The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has quashed an income tax assessment after holding that the foundational notice under Section 143(2) of the Income Tax Act, 1961, was issued by an Income Tax Officer who lacked the pecuniary jurisdiction to assess the taxpayer.
The Bench of Narender Kumar Choudhry (Judicial Member) and Prabhash Shankar (Accountant Member) observed that the taxpayer had declared an income exceeding ₹16.38 crore. Under CBDT Instruction No. 1/2011 dated January 31, 2011, a corporate return in a metropolitan city declaring income above ₹30 lakh was required to be assessed by an Assistant Commissioner or Deputy Commissioner of Income Tax.
Since the notice under Section 143(2) was issued by an Income Tax Officer, who was competent to handle corporate returns only up to the prescribed ₹30 lakh limit, the Tribunal held that the officer had no authority to issue the jurisdictional notice in the taxpayer’s case.
The appeal arose in the case of Khadamat Integrated Solutions Private Limited for Assessment Year 2016-17. The Revenue had challenged the order passed by the National Faceless Appeal Centre/Commissioner of Income Tax (Appeals) on May 30, 2024. The company filed a cross-objection questioning the validity of the assessment proceedings.
The company is a wholly owned subsidiary of Public Services Company, Kuwait. It was incorporated in India in March 2014 to undertake medical screening of persons travelling to Kuwait as part of the pre-visa process. Its contract was subsequently not renewed, and the company discontinued its Indian operations in April 2018.
The company filed its return of income on November 29, 2016, declaring a total income of ₹16,38,56,590. A notice under Section 143(2) was issued on August 1, 2017, by the Income Tax Officer, Ward 12(3), Mumbai. The assessment order was ultimately passed on May 25, 2023, by an assessment unit/Assistant Commissioner and not by the officer who had issued the Section 143(2) notice.
Before the Tribunal, the company contended that the ITO who issued the notice was not empowered to assess a corporate taxpayer whose returned income exceeded ₹30 lakh. It argued that the notice was contrary to the monetary limits fixed by the CBDT and that the subsequent assessment founded upon that notice was consequently invalid.
The company also submitted that the Assistant Commissioner who ultimately passed the assessment order did not issue a fresh notice under Section 143(2). According to the company, the absence of a valid notice issued by an officer possessing the requisite jurisdiction went to the root of the assessment proceedings.
The Revenue opposed the challenge and argued that CBDT Instruction No. 1/2011 was issued for administrative convenience. It further relied upon Section 124(3) to contend that the company could not question the jurisdiction of the Assessing Officer at a belated stage because it had not raised the objection within the prescribed period after receiving the statutory notice.
The Tribunal rejected the Revenue’s objection. It explained that Section 124 and the time restriction contained in Section 124(3) principally concern objections to the territorial jurisdiction of an Assessing Officer.
In the present case, the company was not merely challenging the territorial jurisdiction of the officer. It was questioning the ITO’s inherent authority to issue a notice in a case falling outside the pecuniary limits prescribed by the CBDT.
The ITAT relied upon the Bombay High Court’s decision in Peter Vaz v. Commissioner of Income Tax, in which it was held that Section 124 deals with the territorial jurisdiction of income tax authorities. The restriction on raising belated objections under Section 124(3) could not deprive a taxpayer of a remedy where the challenge concerned the absence of inherent jurisdiction.
The Tribunal also referred to the Bombay High Court ruling in Bansilal B. Raisoni & Sons v. ACIT and the Gujarat High Court decision in CIT v. Ramesh D. Patel. These decisions similarly distinguished disputes concerning territorial jurisdiction from cases involving the absence of inherent authority to initiate or complete an assessment.
It further relied upon the decision of the Raipur Bench of the ITAT in Aananda Devicon Private Limited v. ACIT, which dealt with an objection to jurisdiction arising from a breach of CBDT Instruction No. 1/2011. In that case, it was held that Section 124(3) would not assist the Revenue where the taxpayer’s challenge was based on the officer assuming jurisdiction contrary to the CBDT’s pecuniary limits.
The Tribunal emphasised that service of a valid notice under Section 143(2) is mandatory. Referring to the Supreme Court’s ruling in ACIT v. Hotel Blue Moon, it noted that the omission to issue the required notice is not a procedural irregularity capable of being cured. The statutory requirement cannot be waived or dispensed with.
The ITAT also drew support from the Supreme Court’s judgment in Union of India v. Rajeev Bansal. The Supreme Court had held that where a statute confers power upon a particular authority, that power must be exercised by the designated authority and in the prescribed manner. An order passed without jurisdiction is a nullity, and every consequential action based upon it is also invalid.
Distinguishing the Supreme Court decisions cited by the Revenue, the Tribunal observed that there was no notification or jurisdictional transfer order specifically empowering the ITO to issue the notice in the present case.
The Bench held that the Section 143(2) notice dated August 1, 2017, was issued by an officer who lacked the authority and competence to assess the company because its declared income was substantially above the ₹30 lakh pecuniary limit assigned to an ITO in metropolitan cities.
It further found that the Assistant Commissioner who passed the assessment had not issued an independent notice under Section 143(2). The assessment, therefore, remained founded upon an invalid notice issued by an incompetent officer.
The Tribunal quashed both the notice issued under Section 143(2) and the consequential assessment order dated May 25, 2023. Since the assessment itself was annulled, the Bench did not examine the remaining grounds raised by the company on the merits of the additions.
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