ITAT Delhi Quashes Assessment: ACIT Lacked Pecuniary Jurisdiction to Issue Section 143(2) Notice — J Mitra and Bros Vs ACIT

Case Overview

The Income Tax Appellate Tribunal, Delhi Bench, delivered a significant ruling in J Mitra and Bros Vs ACIT, holding that an assessment order framed pursuant to a Section 143(2) notice issued by an officer without proper pecuniary jurisdiction is void and liable to be quashed. The ruling directly addresses the mandatory nature of CBDT Instruction No. 1/2011 and its binding effect on the jurisdiction of Assessing Officers when initiating scrutiny proceedings.

Material Facts of the Case

The assessee, a firm engaged in the business of dealing in medical equipment, filed its return of income electronically for Assessment Year 2015-16 on 30.09.2015, declaring NIL income. The case was subsequently picked up for scrutiny under the Computer Assisted Scrutiny Selection (CASS) mechanism.

Following selection, a notice under Section 143(2) of the Income Tax Act, 1961 was issued by the ACIT, Circle 50(1), New Delhi on 28.07.2016. The scrutiny assessment was thereafter completed by the ACIT under Section 143(3), resulting in additions aggregating to ₹1,58,77,115/- against the returned NIL income.

The assessee challenged the assessment order before the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, which passed its order on 06.11.2023, partly allowing the appeal. The CIT(A) restricted the disallowance on advertisement expenses from 10% to 5.1% but confirmed all remaining additions, including:

  • Exhibition and conference expenses of ₹40,86,718/- disallowed under Section 37(1)
  • Foreign travelling expenses of ₹88,64,363/- disallowed under Section 37(1)
  • Car repair and maintenance expenses of ₹4,37,092/-
  • Ad hoc disallowance of ₹9,61,761/- on miscellaneous business expenses
  • Ad hoc disallowance of ₹5,65,419/- on entertainment and related expenses

Aggrieved, the assessee preferred an appeal before the ITAT Delhi, raising both jurisdictional and merit-based grounds.

Whether an assessment completed under Section 143(3) of the Income Tax Act, 1961 is legally sustainable when the initiating notice under Section 143(2) was issued by an Assessing Officer who lacked pecuniary jurisdiction as prescribed under CBDT Instruction No. 1/2011 dated 31.01.2011?

The following statutory provisions and administrative instructions were central to the adjudication:

  • Section 143(2) — Issuance of scrutiny notice
  • Section 143(3) — Completion of scrutiny assessment
  • Section 37(1) — Deductibility of business expenditure
  • Section 292BB — Notice deemed valid in certain circumstances
  • Section 144 — Best judgment assessment
  • CBDT Instruction No. 1/2011 [F. No. 187/12/2010-IT(A-1)] dated 31.01.2011 — Monetary limits for assignment of cases to ITOs and DCs/ACs

CBDT Instruction No. 1/2011 — Jurisdictional Framework

The foundational basis of the assessee's challenge was rooted in the mandatory directions issued by the Central Board of Direct Taxes. The full text of the relevant instruction is reproduced below: