Reassessment under Section 147 annulled due to lack of pecuniary jurisdiction of ITO

Background of the dispute

The case of Sapna Rastogi Vs ITO (ITAT Delhi) concerns the validity of a reassessment initiated under Section 147 where the initial Section 148 notice was issued by an Income Tax Officer who, as per CBDT’s own jurisdictional instructions, did not possess the requisite pecuniary authority to do so.

The assessee, an individual, had filed her return of income for Assessment Year 2013-14 on 07.07.2013, declaring a total income of ₹18,85,550. The return fell in the category of non-corporate returns in a non-metro area, where pecuniary limits for jurisdiction are governed by CBDT Instruction No. 1/2011.

Subsequently, the case was reopened on the basis of information indicating alleged non-disclosure of gains from sale of shares of TTK Prestige Ltd., leading to a reopening under Section 147 and issuance of notice under Section 148 dated 30.03.2021 by Income Tax Officer, Ward-1(2)(5), Meerut.

The reassessment culminated in an addition of ₹3,58,56,008, treated as unaccounted money, and total income was assessed at ₹3,77,41,558 by order dated 30.03.2022 passed under Section 147 read with Section 144B.

Aggrieved, the assessee carried the matter to the National Faceless Appeal Centre (NFAC), which confirmed the reassessment. The assessee then preferred an appeal before the ITAT Delhi challenging, inter alia, the very assumption of jurisdiction by the officer issuing the Section 148 notice.

Procedural history in brief

  1. Original return

    • AY 2013-14 return filed on 07.07.2013.
    • Total income declared: ₹18,85,550.
    • Status: Individual (non-corporate, non-metro jurisdiction).

  2. Reassessment trigger

    • Case flagged as a “High Risk” case on the Insight portal under “Priority 1” in the category “High Risk CRIU/VRU Information”.
    • Information: No tax treatment allegedly given to profit of ₹3,51,90,000 from sale of shares of TTK Prestige Ltd..

  3. Reopening and assessment

    • Approval under Section 151 obtained.
    • Notice under Section 148 issued on 30.03.2021 by ITO, Ward-1(2)(5), Meerut.
    • Assessment completed on 30.03.2022 under Section 147 read with Section 144B.
    • Addition of ₹3,58,56,008 as unaccounted money.
    • Assessed income determined at ₹3,77,41,558.

  4. First appeal

    • Appeal filed before NFAC against the reassessment.
    • NFAC (order dated 11.01.2024) upheld the reassessment order.

  5. Second appeal before ITAT

    • Assessee appealed to ITAT Delhi.
    • A key ground (Ground No. 1) challenged the legality of the Section 148 notice on the basis that the issuing ITO did not have pecuniary jurisdiction under CBDT Instruction No. 1/2011.
    • During ITAT proceedings, a report dated 26.06.2024 from ACIT, Circle-1(1)(1), Meerut confirmed that:
      • The PAN of the assessee was transferred from ITO, Ward-1(2)(5), Meerut to ACIT, Circle-1(1)(1), Meerut only on 15.05.2024.
      • The transfer was made explicitly in line with CBDT Instruction No. 1/2011, which assigns non-corporate cases above ₹15 lakh to ACIT/DCIT.

The central controversy before the Tribunal was:

Whether the reassessment proceedings initiated under Section 147 are valid when the Section 148 notice was issued by an Income Tax Officer who did not have pecuniary jurisdiction as per CBDT Instruction No. 1/2011.

In other words, the Tribunal had to examine if a quasi-judicial act such as issuance of a Section 148 notice by an officer lacking prescribed pecuniary jurisdiction is a mere procedural irregularity capable of being cured, or a fatal jurisdictional defect rendering the entire reassessment void.

Statutory provisions and CBDT Instruction involved

The matter involved interpretation and application of the following:

  • Section 147 – Income escaping assessment
  • Section 148 – Issue of notice where income has escaped assessment
  • Section 144B – Faceless assessment procedures
  • Section 151 – Sanction for issue of notice
  • Section 292BB – Notice deemed to be valid in certain circumstances
  • CBDT Instruction No. 1/2011 – Allocation of jurisdiction based on return type and income thresholds

Under **CBDT Instruction No.