ITAT Kolkata Invalidates Assessment for Lack of Pecuniary Jurisdiction of ACIT

Background of the Dispute

The Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) in the case of Anderson Printing House Pvt. Ltd Vs ACIT examined a fundamental jurisdictional objection raised by the assessee for Assessment Year 2016-17. The appeal was directed against the order dated 20.07.2021 passed by the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre under Section 250 of the Income Tax Act 1961.

Among several grounds, the assessee prominently challenged the very authority of the Assistant Commissioner of Income Tax, Circle 9(1), Kolkata to:

  • Issue notice under Section 143(2)
  • Complete scrutiny assessment under Section 143(3)

As this objection went to the root of the validity of the entire assessment, the Tribunal first addressed the jurisdictional ground before entering into the merits of the disallowances.

Key Grounds Raised by the Assessee

The assessee’s appeal broadly contained the following contentions:

  1. The ACIT, Circle 9(1), Kolkata had no valid jurisdiction to issue notice under Section 143(2) on 18-09-2017 and to frame assessment under Section 143(3) on 04-12-2018, rendering the entire exercise void ab initio, ultra vires and legally unsustainable.

  2. The disallowance of ₹11,57,572/- made by invoking Section 2(24)(x) read with Section 36(1)(va) was assailed as being contrary to law.

  3. On a correct reading of Section 43B, the assessee argued that the disallowance of ₹11,57,572/- relating to employees’ contributions was unjustified.

  4. The assessee submitted that the Finance Act, 2021 amendment to Section 36(1)(va) and Section 43B was wrongly applied retrospectively by the CIT(A), and hence the upholding of disallowance on that basis was erroneous.

  5. The sustenance of the disallowance of ₹11,57,572/- under Section 2(24)(x) read with Section 36(1)(va) was alleged to be legally flawed and unsustainable.

However, once the Tribunal accepted the assessee’s jurisdictional challenge, these substantive grounds on merits were not adjudicated.

Core Jurisdictional Challenge: Pecuniary Limits Under CBDT Instruction

Returned Income and Applicable Jurisdiction

The assessee’s counsel pointed out that the returned income for AY 2016-17 was below ₹30 lakh. For corporate assessees in metro cities, CBDT Instruction No. 1/2011 dated 31-01-2011 prescribes monetary thresholds for allocation of jurisdiction between:

  • Income Tax Officer (ITO), and
  • Assistant Commissioner/Deputy Commissioner of Income Tax (ACIT/DCIT)

Under this Instruction:

For corporate returns in metro cities, jurisdiction lies with:

  • ITO: where returned income is up to ₹30 lakh
  • ACIT/DCIT: where returned income is above ₹30 lakh

Kolkata being a notified metro city under this Instruction, the assessee contended that its case, with returned income below ₹30 lakh, should have been assessed by the Income Tax Officer, not by the ACIT. Accordingly, the ACIT’s assumption of jurisdiction and issuance of notice under Section 143(2) was said to be without pecuniary authority.

The Departmental Representative did not contest the quantum of returned income or applicability of the Instruction but argued that the ACIT, as overall in-charge of the ward, was competent to complete the assessment.

Statutory Framework: Sections 120 and 127

Jurisdiction Under Section 120

The Tribunal first examined Section 120 of the Income Tax Act 1961, which lays down the framework for vesting jurisdiction in income-tax authorities.