ITAT Raipur Cancels Reassessment Where Section 148 Notice Was Issued Without Proper Jurisdiction

1. Background of the Dispute

The Income Tax Appellate Tribunal, Raipur Bench, decided an appeal in the case of Chowaram Dhiwar Vs ITO (ITAT Raipur) for Assessment Year 2010-11. The core issue before the Tribunal was not the quantum of additions but the very validity of the reassessment proceedings initiated under Section 147 pursuant to a Section 148 notice.

The assessee, engaged in the business of trading in foreign liquor, had filed his return of income on 30.09.2010, declaring a total income of Rs. 9,47,500. Subsequently, a discrepancy was noticed between:

• Purchases recorded in the assessee’s books: Rs. 4,22,48,477, and
• Purchases as reflected in the TCS certificate: Rs. 4,71,85,928.

On the basis of this difference, the DCIT-1(1), Raipur initiated reassessment proceedings under Section 147 by issuing a notice under Section 148 dated **18.06.2013`.

The assessment, however, was ultimately completed by the ITO, Ward-1(2), Raipur on 31.03.2015, determining total income at Rs. 32,37,950, after making various additions. The National Faceless Appeal Center (NFAC), acting as Commissioner of Income Tax (Appeals), upheld this assessment.

The assessee carried the matter further in appeal before the ITAT Raipur, where jurisdictional defects in the reassessment were specifically raised as additional legal grounds.

2. Delay in Filing Appeal and Its Condonation

The appeal was filed with a delay of 29 days.

2.1 Reason for Delay

The assessee submitted an application and affidavit explaining that, although the appeal fee of Rs. 10,000 had been deposited in the government treasury on 02.02.2022 within time, the signed Form 36 could not be timely handed over to the counsel due to inadvertent omission on the assessee’s part.

2.2 Tribunal’s View

• The Departmental Representative opposed condonation.
• The Tribunal, however, accepted the explanation as a bona fide mistake, holding that the delay arose from an inadvertent omission candidly admitted by the assessee.
• In the interest of justice, the delay of 29 days was condoned, and the appeal was admitted.

3. Grounds of Appeal Before the Tribunal

3.1 Original Grounds

In the original memorandum of appeal, the assessee had primarily challenged:

• The validity of assessment under Section 147,
• Estimation of sales at Rs. 11,00,00,000 instead of audited sales of Rs. 9,97,97,240,
• Addition of Rs. 8,99,546 by applying 6% gross profit on estimated sales,
• Disallowance of Rs. 4,00,000 as personal expenses under Section 37(1),
• Disallowance of Rs. 9,90,902 on account of interest under Section 36(1)(iii) and Section 37(1).

However, the final outcome turned entirely on additional legal grounds relating to jurisdiction.

3.2 Additional Legal Grounds

The assessee raised three additional grounds, all of which were pure questions of law:

1. Invalidity of Section 148 notice issued by DCIT-1(1), Raipur

   • It was argued that, in view of CBDT Instruction No.1/2011 dated 31.01.2011, effective from 01.04.2011, pecuniary jurisdiction over the assessee (a non-corporate case in a mofussil area with income up to Rs. 15 lakh) lay with the ITO and not with the DCIT.
   • Consequently, the Section 148 notice dated 18.06.2013 issued by DCIT-1(1), Raipur was alleged to be void and non-est, rendering the reassessment under Section 147 read with Section 143(3) dated 31.03.2015 equally invalid.

2. Absence of Notice under Section 143(2)

   • The assessee contended that non-issuance of a notice under Section 143(2) vitiated the reassessment proceedings, since such notice is a sine qua non for a valid assessment under Section 147 read with Section 143(3).

3. Additions Beyond the Recorded Reasons

   • The assessee argued that the additions made were on issues unconnected with the reasons recorded for reopening, thereby rendering the reopening itself without jurisdiction.

4. Admission of Additional Grounds

The Tribunal noted that the additional grounds: