Reassessment Quashed: ITO Had No Pecuniary Jurisdiction Under CBDT Instruction No. 1/2011
Case Reference
Kshirod Kumar Pattnaik Vs ITO (ITAT Cuttack)
Assessment Year: 2012-13
Background and Overview
A significant ruling has emerged from the Income Tax Appellate Tribunal, Cuttack Bench, where reassessment proceedings initiated by an Income Tax Officer were quashed entirely on the ground that the officer lacked the requisite pecuniary jurisdiction to frame the assessment. The dispute centered on whether an ITO could validly conduct reassessment proceedings against an assessee whose declared income surpassed the monetary ceiling prescribed under CBDT Instruction No. 1/2011 for non-metro areas.
The matter originated from an assessment framed under Section 144/147 of the Income Tax Act, 1961, for Assessment Year 2012-13, wherein the total income was determined at Rs. 1,45,72,740/-. The assessee had originally declared total income of Rs. 35,09,538/- in the return filed under Section 139 on 30.09.2012, after availing deductions under Chapter VIA amounting to Rs. 1 lakh.
Facts of the Case
Survey and Detection of Undisclosed Fixed Deposits
A survey under Section 133A of the Income Tax Act, 1961, was conducted on 05.02.2015 by the DDIT (Investigation), Bhubaneswar. During the survey, it emerged that the assessee had allegedly made fixed deposits amounting to Rs. 1.50 crore with Bank of Baroda in three tranches of Rs. 50 lakh each on 21.07.2011. However, the balance sheet filed by the assessee reflected deposits and investments of only Rs. 7,15,280/-, and no interest income from these fixed deposits had been offered in the return.
Reopening of Assessment
Based on the survey report and material gathered from the bank, the Assessing Officer recorded reasons for reopening the case and, after obtaining approval from the JCIT, issued a notice under Section 148 on 29.03.2017. The assessee did not file any return in response to this notice.
Subsequently, multiple notices under Section 142(1) were issued on different dates, with varying degrees of compliance from the assessee's side:
| Date of Notice | Section | Hearing Date | Compliance Status |
|---|---|---|---|
| 27.03.2017 | 148 | 30 days from receipt | No compliance |
| 12.07.2017 | 142(1) | 20.07.2017 | Authorization submitted only |
| 01.09.2017 | 142(1) | 12.09.2017 | No compliance |
| 04.10.2017 | 142(1) | 16.10.2017 | No compliance |
| 24.10.2017 | 142(1) | 02.11.2017 | No compliance |
| 03.11.2017 | 142(1) | 13.11.2017 | Written submission filed |
Assessment Under Section 144
Owing to persistent non-compliance, the Assessing Officer proceeded to frame the assessment under Section 144 of the Income Tax Act, 1961. A notice under Section 133(6) was issued to Bank of Baroda, Angul Branch, which furnished the following information:
| Receipt No. | Account No. | Date of Opening | Amount | Accrued Interest |
|---|---|---|---|---|
| — | 26350300002970 | 30.06.2011 | Rs. 5,00,000/- | Rs. 32,491/- |
| 061498082 | 26350300002991 | 21.07.2011 | Rs. 50,00,000/- | Rs. 2,65,356/- |
| 061498469 | 26350300002992 | 21.07.2011 | Rs. 50,00,000/- | Rs. 2,65,356/- |
| Total | Rs. 1,05,00,000/- | Rs. 5,63,203/- |
The Assessing Officer held that the assessee failed to satisfactorily explain the source of these fixed deposits. Consequently, the entire amount of Rs. 1,05,00,000/- was treated as unexplained investment under Section 69 of the Income Tax Act, 1961, and interest income of Rs. 5,63,203/- was added under the head "Income from Other Sources," bringing the total assessed income to Rs. 1,45,72,740/-.
Proceedings Before CIT(Appeals)
Assessee's Submissions
Before the Commissioner of Income Tax (Appeals), the assessee filed an affidavit explaining that deficient representation before the Assessing Officer was attributable to the frequent illness of the accountant who lacked sufficient qualifications. Additional evidence, including bank statements, was submitted. The assessee contended that:
- The fixed deposit of Rs. 5 lakh bearing Account No. 26350300002970 did not belong to the assessee.
- The two fixed deposits of Rs. 50 lakh each (totaling Rs. 1,00,00,000/-) were funded through cheque transfers drawn from the assessee's own disclosed current account No. 26350500000038, which was duly reflected in the balance sheet.
- The entire reassessment proceedings were without jurisdiction because the ITO lacked pecuniary authority under CBDT Instruction No. 1/2011, since the assessee's returned income of Rs. 35,09,538/- exceeded the Rs. 15 lakh threshold prescribed for non-corporate assessees in non-metro areas.
Remand Proceedings
The additional evidence filed by the assessee was forwarded to the Assessing Officer for a remand report. The AO reported that notices for remand hearing were issued on 16.04.2019, fixing compliance on 29.04.2019, and again on 30.04.2019 for 08.05.2019. However, the assessee did not comply on either occasion. The AO accordingly opined that the additional evidence did not deserve admission.