ITAT Mumbai on Invalid Section 143(2) Notice Issued Beyond Pecuniary Jurisdiction

The Mumbai Bench of the Income Tax Appellate Tribunal in ACIT Vs Khadamat Integrated Solutions Private Limited has delivered an important ruling on the interplay between CBDT’s pecuniary jurisdiction instructions and the validity of a Section 143(2) notice. The Tribunal held that where a statutory scrutiny notice is issued by an officer who lacks competence under CBDT Instruction No.1/2011, the resulting assessment is void, regardless of Section 124(3) objections not being raised in time.

The decision also addresses condonation of delay in filing a cross-objection, admission of additional legal grounds, and distinguishes between territorial jurisdiction and inherent/pecuniary jurisdiction of the Assessing Officer.

Background of the Assessee and Proceedings

Corporate profile and cessation of Indian business

  • The assessee, Khadamat Integrated Solutions Private Limited, is a 100% subsidiary of Public Services Company (PSC), based in Kuwait.
  • It was incorporated in India on 15.03.2014 with the specific mandate of undertaking medical screening of individuals travelling to Kuwait as part of the pre-visa process, under a contract awarded by PSC.
  • For the relevant Assessment Year 2016-17, PSC had engaged the assessee for carrying out the medical screening work in India.
  • The contract was not renewed after a period, and the assessee’s Indian operations were discontinued. The assessee became non-operational from 12 April 2018:
    • Directors and key managerial personnel returned to Kuwait.
    • Employees left the organisation.
    • The office at Andheri, Mumbai was closed.

Assessment and appeal chain

  • The assessee filed its return of income on 29.11.2016, declaring total income of Rs.16,38,56,590 for AY 2016-17.
  • The case was selected for complete scrutiny and a notice under Section 143(2) dated 01.08.2017 was issued by Income Tax Officer, Ward-12(3), Mumbai.
  • Subsequently, an assessment order dated 25.05.2023 was passed under Section 147 read with Sections 144 and 144B by the Assessment Unit/ACIT-12(3)(1).
  • The assessee carried the matter in appeal to the CIT(A), and the National Faceless Appeal Centre / CIT(A) passed an order on 30.05.2024 under Section 250.
  • The Revenue challenged the CIT(A)’s order before the ITAT, and the assessee filed a cross-objection (CO) raising jurisdictional and other legal issues.

Delay in Filing Cross-Objection and its Condonation

Period and reasons for delay

  • The assessee filed the cross-objection on 15.04.2025.
  • The department’s appeal memo (Form 36) was received by the assessee’s consultant on 12.12.2024.
  • As per the limitation, the CO ought to have been filed by 11.01.2025.
  • This resulted in a delay of 94 days (3 months and 4 days).

The assessee explained the delay as follows:

  • After cessation of operations in India, all tax-related communication had to be routed through PSC in Kuwait.
  • After the CIT(A) order, the consultant (M/s Devesh K. Shah & Associates LLP) was not continuously engaged with the assessee.
  • No physical notice from the ITAT was received at the old Indian address since the office was closed from April 2018.
  • Notice of the appeal hearing was sent by email to the consultant, who then informed PSC.
  • The consultant sought a copy of the Form 36 appeal memo and received it on 12.12.2024.
  • The consultant then approached a tax counsel, who advised that a cross-objection should be filed to challenge the jurisdiction and on merits.
  • The consultant had to brief PSC in Kuwait, which had limited exposure to Indian tax laws and appellate procedures.
  • PSC requested time in the second week of February 2025 to evaluate the legal advice and take a decision, while the consultant sought adjournments before the Tribunal.
  • PSC subsequently approved filing of the CO and engaging counsel; the CO was then filed on 15.04.2025.
  • The assessee argued that the delay was unintentional, bona fide, and driven by logistical and organisational constraints, and that significant additions would become final if the CO were not entertained.

Tribunal’s view on condonation

The Departmental Representative opposed condonation. The Tribunal, however, considered:

  • The principles laid down by the Supreme Court in **Collector of Land Acquisition v. Mst.