The Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) has quashed reassessment proceedings against a private company after finding that the statutory notices were issued by an Income Tax Officer who lacked the required pecuniary jurisdiction.
The bench of Pradip Kumar Choubey (Judicial Member) and Rajesh Kumar (Accountant Member) examined the dispute on merits and directed the deletion of a ₹2 crore addition made under Section 68 of the Income Tax Act, 1961.
The assessee had challenged an order passed by the Commissioner of Income Tax (Appeals) under Section 250 of the Income Tax Act on October 15, 2025. The principal jurisdictional objection was directed against the notice issued under Section 148, the proceedings under Section 148A and the subsequent notices issued under Sections 143(2) and 142(1) of the Act.
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The assessee filed its original return of income on September 29, 2013, declaring a loss of ₹98.32 lakh.
The case was subsequently reopened after the Assessing Officer received information alleging that the assessee was a beneficiary of accommodation entries amounting to ₹2 crore. According to the department, the funds had been routed through intermediary companies before reaching the assessee.
A show-cause notice under Section 148A(b) was issued and, after considering the assessee’s response, the Assessing Officer passed an order under Section 148A(d) on July 30, 2022. A reassessment notice under Section 148 was issued on the same date.
The assessee filed its return in response to the reassessment notice, declaring the same loss as reported in its original return. Notices under Sections 143(2) and 142(1) were thereafter issued by the ITO, Ward-8(1), Kolkata.
During the reassessment proceedings, the assessee submitted documents concerning the lender, including its Permanent Account Number, address, audited balance sheet, profit and loss account, loan confirmation and bank statements. It also maintained that the lender was a group concern and not a shell company.
The Assessing Officer, however, treated the transaction as an unexplained cash credit and added ₹2 crore to the assessee’s income. The reassessment order was passed on May 15, 2023, under Section 147 read with Section 144B of the Income Tax Act.
The assessee contended that the reassessment proceedings were invalid because the notices had been issued by an officer who did not possess the requisite pecuniary jurisdiction.
Reliance was placed on CBDT Instruction No. 1/2011 dated January 31, 2011. Under the instruction, an Income Tax Officer in a metropolitan city exercises jurisdiction over cases where the income is up to ₹20 lakh, while cases exceeding that monetary threshold fall within the jurisdiction of an Assistant Commissioner or Deputy Commissioner of Income Tax.
The assessee pointed out that it had declared a loss of ₹98.32 lakh. Therefore, the matter fell outside the pecuniary jurisdiction of the ITO, Ward-8(1), Kolkata, and should have been dealt with by the competent ACIT or DCIT.
The department opposed the objection and argued that the assessee’s income was below ₹20 lakh. The jurisdictional issue had not been raised before the Assessing Officer or the CIT(A). According to the department, the CBDT instruction dealt with an administrative arrangement and could not override legislation enacted by Parliament.
The department alternatively requested that the matter be restored to the Assessing Officer.
The ITAT noted that the assessee had returned a loss of ₹98.32 lakh and that the notices under Sections 148, 143(2) and 142(1) had been issued by the ITO, Ward-8(1), Kolkata.
The Tribunal held that the issuance of these notices violated the pecuniary jurisdiction prescribed under CBDT Instruction No. 1/2011. The jurisdiction, it observed, vested in the ACIT or DCIT and not in the Income Tax Officer.
Consequently, the notices forming the foundation of the reassessment had been issued by a non-jurisdictional Assessing Officer. The subsequent assessment framed by the Assessment Unit of the Income Tax Department could not cure that fundamental jurisdictional defect.
The Tribunal relied upon the Calcutta High Court’s decision in Principal Commissioner of Income Tax v. Rohit Baid, which had followed earlier rulings in Principal Commissioner of Income Tax v. Nopany & Sons and Principal Commissioner of Income Tax v. Cosmat Traders (P) Ltd.
The cited decisions recognised that a notice under Section 143(2) must be issued by an Assessing Officer who possesses jurisdiction over the assessee. A notice issued by an officer lacking jurisdiction does not constitute valid compliance with the statutory requirement.
The Tribunal also referred to the Supreme Court’s decision in Assistant Commissioner of Income Tax v. Hotel Blue Moon, in which it was held that failure to issue the mandatory notice under Section 143(2) is not merely a procedural irregularity and cannot be cured.
Following these precedents, the ITAT held that the notices issued by the ITO in violation of the applicable pecuniary limits were invalid. The consequential reassessment was accordingly quashed.
Although it invalidated the reassessment on jurisdictional grounds, the Tribunal separately examined the assessee’s challenge to the ₹2 crore addition under Section 68.
The amount represented a loan received from Rajat Polypack Private Limited, stated to be a sister or group company of the assessee. To establish the identity and creditworthiness of the lender and the genuineness of the transaction, the assessee had submitted the lender’s name, address, PAN, audited financial statements, profit and loss account, bank statement, loan confirmation and assessment order.
The assessee contended that the Assessing Officer had labelled the lender a shell company without carrying out any independent inquiry or investigation. It was also argued that the lender regularly filed income tax returns and had reported income ranging from ₹3.27 lakh to ₹1.18 crore during Assessment Years 2013-14 to 2020-21.
Despite the documents placed on record, the Assessing Officer treated the lender as bogus and added the entire loan amount to the assessee’s income. The CIT(A) subsequently upheld the addition.
The ITAT found that the lower authorities had failed to properly consider the evidence furnished by the assessee concerning the lender.
It observed that Rajat Polypack Private Limited was a group company and could not be regarded as a shell company merely on the Assessing Officer’s assertion, particularly when documentary material showing its existence, financial position and tax history was available on record.
The Tribunal further noted that the assessee had filed a confirmation of the loan and demonstrated that a part of the amount had been repaid in the subsequent financial year. These facts supported the genuineness of the transaction.
Holding that the CIT(A)’s order could not be sustained, the ITAT directed the Assessing Officer to delete the ₹2 crore addition under Section 68.
Accordingly, the Tribunal allowed the assessee’s appeal, quashed the reassessment for want of valid pecuniary jurisdiction and independently deleted the disputed unexplained cash-credit addition.
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