Introduction

The case of ITO, Ward-6(1), Kolkata v. M/s Daniel Commodities Pvt. Ltd., Kolkata adjudicated by the Income Tax Appellate Tribunal (ITAT) Kolkata Bench 'C' on May 7, 2024, stands as a significant precedent in the realm of Income Tax law. The dispute centered around the validity and jurisdictional propriety of reassessment proceedings undertaken by the Assessing Officer (AO) without requisite approval under Section 151 of the Income Tax Act. The assessee, M/s Daniel Commodities Pvt. Ltd., challenged the additions made by the AO, leading to a comprehensive examination of jurisdictional principles and procedural adherence within tax assessments.

Summary of the Judgment

The assessee initially filed its income tax return for the assessment year 2009-10, reporting a loss of ₹2,205. The AO processed this return under Section 143(1). Subsequently, the AO reopened the assessment under Sections 147 read with 148 after receiving a notification from the assessee indicating an oversight in not accounting for ₹35,645 earned from share dealing profits. Further complicating the matter, the Commissioner of Income Tax (Appeals) Kolkata-II revised the AO's reassessment order under Section 263, deeming it erroneous for not verifying the share applicants' subscriptions. This led to an ex parte assessment order adding ₹10,61,00,000 as share capital and premium. The assessee contested these additions, leading to the current appellate proceedings.

Analysis

Precedents Cited

The Tribunal extensively referenced several key judgments that underscore the inviolability of jurisdiction in tax assessments:

• Kiran Singh & Ors. V. Chaman Paswan & Ors. [1955] 1 SCR 117: Established that any decree passed without jurisdiction is a nullity and can be challenged at any stage.
• Sushil Kumar Mehta vs Gobind Ram Bohra (1990) 1 SCC 193: Reinforced that jurisdictional defects can be raised even during execution or collateral proceedings.
• M/s Westlife Development Ltd. v. PCIT [ITA No.688/Mum/2016]: Affirmed that non-est orders cannot be revised under Section 263, as they are void ab initio.
• CIT v. Alagendran Finance Ltd. [2007] 293 ITR 1 (SC): Clarified that revisions should pertain to the same subject matter as the original assessment.
• Additional references to decisions from various High Courts including Delhi, Kanpur, and Gujarat reinforced the principle that jurisdiction cannot be conferred by consent or omission.

Legal Reasoning

The Tribunal's legal reasoning hinged on the principle that the Assessing Officer lacked jurisdiction to reopen the assessment under Section 147 without prior approval from the competent authority as mandated by Section 151. The absence of such approval render the reassessment order null and void (non-est). Consequently, any subsequent actions, including the revision under Section 263 by the Commissioner of Income Tax (Appeals), inherit this defect, thereby lacking legal sanctity.

Furthermore, the Tribunal emphasized that jurisdictional defects are not subordinate to procedural lapses and can be independently challenged irrespective of previous proceedings. The Tribunal also scrutinized the validity of the additions made under Section 68, concluding that the assessee had adequately established the identity and creditworthiness of the share subscribers, thereby nullifying the AO's presumptions of sham transactions.

Impact

Complex Concepts Simplified

1. Section 147 and 148 Reassessment

Section 147: Grants the Assessing Officer the power to reopen an assessment if there is reason to believe that income has escaped assessment.

Section 148: Pertains to the issuance of notices before reopening an assessment under Section 147.

2. Section 151 Approval

Section 151: Requires the Assessing Officer to obtain approval from the competent authority before reopening an assessment after four years from the end of the relevant assessment year.

3. Section 263 Revision

Section 263: Empowers the Commissioner to revise orders passed by the Assessing Officer if they are erroneous and prejudicial to the interest of revenue.

4. Non-Est Order

A Non-Est (Non-Establishiendum) order is one that lacks legal validity from inception, often due to procedural lapses or jurisdictional errors.

5. Domain of Jurisdictional Challenges

Jurisdictional challenges can be raised in both primary and collateral proceedings, ensuring that any foundational errors in authority can be rectified irrespective of the stage of proceedings.

Conclusion

The ITAT Kolkata's judgment in ITO, Ward-6(1), Kolkata v. M/s Daniel Commodities Pvt. Ltd. reaffirms the paramount importance of procedural correctness and adherence to jurisdictional prerequisites in tax assessments. By declaring the reassessment and subsequent revision orders void due to jurisdictional lapses, the Tribunal has sent a clear message that tax authorities must operate within the bounds of the law. This decision not only protects taxpayers from arbitrary assessments but also upholds the integrity of the Income Tax legal framework. Future tax assessments and revisions will undoubtedly be scrutinized more rigorously to ensure compliance with all statutory requirements, thereby fostering a more equitable and transparent tax administration system.