ITAT Delhi Quashes Section 143(3) Assessment for Lack of Proper Jurisdiction Under CBDT Instruction No. 01/2011

Background and Context

This decision of the ITAT Delhi in Ram Kumar Gupta Vs DCIT deals with a fundamental jurisdictional issue: whether an assessment framed under Section 143(3) can survive when the mandatory scrutiny notice under Section 143(2) is issued by an Assessing Officer who does not possess pecuniary jurisdiction under **CBDT Instruction No. 01/2011 dated 31.01.2011`.

The assessee, an individual engaged in trading of iron goods through a proprietorship concern, had filed a regular return declaring income of Rs. 16,94,410. Despite this relatively modest returned income, the scrutiny notice under Section 143(2) was issued by the ACIT, Circle-43(1), Delhi, rather than the jurisdictional ITO, as mandated by the Board’s instruction for non-corporate assessees in metro cities.

The Tribunal was called upon to decide whether this jurisdictional error was merely a curable procedural lapse or a defect that invalidated the entire assessment.

Core Legal Issue

Central Question

• Whether an assessment completed under Section 143(3) is valid when the initial scrutiny notice under Section 143(2) was issued by an officer lacking pecuniary jurisdiction in terms of CBDT Instruction No. 01/2011, and
• Whether such a defect can be treated as a procedural irregularity cured by participation of the assessee, or whether it is a jurisdictional nullity rendering the assessment void.

Statutory and Administrative Framework

1. Section 143(2) – Condition Precedent

   • For a valid scrutiny assessment under Section 143(3), a proper notice under Section 143(2) issued by the jurisdictional Assessing Officer is a mandatory precondition.
   • Absence of such a valid notice, or issuance by a non-jurisdictional officer, affects the very assumption of jurisdiction.

2. Section 120 – Jurisdiction of Income-tax Authorities

   • Section 120 empowers CBDT to allocate jurisdiction among income-tax authorities through orders, circulars and instructions.
   • Pursuant to this, CBDT Instruction No. 01/2011 dated 31.01.2011 demarcates pecuniary jurisdiction between Income-tax Officers and ACITs/DCITs.

3. CBDT Instruction No. 01/2011 – Pecuniary Limits

   • For non-corporate assessees in metro cities, the Instruction provides that where the returned income is below a specified monetary threshold, the case falls within the jurisdiction of the ITO.
   • In this case, with returned income of Rs. 16,94,410 (below Rs. 30 lakh), the assessee’s case was squarely within the domain of the ITO and not the ACIT.

Key Note: The Tribunal emphasized that allocation of jurisdiction by CBDT under Section 120 is mandatory, and non-compliance goes to the root of the validity of the assessment.

Factual Matrix

Business and Return Filing

• The assessee is an individual carrying on business in purchase and sale of iron goods as a sole proprietor of M/s Shri Ram Steels Syndicate.
• A return of income was filed on 06.10.2022 declaring total income of Rs. 16,94,410.

Search Proceedings and Subsequent Assessment

1. Search Action
   • A search and seizure operation under Section 132 was carried out on 02.02.2022 in the case of Sakarni Group and others, and the assessee was also covered in the search.
   • During the search, cash and jewellery were found and seized from the assessee’s possession.