Jurisdictional Defect in Scrutiny Notice Invalidates Entire Assessment: An Analysis of ITAT Kolkata's Ruling in Shivam Finance
The foundation of any valid scrutiny assessment under the Income-tax Act, 1961 rests upon the strict adherence to procedural and jurisdictional mandates. A critical component of this procedural framework is the issuance of a scrutiny notice. When the authority initiating the proceedings lacks the pecuniary jurisdiction to do so, the entire subsequent assessment is rendered void ab initio.
This fundamental legal principle was recently reaffirmed by the Income Tax Appellate Tribunal (ITAT), Kolkata, in the matter of Shivam Finance Vs ACIT. The Tribunal categorically ruled that a notice issued under Section 143(2) by an Income Tax Officer (ITO) who did not possess the requisite monetary jurisdiction over the assessee cannot be cured merely because the final assessment under Section 143(3) was passed by the correct jurisdictional officer.
The Factual Matrix of the Dispute
To understand the crux of the judicial pronouncement, it is essential to examine the sequence of events that led to the litigation.
The assessee, Shivam Finance, filed its return of income for the Assessment Year (AY) 2017-18 on 27 October 2017. In this return, the assessee declared a total income of Rs. 43,53,620. The tax department's Computer Assisted Scrutiny Selection (CASS) system subsequently flagged the case for detailed scrutiny.
The procedural anomaly began when the initial scrutiny notice under Section 143(2) of the Income-tax Act, 1961 was issued on 17 August 2018. This pivotal notice was issued by the ITO, Ward-49(1), Kolkata.
Following the initiation of proceedings, the assessment was eventually concluded on 11 December 2019. However, the final assessment order under Section 143(3) was framed by a different officer—the Assistant Commissioner of Income Tax (ACIT), Circle-49(1), Kolkata. In this final order, the ACIT made an addition of Rs. 6,20,000 to the income of the assessee. This addition was categorized under Section 69A of the Act, treating cash deposited into the assessee's bank account during the demonetisation period as unexplained money. Consequently, the tax was levied at the stringent, amended rates prescribed under Section 115BBE.