Redhu Farms Pvt. Ltd vs. Income Tax Officer, ITA No. 1850/Del/2022
Income Tax Appellate Tribunal (ITAT), Delhi invalidated the assessment order passed under Section 143(3) read with Section 263 of the Income Tax Act, 1961 in the case of Redhu Farms Pvt. Ltd., holding that the Assessing Officer (AO) lacked territorial and pecuniary jurisdiction to pass the impugned order. The tribunal emphasized that the procedural sanctity of jurisdiction cannot be bypassed even if the assessee does not raise timely objections under Section 124(3).
Background
Redhu Farms Pvt. Ltd., engaged in poultry operations, originally filed its return declaring a loss of ₹3.03 lakhs for AY 2015–16. The AO completed the assessment u/s 143(3), making a small addition. However, revisionary proceedings under Section 263 were later initiated by the PCIT, citing issues such as large share premium, stock discrepancies, and low net profit margins.
A fresh assessment order u/s 143(3) r.w.s. 263 was passed by ITO Ward-1, Bhiwani, on 29.09.2021 making hefty additions:
- ₹1.79 crore u/s 68 (unexplained share capital),
- ₹12.27 crore on stock discrepancies,
- ₹1 crore for low net profit.
The company challenged the assessment as being passed by an officer with no jurisdiction, and the ITAT ultimately agreed.
ITAT’s Key Observations
Jurisdictional Mismatch
- As per CBDT’s Instruction No. 1/2011, and orders issued on 18.09.2020 under Section 120, corporate assesses in Jind district (where the assessee was located) with income below ₹30 lakhs fell under the jurisdiction of ITO Ward-1, Jind, not ITO Ward-1, Bhiwani.
- The AO who passed the reassessment order did not have jurisdiction either territorially or pecuniarily.
PAN ≠ Jurisdiction
- The AO argued jurisdiction based on the assessee’s PAN being in Bhiwani, but the ITAT clarified that PAN location cannot override statutory jurisdiction under Sections 120 and 124 of the Act.
- The Tribunal noted that under the e-filing system, PAN addresses are not conclusive of jurisdiction — the territorial order issued by the department governs.
Section 124(3) Not a Shield for Revenue
- The Tribunal rejected the department’s reliance on Section 124(3), stating:
“Section 124(3) bars challenges to jurisdiction only when the AO actually has lawful jurisdiction but the assessee fails to object in time.”
- In this case, the officer never had lawful jurisdiction, hence the objection was maintainable even at a later stage.
Assessments Void Ab Initio
- Since the notice under Section 143(2) and the subsequent assessment were issued by an AO lacking legal jurisdiction, the entire assessment proceeding was held to be null and void.
Implication for Taxpayers
This ruling reiterates that:
- Jurisdiction of tax officers is not a formality; it is a statutory mandate.
- Incorrect jurisdiction renders the entire assessment invalid, even if the assessee did not raise timely objections.
- Taxpayers facing assessments or reassessments should verify the jurisdictional authority of the AO.
Final Verdict
The ITAT allowed both the appeals — of the company and its director — ruling that:
“Assumption of jurisdiction in passing the impugned assessment orders was invalid; consequently, the additions made are quashed.”
Key Takeaways
- Jurisdiction matters: Always verify AO’s territorial and monetary limits.
- PAN location ≠ jurisdiction: Orders under Section 120 prevail.
- Objections can still succeed even if raised belatedly, when the AO inherently lacked jurisdiction.
- CBDT Instructions and internal jurisdictional orders are binding.