Scrutiny Assessment Quashed as Section 143(2) Notice Was Issued Without Jurisdiction: Calcutta HC

PCIT-1 Vs Shree Shoppers Ltd. (Calcutta High Court)

The Calcutta High Court dismissed the Revenue’s appeal filed under Section 260A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2012-13. The central issue before the Court was whether a valid notice under Section 143(2) had been issued for initiating scrutiny assessment proceedings.

The Revenue argued that the notice under Section 143(2) had been validly issued by the jurisdictional Assessing Officer before departmental restructuring and that a subsequent change in jurisdiction within the same range or under the same Principal Commissioner should not invalidate the assessment proceedings. It was also contended that a notice under Section 143(2) is required to be issued only once at the initiation of scrutiny proceedings.

The Tribunal had recorded a factual finding that the assessee had declared an income of ₹48,47,180 in its return filed on 26 September 2012. Under CBDT Instruction No. 1/2011, in metro cities, corporate assessees declaring income exceeding ₹30 lakh fell within the jurisdiction of Deputy Commissioners or Assistant Commissioners. Despite this, the notice under Section 143(2) dated 23 September 2013 had been issued by the Income Tax Officer, Ward-9(4), Kolkata.

The Tribunal held that service of a valid notice under Section 143(2) is a mandatory statutory requirement for completing an assessment under Section 143(3). Since the notice had been issued by an officer lacking jurisdiction on the relevant date, the scrutiny proceedings were invalid. Although the assessment was subsequently completed by the Deputy Commissioner of Income Tax, the Tribunal observed that the crucial question was whether the officer issuing the initial notice possessed lawful jurisdiction at that stage.

The High Court noted that the factual findings recorded by the Tribunal were undisputed. It agreed with the Tribunal’s conclusion that the defect in issuing the notice was incurable because it went to the root of the assessment proceedings. Accordingly, the Court upheld the Tribunal’s order quashing the scrutiny assessment.

The Revenue’s appeal was dismissed, the substantial questions of law were answered against the Revenue, and the connected stay application was also closed.

FULL TEXT OF THE JUDGMENT/ORDER OF CALCUTTA HIGH COURT

This appeal filed by the revenue under Section 260A of the Income Tax Act, 1961 (the ‘Act’ for brevity) is directed against the order dated 8^th September, 2022 passed by the Income Tax Appellate Tribunal, “A” Bench, Kolkata (the Tribunal) in ITA No.865/Kol/2018 for the assessment year 2012-13.

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

(i) Whether on the facts and circumstances of the case the Tribunal was justified in law to quash the Assessing Order passed under Section 143(3) of the said Act on the ground that the valid Notice under Section 143(2) was not issued in accordance with law despite the fact that said Notice was already issued by the jurisdictional Assessing Officer before the process of Restructuring Departmental Cadre?

(ii) Whether on the facts and circumstances of the case the Tribunal was justified in law in not appreciating the fact that the Notice under Section 143(2) of the said Act is issued only once at the time of initiating of the scrutiny assessment, thereafter mere change of jurisdictional Assessing Officer within the same Range and/or Pr.CIT cannot affect the assessment proceedings ?

We have heard Ms. Smita Das De, learned standing counsel for the appellant/revenue. Though the respondent has been served and affidavit of service filed, none appears for the respondent.

The short issue which falls for consideration in the instant case is whether there is valid notice issued under Section 143(2) of the Act for commencing the scrutiny assessment. The Tribunal has noted the facts and rendered a finding that on the date when the case was selected for scrutiny, the authority who issued the notice namely, the Income Tax Officer, Ward No.9(4), Kolkata did not have jurisdiction and the jurisdiction was with the Deputy Commissioner of Income Tax. The following factual finding has been recorded by the Tribunal :

“Therefore, the legal ground stands to be admitted and the same relates to invalid notice issued u/s. 143(2) of the Act. It is a settled position of law that for carrying out the assessment proceedings u/s. 143(3) of the Act, the statutory requirement of serving of valid notice u/s. 143(2)of the Act is must and in absence thereof the subsequent proceedings become invalid. In the case of assessee, the facts are that the assessee has declared income of Rs.48,47,180/- in the e-return filed on 26.09.2012. For selecting the case for scrutiny notice u/s. 143(2) of the Act was issued by ITO, Ward-9(4), Kolkata dated 23.09.2013. The Central Board of Direct Taxes (CBDT vide Instruction No.1/2011 supra) revised the monetary limit for issuing notice by ITO/DCs/ACs. Through this instruction it stated that in case of metro cities in case of corporates declare income above Rs.30 lakh the jurisdiction of such corporate assessee will lie with the DCs/ACs. It is not in dispute that as on the date of selecting the case for scrutiny, the very basis for having jurisdiction over the assessee is the returned income which was more than Rs.30 lakhs and the same was lying with the DCs/Acs but the notice u/s. 143(2) of the Act has been issued by ITO, Ward-9(4), Kolkata. It is true that subsequently the assessment has been framed by DCIT, Circle-9(2), Kolkata but the point in dispute is that on date of issuing a notice u/s. 143(2) of the Act, whether the ITO, Ward-9(4), Kolkata was having a valid jurisdiction to issue such notice u/s. 143(2) of the Act.”

The above factual position recorded by the Tribunal is not in dispute. Therefore, we are of the clear view that the Tribunal rightly allowed the assessee’s appeal and quashed the scrutiny proceedings as defect in issuance of notice is incurable as it goes to the root of the matter.

Thus, we find no ground to differ with the findings recorded by the learned Tribunal.

In the result, the appeal filed by the revenue (ITAT/39/2023) is dismissed and the substantial questions of law are answered against the revenue.

Consequently, the connected application for stay (IA No.GA/2/1/2023) also stands closed.