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Facts
The assessee, New Star System Solution Pvt. Ltd., filed an e-return declaring a loss of Rs. 22,957/-. The case was selected for scrutiny, and the Assessing Officer (AO) disallowed expenses of Rs. 3,46,87,318/- under Section 36(1)(iii) of the Income Tax Act, 1961. The AO also disallowed Rs. 15,09,436/- under Section 14A read with Rule 8D. The CIT(A) upheld the additions.
Held
The Tribunal held that the assessment proceedings were initiated by an officer without jurisdiction, making the entire assessment void ab initio. This was based on CBDT Instruction No. 1/2011, which specifies monetary limits for the jurisdiction of Income Tax Officers (ITO) and Assistant Commissioners/Deputy Commissioners (AC/DC). In this case, given the assessee's declared loss and other factors, the jurisdiction should have rested with the ITO, not the ACIT/DCIT who initiated the proceedings.
Key Issues
Whether the assessment order is liable to be quashed due to lack of proper jurisdiction by the Assessing Officer, contrary to CBDT instructions.
Sections Cited
Section 36(1)(iii), Section 14A, Rule 8D, Section 143(2), Section 142(1), Section 124(3), Section 127, Section 148, Section 271(1)(c), Section 250
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH ‘E’: NEW DELHI
Before: SHRI S. RIFAUR RAHMAN & SHRI RAJ KUMAR CHAUHAN
O R D E R PER RAJ KUMAR CHAUHAN (J.M.): 1. This appeal is directed against the order dated 15.05.25 of passed by Learned Commissioner of Income Tax (Appeals) / National Faceless New Star System Solution Pvt. Ltd. Appeal Centre (NFAC), Delhi [hereinafter referred to as the “CIT(A)”], passed under section 250 of the Income Tax Act, 1961 [hereinafter referred to as “the Act”] wherein assessment order dated 31.12.2016 was upheld and disallowance of expenses under section 36(1)(iii) of Rs. 3,46,87,318/- was confirmed.
The facts in brief as culled out from the order of the authorities below are that the appellant/assessee is a company and as per the Memorandum of Association (‘MOA’). It was dealing with the software development and trade along with buying/ selling of stocks, bonds, derivatives etc. The assessee has filed e-return on 28.09.2015 for the relevant year declaring Nil income and current year loss of Rs. 22,957/-. The case was selected for scrutiny through CASS by issuing notice u/s 143(2) of the Act dated 12.04.2016. Subsequent notice u/s 142(1) of the Act dated 27.07.2017 along with detailed questionnaire was also issued and sent to the assessee. The assessee file reply/ details from time to time during the assessment proceeding. It was noticed in the P&L account, the assessee had reflected revenue of Rs. 2,95,26,558/- from operation and that of last year at Nil and has declared other income on account of interest income amounting to Rs. 40,92,798/- for the current year and Nil for last year. In the last year, the assessee has declared Nil New Star System Solution Pvt. Ltd. income and had claimed expenditure of Rs. 2,69,37,437/-. The assessee was asked to furnish the details in respect of business activities, interest expenditure and investment in shares. In response to query raised, the assessee furnished replies on various dates and from the details supplied, it was observed that the assessee company was not a non- banking finance company and was not into business of borrowing and lending money and thus has shown interest income credited to the Profit and Loss account under the head ‘other income’. The assessee company had made investment in equity shares during the year under consideration. Hence, show cause was issued as to why interest expenses may not be disallowed u/s 36(1)(iii) of the Act as there was no business income. In reply, the assessee claimed that the interest on loan of Rs. 3,46,87,318/- debited to profit & loss account should not disallowed u/s 36(1)(iii) of the Act as the same was not used for business purpose because during the relevant year, the assessee company was engaged in the business of buy and sell/ invest in all kind of securities including shares, stocks, bonds, derivatives etc. It has earned business income of Rs. 2,95,26,558/- from derivatives and which has been clearly indicated under the head ‘Revenue from operation’. The reply of the assessee was not found acceptable because New Star System Solution Pvt. Ltd. it was reflected from the financials of the company that the borrowed funds are used for investment and not for business purpose and as per Section 36(1) sub section (iii) of the Act, the deduction shall be allowed in respect of the amount of interest paid if the capital is borrowed for the purpose of business or profession. It was further observed that the factual metrix of the assessee shows that the assessee has made investment amounting to Rs. 30,66,00,600/- in the form of equity shares and it has not earned any dividend income on such investments. Further, the assessee has not shown investment in equity shares as ‘stock in trade’ but as non-current investments, therefore, the assessee cannot avail double benefit by claiming interest u/s 36(1)(iii) of the Act while no income shall be offered by the assessee under the head of business and profession. It was further, noted by the AO that no business of development/trading of software has been undertaken in the current year. With regard to the business of trading and stocks, it was observed that there was no opening or closing stock indicating that, if at all trading was done or stocks were purchased and sold during the course of year. Hence, the circumstances shows that it was the investment using borrowed funds. Further, while relying Hon’ble Kerala High Court in the case of CIT vs. Smt. Leena Ramchandran, 339 ITR /Del/2025 New Star System Solution Pvt. Ltd. 296, the AO observed that the assessee would be entitled to deduction of interest under section 36(1)(iii) of the Act on the borrowed funds utilized for the acquisition of shares only if shares are held as stock-in- trade which arises only if the assessee is engaged in trading of shares. Hence, it was concluded in the assessment order that the amount interest paid on loan which is not established to have been taken for business purposes, is not admissible u/s 36(1)(iii) of the Act and was accordingly disallowed.
With regard to disallowance of expenses u/s 14A r.w.r. 8D it was observed that vide reply dated 15.12.2016, the assessee submitted that during the relevant year, the assessee company have not earned any tax income. It was noted in the assessment order that the assessee has shown investments amounting to Rs. 30,66,00,600/- during the year under consideration which is reflected against the head non-current investment of the balance sheet and claimed finance cost of Rs. 3,46,92,483/- in the profit and loss account. It was therefore, observed that it cannot be said that no expenditure was made regarding management and proper accounting of investment. Since, the assessee has not made any computation for disallowance on its own for expenses attributable to earning of exempt income, therefore, the Ld. AO was of New Star System Solution Pvt. Ltd. the opinion that disallowance of expenditure was required and same was computed in accordance with provisions of section 14A r.w.r. 8D of the Income Tax Rule, 1962. It was therefore, concluded that the sum of Rs. 15,09,436 was liable to be disallowed u/s 14A r.w.r. 8D of the Income Tax Rules, 1962. It was further observed that since the disallowance of interest expenses u/s 36(1)(iii) of the Act has already been made, therefore, the disallowance of expenses u/s 14A r.w.r 8D of the Act was not being made separately and the differences of amount of Rs. 3,46,92,483/-, Rs. 3,46,87,318 i.e. Rs. 5,165/- was added back to the total income of the assessee. The penalty proceeding u/s 271(1)(c) of the Act was also separately initiated.
4. Aggrieved by the assessment order, the assessee filed appeal before the ld. CIT(A) who has dismissed the appeal confirming both the additions made by the AO.
5. Hence, aggrieved by the impugned order of the first appellate authority, the assessee is in appeal before the Tribunal and has raised following grounds of appeal as under: -
1. “That on the facts and in the circumstances of the case and in law, Ld CIT-A erred in sustaining the order passed by Ld AO in making disallowance of interest of 3,46,87,318/- under section 36(1) (iii) of New Star System Solution Pvt. Ltd. Income Tax Act; due to which the Assessment Order is bad in law, void- ab-initio and is liable to set aside in full.
2. That on the facts and in the circumstances of the case and in law, Ld CIT-A erred in sustaining the order passed by the Ld AO as assumption of jurisdiction by Ld AO was Invalid, Because the assessment was framed by DCIT/ACIT instead of ITO and is purely in contravention to TO CBDT INSTRUCTIONS NO 1/2011 DT 31-01-2011 and accordingly whole of the assessment proceedings are null and void, invalid and are liable to be quashed as such 3. That on the facts and in the circumstances of the case and in law, Ld CIT-A erred in sustaining the order passed by Ld AO as None of the replies /confirmation/ submissions and other material were not considered while framing the assessment order 4. That on the facts and in the circumstances of the case and in law, Ld CIT-A erred in sustaining the order passed by Ld AO in making addition/disallowance of 3,46,92,483/- under section 14A of the I.T. Act read with Rule 8D of I.T. Rules and then restricting the said in making disallowance to 5,165/-on account of addition of Rs 3,46,87,318/- already made under section 36(1) (iii) of I.T. Act. At any rate, without prejudice, the addition/disallowance as made is very excessive 5. That on the facts and in the circumstances of the case and in law, Ld CIT-A erred in sustaining the order passed by Ld AO ought to have accepted purchase/ investment made in shares etc. as carrying on of business.
6. That the Appellant prays for the grant of permission to add, alter, delete, modify, any or all of the grounds of appeal
at any time on or before or during the time of hearing before the Hon'ble ITAT”
6. We have heard the Ld. AR for the assessee and Ld. Sr. DR for the Revenue and examined the record. The Ld. AR at the very outset submitted that ground no. 2 is a legal ground which was raised by way of submissions to the Ld. CIT(A) on 9th May, 2025 but was not New Star System Solution Pvt. Ltd. considered and hence, validly raised before the Tribunal and confined his argument to that ground submitting that the assessment proceedings are null and void and liable to be quashed because the assessment was framed by DCIT/ACIT instead of ITO in contravention of CBDT instruction No. 1/2011 dated 31.01.2011.
7. The assessee has submitted a paper book before us comprising page No. 1 to 208 along with brief written submissions in page no. A and B and comprising page no. 1 to 4 of paper book which are reproduced as under: - To, Hon’ble Commissioner of Income Tax (Appeals) Income Tax Department, National Faceless Appeal Centre, New Delhi In the matter of and reference AACCN6135C DIN: ITBA/NFAC/F/APL-1/2024- NEW STAR SYSTEM 25/1069669521(1) SOLUTIONS PRIVATE LIMITED Date: 15/10/2024 109 DLF TOWER-A, 1ST FLOOR Appeal No.: CIT(A), Delhi- JASOLA, NEW DELHI, DELHI 6/10446/2017-18 India Assessment Year : 2015-16 Sir, In continuation to earlier submissions dt 22-02-2019 (Manually), which was appraised online on 20-07-2021, and then again scanned copies submitted un 01-03-2021 & 20-07-2021, the following is further submitted: Under this, the appellant raises the following ADDITIONAL GROUND OF APPEAL
(s), which may please be considered and adjudicated accordingly.
1. The Lad AO has erred in law and on facts of the case by framing assessment without having valid jurisdiction, as the assessment has been framed by DCFF/ACIT Instead of ITO and is purely in contravention to TO CBDT INSTRUCTIONS NO 1/2011 DT 31-01-2011 and accordingly whole of New Star System Solution Pvt. Ltd. the assessment proceedings are null and void, invalid and are liable to be quashed se such” PRAYER With the above "Additional Ground of Appeal
(s)", its requested to admit the same and after admission its again requested to adjudicate in favour of the appellant, for which the following submissions are hereby submitted: Submissions to Additional Ground of Appeal No-1 le PRESENT PROCEEDINGS ARE INVALID AS IN CONTRENTION TO CBDT INSTRUCTIONS NO 1/2011 DT 31-01-2011, BEING PROCEEDINGS UNDERTAKEN BY ACIT INSTEAD OF ITO
1. Detail of Notices issued / Assessment framed SN Notice u/s Date Issued by 1. Intimation to 12.04.2016 DCIT-Circle 18(1),Delhi Limited Scrutiny 143(2) 2. 143(2) 19.09.2016 -----------do----------
3. All 142(1) on different dates -----------do----------
4. Asstt. Order 31.12.2016 -----------do---------- Copy of above notices attached with [PB-5-18] ii. Please refer to above referred chart, where-in designated authority has been mentioned, who has issued notices and passed the impugned assessment order. From the same it has been evident that the all notices/assessment have been framed by Ld DCIT-Circle 18(1)-Delhi, instead of Ld ITO iii As the assesse is having 22,957/- declaring LOSS, as already held by Hon'ble Delhi High Court and Hon'ble ITAT-Delhi, the jurisdiction in present case lies with ITO, and not with ACIT, as per Hon'ble CBDT Instructions No 01/2011 dt 31-01-2011, relevant portion as follows: ……………………………………………… iv. In present case, since: the assesse is having 22,957/- declaring LOSS: is having Income/loss less than Rs. 30 Lac is having office at DELHI (Metro City): is a Corporate assesse. Instruction issued by CBOT in terms of 5.119 & is binding on the officers of the income Tax Thus jurisdiction in present case lies with ITOs and with DC/ACIT. Copy of ITR evidencing Loss of f 22,957/- is attached with [PB-203] New Star System Solution Pvt. Ltd. v. As the assesse was also subject to re-assessment proceedings and accordingly Notices u/s 148 were issued by Ld ACIT Circle 16(1)-Delhi, BUT While the fact was appraised vide letter dt 26-12-2021 6 31-05-2022, Ld ACIT Circle 16(1)-Delhi transferred in between the proceedings before ITO 18(1)-Delhi, EVIDENCING that LD/DCITACIT was fully convinced about the INVALID JURISDICTION and is the reason proceedings were transferred to ITO. Assesse also submitted the copies of ITRS for Next AY 2015-16 to AY 2020-21 as an evidence that the assumption of the jurisdiction was invalid [PB-20-208] PRAYER TO HON'BLE CIT(A) Please allow the appeal, and quash the present proceedings, as the assumption of jurisdiction is invalid and is in contravention to CBOT Instructions 01/2011 dt 31-01-2011, Because initiation of proceedings has been done by DCIT/ACIT Circle 16(1) Delhi instead of ITO. Even the assessment has been framed by DCIT/ACIT Circle 16(1) Delhi instead of ITO. We hope your good-self after going through the above shall take an egalitarian (justified) view in the matter and our submission shall receive your imprimatur (approval). On basis of above, assesse, prays for total lancination and deletion of addition and quashing of order passed by Ld AO. We are confident that your good-self shall consider all the aforesaid arguments and written submissions place on record in the manner of rule of law. Humbly submitted please Thanking you and Regards For New Star System Solutions Private Limited Sd/- (AR)
Encl. as above: SN. Particulars PB 1. Above submission dt 09-05-2025 1-4 2. Notice u/s 143(2) dt 12-04-2016 5 3. Notice u/s 143(2) dt 19-09-2016 6 4. Notice u/s 142(1) dt 12-04-2016 7-8 5. Notice u/s 142(1) dt 10-07-2017 9 6. Notice u/s 142(1) dt 27-07-2017 10-12 7. Assessment order dt 31.12.2016 13-18 8. Instruction No. 1/2011 dt 19 31.01.2011 9. Reply dt 31.05.2022 20-208 New Star System Solution Pvt. Ltd.
The ld. AR as also relied page A and page B of the brief synopsis in support of his arguments on legal grounds and also referred various judgments in support of their arguments that the assessment is liable to be quashed, as the jurisdiction was improperly exercised by the Ld. ACIT, Circle-16(1), Delhi and later on transferred the proceeding to the ITO, Ward 18(1), Delhi without following procedure in that regard laid down u/s 127 of the Act. No order u/s 127 of the Act was brought on record by the Revenue with regard to the transfer of the case from ACIT, Circle- 16(1), Delhi to ITO, Ward 18(1), Delhi which is evident from the documents placed at page 36, 37, 38 of the paper book i.e. the initial notice u/s 148 of the Act dated 22.04.2021 placed at page no. 36 which was issued by DCIT, Circle 16(1), Delhi and the notice u/s 148 of the Act dated 28.07.2022 has been subsequently issued by Income Tax Officer, Ward-18(1), Delhi but there is no order for the transfer of proceeding u/s 127 of the Act. The Ld. AR therefore, argued that in these facts and circumstances the assessment carried out without jurisdiction stands vitiated and is null and void. In support of his arguments. Ld. AR has referred Delhi Tribunal, F Bench, Vipual New Star System Solution Pvt. Ltd. Mittal vs. DCIT, Circle 11(2), Delhi in which one of us as Ld. AM was part of the Bench and is author the said judgment. The relevant finding from para 14 to 18 are extract as under: - “14. Considered the rival submissions and material placed on record. We observed that assessee has filed its return of income declaring income of Rs.59,68,220/-. As per the CBDT Instruction No.01/2011, the jurisdiction over the assessee’s case lies only with Assistant/Deputy Commissioner of Income-tax as the income declared by the assessee is above Rs.20 lakhs falls under the category of non-corporate returns. It is brought to our notice that notice u/s 143(2) was issued by the ITO, Ward 11 (3) on 28.08.2015, who do not have jurisdiction over the assessee in the case considering the fact that the return of income declared by the assessee is over and above Rs.20 lakhs. The assessment was completed by the DCIT, Circle 11 (2), New Delhi u/s 143(3) of the Act. However, we observed that the jurisdiction lies only with DCIT, however the statutory notice u/s 143(2) was issued by the ITO instead of the present Assessing Officer i.e. DCIT. In this regard, the Assessing Officer also filed the submissions which are placed on record in which it was submitted that as per the PAN based jurisdiction, the jurisdiction over the case at the time of issue of notice with the ITO, Ward 11(3). Thereafter, the jurisdiction was transferred to Circle 11 (2), Delhi on 21.07.2016 who was ultimately passed the assessment order after allowing the opportunity to the assessee. The Assessing Officer in its submissions as well as ld. DR objected to the submissions of the assessee for the reason that the present jurisdictional issue now instead of raising the same during assessment itself within one month from the date of receipt of the notice u/s 124 (3) of the Act. After considering the factual matrix in this case, we observed that similar issue under consideration is considered by the coordinate Bench in the case of YKM Holdings Pvt. Ltd. vs. ACIT (supra) wherein it was held as under: - “4. We have heard the rival submissions and perused the material available on record. At the outset, we find that the additional grounds raised by the assessee go to the root of the matter challenging the jurisdictional per se. All the facts relevant for its adjudication are placed on record. Hence, in the light of decision of Hon’ble Supreme Court in the case of NTPC Ltd. reported in 229 New Star System Solution Pvt. Ltd. ITR 383, we are inclined to admit the additional grounds and take up the same for its adjudication.
5. We find that assessee’s returned income for the A.Y. 2015- 16 was Rs. 37,78,510/- hence, the jurisdiction of the assessee should lie with ACIT/DCIT since the returned income had exceeded Rs. 30,00,000/-, in view of the CBDT Instruction No.1/2011 dated 31.01.2011. For the sake of convenience, the said Instruction No.1/2011 [F. No.187/12/2010-IT(A-I)] dated 31.01.2011 is hereby reproduced: - “SECTION 119 OF THE INCOME-TAX ACT, 1961-INCOME-TAX AUTHORITIES- INSTRUCTIONS TO SUBORDINATE AUTHORITIES INSTRUCTION NO. 1/2011 [F. NO. 187/12/2010-IT(A-1)), DATED 311-2011 References have been received by the Board from a large number of taxpayers, especially from mofussil areas, that the existing monetary limits for assigning cases to ITOs and DCs/ACs is causing hardship to the taxpayers, as it results in transfer of their cases to a DC/AC who is located in a different station, which increases their cost of compliance. The Board had considered the matter and is of the opinion that the existing limits need to be revised to remove the abovementioned hardship.
6. An increase in the monetary limits is also considered desirable in view of the increase in the scale of trade and industry since 2001, when the present income limits were introduced. It has therefore been decided to increase the monetary limits as under: Income Declared (Mofussil Income Declared (Metro cities) areas) ITOs ACS/DCS ITOS DCS/ACS Corporate Upto Rs. 20 Above Rs. 20 Upto Rs. 30 Above Rs. 30 returns lacs lacs lacs lacs Non-corporate Upto Rs. 15 Above Rs. 15 Upto Rs. 20 Above Rs. 20 returns lacs lacs lacs lacs New Star System Solution Pvt. Ltd. Metro charges for the purpose of above instructions shall be Ahmedabad, Bangalore, Chennai, Delhi, Kolkata, Hyderabad, Mumbai and Pune. The above instructions are issued in supersession of the earlier instructions and shall be applicable with effect from 1-4-2011.” In the instant case, the notice under section 143(2) of the Act stood issued to the assessee on 12.04.2016 by ITO Ward 27(4), Delhi. In July, 2016, the ITO transferred the jurisdiction of the assessee from him to DCIT since the returned income for A.Y. 2015-16 is more than 30,00,000/. Copy of the said transfer memo is enclosed in page 5 of the paper book. After the transfer of jurisdiction from ITO to DCIT, no fresh notice under section 143(2) of the Act was issued by ACIT, Circle 4(1), Gurgaon. The assessment was ultimately framed under section 143(3) of the Act for A.Y. 2015-16 on 14.12.2017 by ACIT, Circle – 4(1), Gurgaon. It is pertinent to note that assessment for the A.Y. 2014-15 of the assessee was completed under section 143(3) of the Act on 30.11.2016 by DCIT, Circle – 27(2), New Delhi. Hence, it was argued that the notice under section 143(2) of the Act dated 12.04.2016 issued by the ITO selecting the return of assessee for A.Y. 2015-16 for scrutiny is without jurisdiction and consequently, the assessment framed under section 143(3) of the Act dated 14.12.2017 required to be quashed as void ab initio. When this was confronted to learned DR, he pointed out to the provisions of section 124(3) of the Act wherein it was mentioned that assessee should challenge within one month about the jurisdiction of the AO on receipt of the notice. In the instant case, nowhere up to learned CIT(A), the assessee has challenged the jurisdiction of the learned AO. In our considered opinion, this argument of the learned DR is wrong in as much as section 124(3) of the Act talks only about territorial jurisdiction, whereas the issue involved here is pecuniary jurisdiction. Further, the provisions of section 124(3) of the Act could be taken shelter by the Revenue only when legal valid notice under section 143(2) of the Act has been issued by the Revenue. In the instant case, notice issued under section 143(2) of the Act on 12.04.2016 by ITO is not legal as he did not possess jurisdiction over the assessee for A.Y. 2015-16 in as much as the returned income for A.Y. 2015-16 had exceeded Rs. 30,00,000/-. We find that the issue in dispute is no longer res integra by the decision of Hon’ble Delhi High Court in New Star System Solution Pvt. Ltd. the case of Ashok Devichand Jain vs. UOI reported in 452 ITR 43 (Bom). In this case, very same issue was addressed in the light of CBDT Instruction No.1/2011[F. No.187/12/2010-IT(A-I)] Dated 31.01.2011. For the sake of convenience, the entire order is reproduced hereunder: “1. Petitioner is impugning a notice dated 30th March, 2019 issued under section 148 of the Income Tax Act, 1961 (the Act) for A.Y. 2012-13 and order passed on 18th November, 2019 rejecting Petitioner’s objection to reopening on various grounds. The primary ground that has been raised is that the 2. Income Tax Officer who issued the notice under section 148 of the Act, had no jurisdiction to issue such notice. According to Petitioner as per instruction No. 1/2011 dated 31st January, 2011 issued by the Central Board of Direct Taxes, where income declared/returned by any Non-Corporate assessee is up to Rs. 20 lakhs, then the jurisdiction will be of ITO and where the income declared returned by a Non Corporate assessee is above Rs. 20 lakhs, the jurisdiction will be of DC/AC. Petitioner has filed return of income of about Rs. 3. 64,34,663/- and therefore, the jurisdiction will be that of DC/AC and not ITO. Mr. Jain submitted that since notice under section 148 of the Act has been issued by ITO, and not by DC/AC that is by a person who did not have any jurisdiction over Petitioner, such notice was bad on the count of having been issued by an officer who had no authority in law to issue such notice.
We have considered the affidavit in reply of one Mr. Suresh G. Kamble, ITO who had issued the notice under section 148 of the Act. Said Mr. Kamble, ITO, Ward 12(3)(1), Mumbai admits that such a defective notice has been issued but according to him, PAN of Petitioner was lying with ITO Ward (12)(3)(1), Mumbai and it was not feasible to migrate the PAN having returned of income exceeding Rs. 30 lakhs to the charge of DCIT, Circle 12(3)(1), Mumbai, as the time available with the ITO New Star System Solution Pvt. Ltd. 12(3)(1) was too short to migrate the PAN after obtaining administrative approval from the higher authorities by 31st March, 2019.
The notice under section 148 of the Act is jurisdictional notice and any inherent defect therein is not curable. In the facts of the case, notice having been issued by an officer who had no jurisdiction over the Petitioner, such notice in our view, has not been issued validly and is issued without authority in law.
In the circumstances, we have no hesitation in setting aside the notice dated 30th March, 2019. Consequently, the order dated 18th November, 2019 7. rejecting Petitioner’s objection is also quashed and set aside.”
8. Petition disposed.”
In view of the aforesaid observations and respectfully following the judicial precedent relied upon hereinabove, we have no hesitation to hold that the assessment framed under section 143(3) of the Act deserves to be quashed in the instant case as the initial scrutiny notice issued under section 143(3) of the Act dated 12.04.2016 by ITO was without jurisdiction as he did not possess jurisdiction over the assessee for the A.Y. 2015-16. Consequently, assessment framed under section 143(3) of the Act is hereby quashed as void ab initio. The additional ground no.2 is hereby allowed.” 15. Similar view was expressed by the ITAT, Mumbai in the case of Monarch & Quershi Builders vs. ACIT (supra) and by the coordinate Bench in the case of Sapna Rastogi vs. ITO (supra). 16. Further the Revenue has not brought on record an order u/s 127 of the Act passed in order to transfer the case to DCIT, Circle 11 (2), New Delhi except making the submissions that assessee should file the objection within one month u/s 124(3) of the Act. Since the issue of notice u/s 143(2) is the basis of initiation of the assessment u/s 143(3)
New Star System Solution Pvt. Ltd. and the jurisdictional officer should have issued the notice and also completed the assessment. The present Assessing Officer has completed the assessment without following the due process of law and we, respectfully following the decisions of the coordinate Bench and ITAT Mumbai, are inclined to hold that the jurisdictional notice u/s 143(2) was not issued by the DCIT before completing the assessment u/s 143(3) of the Act and that there is an unwarranted defect in this case which is not curable. Accordingly, the assessment passed in the given case is quashed and accordingly, the additional grounds raised by the assessee are allowed.
17. The assessee has raised several grounds on merits as well. Since we have already decided the additional grounds of appeal on jurisdictional issue, we are inclined to keep the other grounds of appeal open at this stage.
18. In the result, the appeal filed by the assessee is partly allowed.”
The Ld. AR for the Assessee has further referred to judgment dated 04.07.2025, which is directly applicable to the facts and circumstances of the present case, as that case also involved loss of Rs. 10,97,461/- as declared in ITR, and in the case in hand, the assessee has filed ITR for the relevant year declaring loss of Rs. 22,957/-. The relevant part of the order from para nos. 4 to 8 are extracted below as under:
“4. Shri Salil Kapoor, appearing on behalf of the assessee at the outset submitted that the assessee has raised an additional ground of appeal vide application dated 06.11.2024 challenging validity of assessment order as no notice u/s 143(2) of the Act for A.Y. 2008-09 was ever served upon the assessee. The ld. Counsel further submitted that the assessee is challenging validity of the assessment proceedings as the assessment order has been passed by the Assessing Officer without jurisdiction. The Id. Counsel placing reliance on the CBDT Instruction New Star System Solution Pvt. Ltd. No.1/2011 dated 31.01.2011 submitted that as per aforesaid instructions, the monetary limit for assuming jurisdiction in respect of return of income filed up to Rs.30,00,000/- in the case of a corporate returns is with the Income Tax Officer (ITO). The assessee has filed return of income declaring loss of Rs.10,97,461/-. Therefore, the assessment order should have been passed by the ITO, whereas, in the case of the assessee, the assessment order has been passed by the Deputy Commissioner of Income Tax. Thus, the assessment order has been passed by an Officer who has no jurisdiction over the assessee. He further pointed that notice u/s. 148 of the Act was issued by Assistant Commissioner of Income Tax on 31.03.2015, whereas, as per the monetary limit specified as per the aforesaid instructions the notice should have been issued by the ITO having jurisdiction over the assessee. In support of his aforesaid arguments he placed reliance on the following decisions: - i. Ashok Devichand Jain, vs. UOl and Others in Writ Petition No. 3489 of 2019 decided on 08.03.2022 by Hon'ble Bombay High Court; & ii. Vipual Mittal v. DCIT in for AY 2014- 15 decided on 15.01.2025(ITAT Delhi).
5. Per contra, Shri Ashish Tripathi representing the department vehemently defended the assessment order and prayed for dismissing the additional ground raised by the assessee challenging jurisdiction of the Assessing Officer. The Id. DR submitted that since it was a survey operation the assessments of entire group must have been clubbed together, hence, the assessment order was passed by the DCIT.
6. Both sides heard, orders of the authorities below examined. The short issue for consideration before us at this stage is: Whether the Assessing Officer who passed the assessment order dated 15.03.2016 had jurisdiction to pass the assessment order in the case of assessee in light of instruction No. 1/2011 (supra)? The CBDT vide aforesaid instructions has specified monetary limits for passing the assessment orders in the case of various assessees. The relevant extract of the said instructions is reproduced herein below:- Income Declared (Mofussil areas) Income Declared (Metro New Star System Solution Pvt. Ltd. Cities) ITOs ACs/DCs ITOs DCs/Acs Corporate Upto Rs. 20 lacs Above Rs. 20 Upto Rs. 30 Above Rs. 30 returns lacs lacs lacs Non- Upto Rs. 15 lacs Above Rs. 15 lacs Upto Rs. 20 Above Rs. 20 corporate lacs lacs returns Metro charges for the purpose of above instructions shall be Ahemedabad, Bangalore, Chennai, Delhi, Kolkata, Hyderabad, Mumbai and Pune."
7. The case of the assessee is that since in the return of income the assessee has declared loss of Rs. 10,97,461/-, the ITO had jurisdiction to pass the assessment order in the case of assessee, whereas the assessment order has been passed by the DCIT. When the Id. DR was confronted with the aforesaid instructions he sought time to ascertain the facts and also to place on record a copy of the order passed u/s. 127 of the Act, whereby the jurisdiction of the AO was changed from ITO to DCIT. As prayed for by the Id. DR time was granted to furnish copy of the order passed u/s.127 of the Act, if any. On the next date of hearing the Id. DR expressed his inability to furnish order u/s. 127 of the Act. In the absence of any order u/s. 127 of the Act transferring jurisdiciton from ITO to DCIT, we hold that the assessment order dated 15.03.2016 passed by the DCIT is without jurisdiction.
8. We further observe that the notice u/s. 148 of the Act dated 31.03.2015 (at page 100 of the paper book) was issued by Additional Commissioner of Income Tax. In light of aforesaid CBDT Instructions even the Officer issuing said notice was not having jurisdiction over the assessee. The Hon'ble Bombay High Court in the case of Ashok Devichand Jain vs. UOI (supra) in similar facts after referring to CBDT Instruction No. 1/2011(supra) had held that the notice issued u/s. 148 of the Act was without jurisdiction. If, the notice u/s. 148 of the Act is without jurisdiction, any proceedings arising from defective notice are void ab initio.”
The Ld. Sr. DR on the other hand submitted that CBDT’s internal instructions i.e. Instruction No. 1/2011 dated 31.01.2011 highly relied New Star System Solution Pvt. Ltd. by assessee regarding work allocation do not confer legal right on the assessee to question the validity of assessment order passed by Assistant Commissioner of Income Tax notwithstanding that the monetary limit in Instruction No. 1/2011 for exercising jurisdiction by Assistant Commissioner of Income Tax/ Deputy Commissioner of Income Tax was above Rs. 50 lacs in non-corporate returns. It was therefore, argued that assessment was validly framed by ACIT, Circle 18(1) who was having territorial and functional jurisdiction on the case of the assessee. The Ld. Sr. DR however submitted nothing regarding the same identical issue decided by the Co-ordinate Bench against Revenue in Vipual Mittal and Aashiyana Infrastructure Development P. Ltd. (Supra).
We have considered the rival submissions. It is an admitted position that the jurisdiction in the case of the assessee was with the ITO and not with the ACIT/DCIT. It is also admitted that all the notices placed in the paper book from page no. 5 to 12 were issued by ACIT, Circle 18(1), New Delhi. The assessment order was also issued by ACIT. In view of the categorical finding recorded by the Co-ordinate Benches on the identical issue, which is squarely applicable to the facts and New Star System Solution Pvt. Ltd. circumstances of the cases in hand, we are of the considered opinion that the argument raised on behalf of the Revenue by Ld. Sr. DR, seems to be misconceived, fallacious and accordingly rejected. While respectfully following the judgment of the co-ordinate benches referred in the cases of Vipual Mittal and Aashiyana Infrastructure Development P. Ltd. (Supra), we are of the considered opinion that the impugned assessment order, issued by the ACIT/DCIT who had no jurisdiction over the matter in question, and the assessment carried out is accordingly void ab initio and stands quashed. The legal ground raised by the assessee is accordingly allowed. In view of the decision on the legal ground raised by the assessee, the grounds raised on merits are left open, as we do not find any need to adjudicate the same, having been rendered academic.
In the result, appeal of the Assessee is accordingly allowed.
Order pronounced in open Court on 21st January, 2026.