Case Law Details
Nabiul Industrial Metal Pvt. Ltd Vs ITO (ITAT Kolkata)
In a recent ruling, the Income Tax Appellate Tribunal (ITAT) of Kolkata has allowed an appeal filed by Nabiul Industrial Metal Pvt. Ltd., nullifying a tax assessment and a demand of ₹15,00,000. The tribunal’s decision hinged not on the merits of the tax addition but on a legal challenge concerning the timing and jurisdiction of the National Faceless Assessment Centre (NFAC) in conducting the proceedings. The judgment has implications for the procedural application of the e-Assessment of Income Escaping Assessment Scheme, 2022.
The case originated in the Assessment Year 2017-18, when Nabiul Industrial Metal Pvt. Ltd. failed to file its return of income. Consequently, the Assessing Officer (AO) reopened the case under Section 147 of the Income Tax Act, 1961. The action followed information received from the Investigation Wing, Kolkata, suggesting a link between the assessee company and M/s. Darsh Coke Trading Pvt. Ltd., a company identified as a “paper company” used to provide bogus entries.
Further inquiry revealed a transaction involving ₹15,00,000, which Nabiul Industrial Metal Pvt. Ltd. had received from another concern, Tanishi Commotrades Pvt. Ltd., also alleged to be an entry operator. When questioned, the assessee company argued that the amount was a loan or advance received against the sale of goods, which would be subsequently completed in the following financial year. The company stated that the sales were indeed made in the next year (FY 2017-18), with the income duly credited to its Profit and Loss account and tax paid accordingly.
However, the AO was not satisfied with this explanation. Citing the lack of supporting evidence to corroborate the nature of the transaction, the officer proceeded to add the entire sum of ₹15,00,000 to the assessee’s income under Section 68 of the Act, which pertains to unexplained cash credits. This decision was then challenged by the company before the Commissioner of Income-tax (Appeals)-NFAC, Delhi. During the appellate stage, the company’s appeal was dismissed without a detailed hearing due to its failure to respond to the CIT(A)’s inquiries, leading to the confirmation of the original assessment.
Aggrieved by the dismissal, Nabiul Industrial Metal Pvt. Ltd. escalated the matter to the ITAT. In a key development during the hearing, the counsel for the assessee introduced an additional, purely legal ground of appeal. This argument bypassed the factual merits of the ₹15,00,000 addition and focused entirely on procedural jurisdiction. The counsel contended that the assessment conducted by the NFAC was invalid because the authority had assumed jurisdiction prematurely, before the legal framework empowering it to do so had become effective.
The legal ground centered on the “e-Assessment of Income Escaping Assessment Scheme, 2022,” introduced by Section 151A of the Act. While the provision came into effect on November 1, 2021, the specific notification (S.O. 1466(E)) that made the scheme operational for faceless assessments under Section 147 was published in the Official Gazette on March 29, 2022. The assessee’s counsel pointed out that the assessment proceedings, as evidenced by a notice under Section 142(1), had been initiated on November 29, 2021, a date four months before the scheme’s commencement.
Furthermore, the counsel highlighted a show-cause notice issued by the NFAC to the assessee. The notice was dated March 28, 2022, but was digitally signed at 00:20:37 IST on March 29, 2022. The notice simultaneously directed the assessee to provide a response “on or before 29.03.2022.” The tribunal found this timeline to be a serious procedural lapse, noting that the assessee was effectively given no time to furnish a reply before the assessment order was finalised.
Upon reviewing the facts and the statutory notification, the ITAT bench concluded that the counsel’s legal argument held substance. The tribunal observed that the NFAC’s jurisdiction to conduct faceless assessments under the new scheme became valid only from March 29, 2022. The initiation of the assessment proceedings and the issuance of key notices prior to this date rendered the entire process flawed from its inception.
Judicial Precedents: No specific judicial precedents were cited or discussed in the provided text of the ITAT order. The tribunal’s decision was based on a direct interpretation of the statutory provisions of Section 151A and the corresponding government notification, which defined the effective date of the faceless assessment scheme.
Conclusion: In its final verdict, the ITAT bench ruled that the assumption of jurisdiction by the AO prior to March 29, 2022, was invalid. As a result, the tribunal held that the assessment order and all subsequent orders passed were without jurisdiction and therefore legally unsustainable. The appeal was allowed, providing relief to Nabiul Industrial Metal Pvt. Ltd. on procedural grounds. The order underscores the importance of strict adherence to the effective dates and procedural timelines mandated by law for tax authorities.
FULL TEXT OF THE ORDER OF ITAT KOLKATA
This appeal filed by the assessee pertaining to the Assessment Year (in short ‘AY’) 2017-18 is directed against the order passed u/s 250 of the Income Tax Act, 1961 (in short the ‘Act’) by ld. Commissioner of Income-tax (Appeals)-NFAC, Delhi [in short ld. ‘CIT(A)’] dated 27.05.2024 arising out of the assessment order framed u/s 147/144/144B of the Act dated 31.03.2022.
1.1. The brief facts of the case of the appellant are that the assessee Nabiul Industrial Metal Pvt. Ltd. did not file the return of income for the AY 2017-18 as a result of which case of the assessee was re-opened u/s 147 of the Act.
The Assessing Officer (hereinafter referred to as ld. ‘AO’) received information from the investigation wing, Kolkata wherein it was mentioned that in course of the investigation in the case of M/s. Darsh Coke Trading Pvt. Ltd., it was revealed that the said company is a paper company through which entry operators provide bogus entries and layer money in exchange of commission. It was also found that the one of the beneficiaries is the assessee company which has received Rs. 15,00,000/- from a paper concern namely Tanishi Commotrades Pvt. Ltd. During the course of re-assessment, the assessee was asked to explain the transactions with Tanishi Commotrades Pvt. Ltd. In response, the assessee submitted that in the current year i.e. FY 2016-17 the assessee took a loan/ advance from this party against sale of goods and in the immediately succeeding year i.e. FY 2017-18 sales were made to Tanishi Commotrades Pvt. Ltd and said sale was duly credited in the Profit and Loss account of the company and tax was duly paid. However, the AO was not convinced with the submission filed by the assessee and accordingly, added the sum of Rs. 15,00,000/- to the income of the assessee u/s 68 of the Act. The said assessment order has been challenged before the ld. CIT(A) wherein in absence of any response from the appellant the case of the assessee has been dismissed.
Being aggrieved and dissatisfied with the impugned order, the present appeal has been preferred.
1.2. The ld. Counsel for the assessee challenges the impugned order by taking several grounds but he, in course of hearing, took an additional ground being the legal ground and he pressed only legal ground which are as follows:
“That the National Faceless Assessment Centre erred in having assumed jurisdiction u/s 151A r.w.s 144B of the Act from 29.11.2021 when they were not empowered under any notification about the applicability of the faceless scheme for making assessment in faceless manner prior to 29.03.2022.”
1.3. Ld. Counsel for the assessee submitted that the provisions of Section 151A of the Act came in the statute on 01.11.2021 but it was notified with effect from 29.03.2022. But in the present case, assessment proceedings to the NFAC started on 29.11.2021 which is evident from the notice u/s 142(1) of the Act. Ld. Counsel for the assessee further submits that the show cause notice has also been issued and the date has been mentioned as 28.03.2022 that is prior to 29.03.2022. Ld. Counsel for the assessee further submits that the assumption of jurisdiction by the NFAC was without jurisdiction. Consequently, the whole assessment is without jurisdiction and unsustainable in law. Ld. Counsel for the assessee further drew the attention of this Bench on the issuance of show cause notice and submitted that it was served on 29.03.2022 and asked the assessee to furnish explanation on or before 29.03.2022, it means without giving the assessee any opportunity before framing of the assessment order. Ld. Counsel for the assessee has filed the following papers:
a) Notification of Ministry of Finance dated 29.03.2022.
b) Notice issued u/s 142(1) of the Act.
c) Show cause notice dated 28.03.2022.
1.4. Ld. D/R though supports the impugned order but did not raise any objection on the legal ground.
2. We have perused the records and the papers filed by the assessee. It appears that Notification with respect to Section 151A of the Act has been made with effect from 29.03.2022 which is as under:
“S.O. 1466(E).—In exercise of the powers conferred by sub-sections (1) and (2) of section 151A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following Scheme, namely:-
1. Short title and commencement.—(1) This Scheme may be called the e-Assessment of Income Escaping Assessment Scheme, 2022.
(2) It shall come into force with effect from the date of its publication in the Official Gazette.
- —(1) In this Scheme, unless the context otherwise requires, —
(a) “Act” means the Income-tax Act, 1961 (43 of 1961);
(b) “automated allocation” means an algorithm for randomised allocation of cases, by using suitable technological tools, including artificial intelligence and machine learning, with a view to optimise the use of resources.
Nabiul Industrial Metal Pvt. Ltd.
(2) Words and expressions used herein and not defined, but defined in the Act, shall have the meaning respectively assigned to them in the Act.
3. Scope of the Scheme.—For the purpose of this Scheme,—
(a) assessment, reassessment or re-computation under section 147 of the Act,
(b) issuance of notice under section 148 of the Act, shall be through automated allocation, in accordance with risk management strategy formulated by the Board as referred to in section 148 of the Act for issuance of notice, and in a faceless manner, to the extent provided in section 144B of the Act with reference to making assessment or reassessment of total income or loss of assessee.”
2.1. We have also gone through the notice u/s 142(1) of the Act dated 29.11.2021 which is as follows:
2.2. We further find the show cause notice issued that also reflects the date 28.03.2022 which is as follows:
2.3. It appears from the show cause notice issued on 28.03.2022 that at the bottom of the page it was digitally signed thereby giving date 29.03.2022 at 00:20:37 IST.
2.4. We further find that in the show cause notice the assessee has been directed to furnish explanation on or before 29.03.2022. It is surprising that when it was issued on 29.03.2022 at 00:20:37 IST and directed the assessee to explain the explanation before 29.03.2022.
3. Keeping in view the entire facts and discussions made above, we find substance in the argument of the ld. CIT(A) that assumption of jurisdiction prior to 29.03.2022 by the ld. AO is to be held to be without jurisdiction. Accordingly, the assessment order, passed, is to be deemed without jurisdiction. Subsequently, all the orders passed are hereby held to be without jurisdiction.
4. In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open Court on 15th October, 2024.
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