ORCHIDS DIAMOND TOOLS (P) LTD.,GURGAON vs. ITO,WARD- 19(2), DELHI

This appeal is filed by the assessee against the order of ld. Commissioner of Income-tax (Appeals)-03, Gurgaon [hereinafter referred to as ‘ld. CIT (A)] dated 24.02.2024 for Assessment Year 2012-13. 2. At the outset, ld. AR of the assessee raised legal issue, in respect of issue of assumption of juri iction under section 147 of the Income-tax Act, 1961 (for short ‘the Act’) and completion of assessment u/s 147/143(3) of the Act which in the respectful submission of the assessee are not in conformity with 2 law and, therefore, deserve to be quashed as such, by raising ground nos.1 to 1.4 which read as under :- “1. That the learned Commissioner of Income Tax (Appeals) has erred both in law and on facts In upholding the initiation of proceedings under section 147 of the Act and, completion of assessment under section 147/143(3) of the Act without appreciating that the same were without juri iction and hence deserved to be quashed as such.

1 That tile learned Commissioner of Income Tax (Appeals) has failed to appreciate that initiation of proceedings was mechanical and without any application of mind much less independent application of mind, therefore the notice issued u/s 148 of the Act was an invalid notice and assumption u/s 147 of the Act was without juri iction.

2 That the learned Commissioner of Income Tax (Appeals) has also failed to appreciate that Explanation 2 to section 148 of the Act has no application to the facts of the appellant and therefore assumption u/s 147 of the Act was without juri iction.

3 That in absence of any valid approval obtained under section 151 of the Act, initiation of proceedings U/S 147 of the Act and assessment framed u/s 147 of the Act are invalid and deserve to be quashed as such.

4 That the learned Commissioner of Income "Tax (Appeals) has also failed to appreciate that initiation of proceedings by issuance of notice u/s 148 of the Act by the learned Juri ictional Assessing Officer is contrary to section 151 A of the Act; and therefore the assumption of juri iction was not in accordance with law.

Ld. AR submitted that the primary ground herein, is the very initiation of the proceedings and the order of assessment u/s 147/143(3) both in violation of CBDT instructions no.1/2011 dated 31.01.2011. He submitted that the assessee declared returned loss is of Rs.1,84,94,762/- in its return and 3 according to Instruction No.l/2011 dated 31.01.2011 issued by CBDT, initiation and completion of the proceedings should have been issued by the ACIT/DCIT and not the ITO, but the same has been initiated and completed by ITO Ward 19(2). Delhi, which is in contravention to the instruction issued by CBDT. Even otherwise, he submitted that the earlier order of assessment dated 13.03.2015 u/s 143(3) of the Act has been passed by DCIT, Circle 19(1), New Delhi, which is placed at Pages 108-112 of Paper Book. 4. Ld. AR further submitted that this issue is no longer res integra in view of the judgment of Hon'ble High Court of Bombay in case of Ashok Devichand Jain vs. UOI reported in 452 ITR 43 (Born), copy placed on record. He also relied on various judgments as under :- (i) ITA No. 5363/D/2017 dated 22.12.2023 M/s Kevin International vs. DCIT (pages 10-14 of JPB)

Accordingly, he prayed that the initiation of proceedings u/s 147 of the Act and issuance of notice u/s 143(2) of the Act is in contravention to the instruction no.01/2011 issued by CBDT and consequent assessment framed u/s 143(3)/147 of the Act is void ab initio and liable to be quashed as such. 6. On the other hand, ld. DR of the Revenue relied on the findings of the lower authorities.

We find that assessee’s returned income for the A.Y. 2015- 16 was Rs. 37,78,510/- hence, the juri iction 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:-

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 juri iction 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 juri iction 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 juri iction and 7 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 juri iction of the AO on receipt of the notice. In the instant case, nowhere up to learned CIT(A), the assessee has challenged the juri iction 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 juri iction, whereas the issue involved here is pecuniary juri iction. 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 juri iction 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 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:

The primary ground that has been raised is that the Income Tax Officer who issued the notice under section 148 of the Act, had no juri iction 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 juri iction will be of ITO and where the income declared returned by a Non Corporate assessee is above Rs. 20 lakhs, the juri iction will be of DC/AC.

Petitioner has filed return of income of about Rs. 64,34,663/- and therefore, the juri iction will be that of DC/AC and not ITO. Mr. Jain submitted that since 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 12(3)(1) was too short to migrate the PAN after obtaining administrative approval from the higher authorities by 31st March, 2019. 5. The notice under section 148 of the Act is juri ictional 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 juri iction 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. 7. Consequently the order dated 18th November, 2019 rejecting Petitioner’s objection is also quashed and set aside.

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 juri iction as he did not possess juri iction 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.”

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) and the juri ictional 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 juri ictional 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.”

Respectfully following the above decision, we are inclined to set aside the assessment order. Accordingly, Ground Nos.1 to 1.4 raised by the assessee are allowed. 15. Since the grounds on juri ictional issues are allowed, the issues on merit become academic, therefore, not deliberated upon. 16. In the result, the appeal filed by the assessee is allowed. Order pronounced in the open court on this 30th day of December, 2025. (SATBEER SINGH GODARA) ACCOUNTANT MEMBER