The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has quashed a reassessment order after finding that income above Rs. 15 lakh in Mofussil Areas falls under ACIT/DCIT and not within ITO’s jurisdiction.

The Bench of Mahavir Singh (Vice President) and Krinwant Sahay (Accountant Member) has observed that proceedings arising from a jurisdictionally invalid reassessment notice are void ab initio as the Income Tax Officer (ITO) who issued the notice under Section 148 of the Income Tax Act, 1961 lacked pecuniary jurisdiction over the assessee’s case.

At the outset, the Tribunal considered a delay of 48 days in filing the appeal. The assessee submitted an application explaining the reasons for the belated filing.

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After hearing both sides, the Bench found that sufficient cause had been shown. It consequently condoned the delay and admitted the appeal for adjudication on merits.

The controversy arose from a reassessment initiated through a notice issued under Section 148 by the Income Tax Officer, Ward-1, Sonipat, on March 30, 2021. The reassessment was subsequently completed on March 30, 2022.

Before the Tribunal, the assessee challenged the validity of the reopening on the grounds that the reasons recorded were vague, lacked application of mind and were unsupported by tangible material.

The assessee also contended that the reassessment notice was issued without a valid sanction under Section 151 of the Income Tax Act.

However, the principal jurisdictional objection advanced during the hearing concerned the monetary limits prescribed by the Central Board of Direct Taxes for assigning cases between Income Tax Officers and officers of the rank of Assistant Commissioner or Deputy Commissioner.

The assessee relied upon CBDT Instruction No. 1/2011 dated January 31, 2011, which lays down monetary limits for assigning income tax cases to different classes of assessing officers.

Under the instruction, in the case of non-corporate returns in mofussil areas, an Income Tax Officer exercises jurisdiction where the declared income is up to Rs. 15 lakh. Where the declared income exceeds Rs. 15 lakh, jurisdiction lies with an Assistant Commissioner or Deputy Commissioner of Income Tax.

For metropolitan cities, the corresponding limits prescribed for non-corporate returns are up to Rs. 20 lakh for Income Tax Officers and above Rs. 20 lakh for Assistant or Deputy Commissioners.

The assessee argued that the case fell within the jurisdiction of an Assistant Commissioner or Deputy Commissioner. The Income Tax Officer, Ward-1, Sonipat, therefore, did not have the authority to issue the reassessment notice or frame the consequential assessment.

The Tribunal recorded that the Revenue failed to rebut the factual position presented by the assessee regarding the applicable pecuniary jurisdiction.

The Bench relied upon the Delhi ITAT’s decision in M/s Orchids Diamond Tools (P) Ltd. v. ITO, which had considered an identical jurisdictional issue.

In that case, the Tribunal held that where the income declared by an assessee exceeds the monetary limit assigned to an Income Tax Officer, the jurisdiction lies with an Assistant or Deputy Commissioner. A statutory notice issued by an Income Tax Officer in such circumstances is beyond jurisdiction, and the assessment founded on that notice is legally unsustainable.

The Tribunal also referred to its decision in Vipul Mittal v. DCIT. There, a scrutiny notice had been issued by an Income Tax Officer even though the assessee’s declared income placed the case within the jurisdiction of a Deputy Commissioner.

The coordinate Bench had held that the issuance of a valid statutory notice by the competent jurisdictional officer is foundational to an assessment. An assessment cannot be sustained where the initiating notice was issued by an officer lacking authority.

The precedents considered by the Tribunal also distinguished between territorial and pecuniary jurisdiction.

The department argued in the earlier cases that the assessee was required to challenge the Assessing Officer’s jurisdiction within the period prescribed under Section 124(3) of the Income Tax Act.

That contention was rejected on the ground that Section 124(3) primarily concerns objections relating to territorial jurisdiction. It cannot validate a statutory notice issued by an officer who lacked pecuniary jurisdiction under binding CBDT instructions.

The Tribunal reiterated that a jurisdictional defect affecting the very authority of the officer to initiate proceedings is not a procedural irregularity capable of being cured subsequently.

The Bench further relied on the Bombay High Court’s decision in Ashok Devichand Jain v. Union of India, where a reassessment notice under Section 148 was issued by an Income Tax Officer despite the assessee’s returned income placing the case within the jurisdiction of a Deputy or Assistant Commissioner.

In that case, the department had admitted that the notice was defective but sought to justify it on the ground that the assessee’s Permanent Account Number was lying with the Income Tax Officer and there was insufficient time to transfer it to the competent officer before the limitation period expired.

The Bombay High Court rejected the justification, holding that a notice under Section 148 is jurisdictional in nature and an inherent defect in such a notice is not curable. Since the notice had been issued by an officer lacking jurisdiction, it was held to be without authority in law.

Applying the same principle, the Delhi ITAT observed that once a notice under Section 148 is found to have been issued without jurisdiction, every proceeding arising from that notice becomes void ab initio.

The Tribunal concluded that the Income Tax Officer, Ward-1, Sonipat, did not possess the requisite pecuniary jurisdiction to issue the reassessment notice in the assessee’s case.

It accordingly quashed the impugned assessment. Since the entire reassessment was set aside on the jurisdictional ground, the Bench held that the remaining arguments raised by the parties had become academic and did not require adjudication.

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