Introduction

The case of M/s. Shivam Finance, Basirhat v. ACIT, CIR-49(1), Kolkata adjudicated by the Income Tax Appellate Tribunal (SMC) Bench in Kolkata on June 21, 2023, addresses crucial issues surrounding the jurisdictional authority in issuing notices under Section 143(2) of the Income Tax Act, 1961. The appellant, Shivam Finance, challenged the jurisdiction of the Income Tax Officer (ITO), Ward-49(1), Kolkata, in issuing a scrutiny notice, leading to significant legal discourse on procedural validity and jurisdictional adherence.

Summary of the Judgment

Shivam Finance filed an appeal against the order of the Learned Commissioner of Income Tax (Assessment), who had confirmed an assessment order under Section 143(3) of the Income Tax Act for the Assessment Year 2017-18. The primary contention was the jurisdictional authority of the ITO, Ward-49(1), Kolkata, in issuing a notice under Section 143(2), given that the appellant's declared income exceeded Rs. 30 lakhs, thereby bringing it under the jurisdiction of Deputy Commissioner of Income Tax (DCIT) or Additional Commissioner of Income Tax (ACIT).

The Tribunal, referencing a recent High Court judgment in PCIT Vs. Shree Shoppers Ltd., held that the ITO lacked the requisite jurisdiction to issue the notice, thereby quashing the assessment proceedings. Consequently, the appellant's grounds related to the substantive merits of the case became moot.

Analysis

Precedents Cited

The Judgment extensively referenced the High Court case PCIT Vs. Shree Shoppers Ltd. (ITAT/39/2023 in IA No.GA/1/2023, dated March 15, 2023), which dealt with the jurisdictional authority under Section 143(2). In this case, the High Court emphasized the importance of adhering to jurisdictional limits as prescribed by the Central Board of Direct Taxes (CBDT) instructions, particularly concerning the monetary thresholds that dictate whether an ITO, DCIT, or ACIT should issue notices.

Additionally, the Tribunal referenced the ITAT Kolkata Bench decision in Shree Shoppers Ltd. Vs. DCIT (ITA No. 865/Kol/2018 dated September 8, 2022), which affirmed the necessity of correct jurisdiction in the issuance of notices under Section 143(2).

Legal Reasoning

The Tribunal’s legal reasoning centered on the statutory provisions governing jurisdiction. As per the CBDT Instruction No.1/2011, in metro cities, any corporate assessee declaring an income exceeding Rs. 30 lakhs falls under the jurisdiction of DCIT or ACIT for issuing notices under Section 143(2). In the present case, Shivam Finance declared an income of Rs. 43,53,620/- for the Assessment Year 2017-18. The notice was issued by ITO, Ward-49(1), Kolkata, which, as per the CBDT guidelines, lacked jurisdiction given the income threshold.

The Tribunal noted that the High Court had previously held such procedural oversights as ground enough to quash assessment proceedings, asserting that the absence of a valid notice under Section 143(2) renders subsequent proceedings null and void.

Impact

This Judgment reinforces the strict adherence to jurisdictional boundaries set by the CBDT instructions. It sets a precedent ensuring that tax authorities issuing notices under Section 143(2) must abide by the prescribed income thresholds to avoid jurisdictional oversteps. Future cases involving similar jurisdictional disputes will likely reference this Judgment to uphold procedural correctness and protect assessee rights.

Complex Concepts Simplified

• Section 143(2) of the Income Tax Act: This provision allows the Income Tax Department to issue a notice to taxpayers for proposing an income or demand, leading to assessment under Section 143(3). It initiates the scrutiny of the submitted tax return.
• Jurisdiction: Refers to the authority of a particular tax officer (ITO, DCIT, ACIT) to issue notices and conduct assessments based on the taxpayer's income and other criteria.
• Scrutiny Assessment: A detailed examination of the taxpayer’s returns and records by the Income Tax Department to verify the correctness of income declared and taxes paid.
• CASS (Computer Assisted Scrutiny Selection): A method used by the Income Tax Department to select cases for scrutiny assessment based on certain risk parameters and algorithms.
• Quashing of Proceedings: The nullification or cancellation of tax assessment proceedings, rendering them invalid.

Conclusion

The Shivam Finance v. ACIT judgment underscores the paramount importance of jurisdictional compliance in tax assessments. By meticulously aligning the assessment proceedings with the CBDT’s jurisdictional directives, the Tribunal not only protected the assessee’s rights but also upheld the integrity of the procedural law governing income tax assessments. This precedent serves as a critical reference point for both taxpayers and tax authorities, ensuring that jurisdictional protocols are stringently followed to maintain fairness and legal propriety in tax administration.