITO, Ward-3 to ITO, Ward-4 and the impugned order was passed by the ITO, Ward-4 without issuing notice u/s 143(2) and only in pursuance to the notice that was issued by the ITO, Ward-3, who had no jurisdiction over the assessee at the relevant time. Considering the fact that as the assessment was framed on the basis of the notice issued under Sec. 143(2) by the assessing officer who had no jurisdiction to issue the same at the relevant point of time, the Hon’ble High Court quashed the assessment. Apart from that, the aforesaid view is also supported by the order of the ITAT, Kolkata ‘B’ Bench in the case Shri Sudhir Kumar Agrawal, Durg v. ITO, Ward-2(2), Bhilai ITA No. 158/RPR/2017 of OSL. Developers (p) Ltd. v. 170, (2021) 211 TTJ (Kol) 621 and that of ITAT, Gauhati Bench in the case of Balaji Enterprise v. ACIT (2021) 1871TD 111 (Gau.). Accordingly, on the basis of our aforesaid observations, we are of the considered view that as 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 subsection (3) of Section 124 would not assist the case of the revenue.

17. Admittedly, the assessee has filed its return of income for the assessment year 20072008 with a returned income of Rs.5,22,820/-, which is below Rs.15 lakhs. As per the CBDT Instruction No. 1/2011, da ted 31.01.2011 and Instruction No.6/2011, dated 08.04.2011, the jurisdiction over the case of the assessee located in mofussil areas ie at Raipur, Chhattisgarh. Therefore, the jurisdiction to assess the case of the assessee was vested with an officer in the rank of ITO, whereas the case of the assessee was reopened by the DCIT-1(1), Raipur, which was subsequently transferred to ACIT, Circle-3(1), Raipur. Since the jurisdiction assumed by the ACIT Circle-3(1), Raipur, who has framed the assessment of the assessee was not in accordance with the CBDT Instruction No.01/2011, dated 31.01.2011 and 06/2011, dated 08.04.2011, therefore, the instruction assumed was invalid in terms of non-following the binding instructions issued by the CBDT and, therefore, the order remained on the basis of such reopening was also void ab initio and needs to be struck down. In this regard, reliance can be placed on the decision of Hon’ble Supreme Court in the case of Commissioner of Customs v. Indian Oil Corpn. Ltd.  267 ITR 272 (SC) wherein the Hon’ble Supreme Court, considering various earlier judgments, has held that the circulars/ instructions issued u/s.119 of the IT Act are binding on the revenue. The relevant observations of the Hon’ble Supreme Court are as under:-

7. This Court has, in a series of decisions, held that circulars issued under Section 119 of the Income Tax Act, 1961 and 37B of Central Excise Act are binding on the Revenue. (See Navnit Lal C Jhaveri v. K.K. Sen [1965] 56 ITR 198 (SC) (SC); Ellerman Lines Ltd. v. CIT 1972 CTR (SC) 71 [1971] 82 ITR 913 (SC)(SC): K.P. Varghese v. ITO (1981) 24 CTR (SC) 358: 1981 (4) SCC 17i Union of India v. Azadi Bachao Andolan (2003) 184 CTR (SC) 450: 2003 (8) SCALE 287, 308 Collector of Central Excise v. Usha Martin Industries 1994 (94) ELT: 1997 (7) SCC 47 Ranadey Micronutrients v. CCE 1996 (8) ELT 19: 1996 (10) SCC 387; Collector of Centra Excise v. Jayant Dalai (P) Ltd. 1998 (100) ELT 10: 1997 (10) SCC 402; Collector of Centra. Excise v. Kores India Ltd. 1997 (89) ELT 441: 1997 (10) SCC 338; Paper Products Ltd. v. Collector of Central Excise 1999 (112) ELT 765: 1997 (7) SCC 84; Dabur India Ltd. v. CCE 2003 (157) ELT 129).

8. The somewhat different approach in M/s. Hindustan Aeroneutics v. Commissioner of Income Tax, Karnataka, Bangalore 2000 (5) SCC 365 by two learned Judges of this Court, apart from being contrary to the stream of authority cannot be taken to have laid down good law in view of the subsequent decision of the Constitution Bench in Collector of Central Excise, Vadodara v. Dhiren Chemical Industries. After this Court had construed an exemption notification in a particular manner, it said (p. 130 of SCC and p. 557 of ITR):

“We need to make it clear that, regardless of the interpretation that we have placed on the said phrase, if there are circulars which have been issued by the Central Board of Excise and Customs which place a different interpretation upon the said phrase, that interpretation will be binding upon the Revenue”.

9. Despite the categorical language of the clarification by the Constitution Bench, the issue was again sought to be raised before a Bench of three Judges in Central Board of Central Excise, Vadodara v. Dhiren Chemicals Industries: (2002) 143 SCC 654: 2002 (143) ELT 19 where the view of theConstitution Bench regarding t the binding nature of circulars issued under Section 37B of the Central Excise Act, 1944 was reiterated after it was drawn to the attention of the Court by the Revenue that there were in fact circulars issued by the Central Board of Excise and Customs which gave a different interpretation to the phrase as interpreted by the Constitution Bench. The same view has also been taken in Simplex Castings Ltd. v. Commissioner of Customs, Vishakhapatnam 2003 (5) SCC.

10. The principles laid down by all these decisions are:

to raise ins in (1) Although a circular is not binding on a Court or an assessee, It is not open to the Revenue to the contention that is contrary to a binding circular by the Board. When a circular remains operation, the Revenue is bound by it and cannot be allowed to plead that it is not valid nor that it is contrary to the terms of the statute.

(2) Despite the decision of this Court, the Department cannot be permitted to take a stand contrary to the instructions issued by the Board.

(3) A show cause notice and demand contrary to existing circulars of the Board are ab initio bad.

(4) It is not open to the Revenue to advance an argument or file an appeal contrary to the circulars.

18. In the case of Khirod Kumar Pattnaik, the Cuttack Bench of the Tribunal in ITA No.380/CTK/2019, vide order dated 10.12.2020, has held that, “it was the duty of the revenue authorities to give effect to the circulars/instructions issued by the CBDT which are binding on them. If the CBDT Instruction No. 1/2011, dated 31.01.2011 & No.6/2011, dated 08.04.2011 is not accepted by the revenue authorities, as has been occurred in the present case in hand, anyone can frame the assessment/reassessment even having no jurisdiction to enter into the same. The power conferred upon the CBDT to issue instructions and directions by section 119 of of the Act is for proper working of the Act, which should be followed by the revenue authorities in true spirit. Accordingly, the Tribunal quashed the reassessment framed by the ITO/AO, who was having no jurisdiction over the assessee.

19. Further, the coordinate bench of the Tribunal in the case of Ravi Sherwani (supra), in para 11 has held that, “controversy involved in the present appeal lies in a narrow compass, i.e, sustainability of the assessment framed by the ACIT, Circle 4(1), Raipur vide his order passed u/s 143(3) of the Act, dated 29.03.2016, which in turn was based on a notice u/s 143(2) of the Act, dated 08.09.2014 issued by the ITO-1(3), Raipur, i.e a non-jurisdictional officer. We find that the issue involved in the present appeal is squarely covered by the order of this Tribunal in the case of Durga Manikanta Traders (supra); wherein, it has been held, that in case an A.O vested with jurisdiction over the case of the assessee, had framed an assessment u/s.143(3) of the Act, by assuming jurisdiction to frame such assessment on the basis of notice u/s 143(2) of the Act issued by a non-jurisdictional officer, ie an A.O who was not vested with pecuniary jurisdiction over the case of the assessee as per CBDT Instruction No.1 of 2011, then, the assessment so framed could not be sustained and was liable to be struck down for want of valid assumption of jurisdiction”.

20. In the backdrop of aforesaid observations, we are in agreement with the Id. AR that the reopening proceedings were initiated without having vested jurisdiction by the DCIT-1(1), Raipur and also the same was thereafter wrongly been framed by an officer, who was not having jurisdiction over the case of the assessee as per the criteria laid down by the CBDT Instructions, referred to supra. Since similar issues were decided by the coordinate bench of the Tribunal in several different cases, referred to above, alongwith observations in these cases as are extracted hereinabove, therefore, respectfully following the view taken in the above judicial pronouncements, we are of the considered opinion that the order framed u/s.147/143(3) of the Act by the ACIT, Circle-3(1), Raipur, dated 11.02.2015 for the assessment year 20047-2008 in the case of assessee, is liable to be quashed and we do so. Thus, the legal ground of assessee is allowed.”