ITAT analyses validity of notice u/s 143(2) by non jurisdictional AO. On objection, AO obligated to refer matter for determination of jurisdiction u/s 124(2)
ABCAUS Case Law Citation:
ABCAUS 2739 (2019) (01) ITAT
Important Case Laws Cited/relied upon:
ACIT Vs. Hotel Blue Moon (2010) 321 ITR 362 (SC)
The case of the appellant assessee was selected for scrutiny assessment and a notice u/s 143(2) of the Income Tax Act, 1961 was issued by the DCIT Circle-1. The assessee objected to the notice claiming that the Assessing Officer (AO) who issued the notice was not vested with the jurisdiction over its case, therefore, the notice issued by him was devoid of any force of law. Apart therefrom, it was also submitted by the assessee that the jurisdiction in its case remained with the Assessing Officer (AO) Circle-4.
Subsequently, the assessee was issued another notice under Section 142(1) from the office of the ACIT Circle-1. The assessee again objected to the aforesaid notice and submitted that the jurisdiction in his case remained with the Assessing Officer of another Circle. Finally, a notice u/s 143(2) was issued by the DCIT Circle-4 calling upon the assessee to attend his office in respect of certain points in connection with the return of income submitted for the year under consideration.
Subsequently, the AO passed assessment order under Sec. 143(3).
Aggrieved, the assessee carried the matter in appeal before the CIT(A). The assessee assailed the assessment order under Sec.143(3), on the ground that the same was passed without issuance of a valid notice u/s 143(2) by the A.O having jurisdiction in its case.
It was submitted by the assessee that a notice u/s .143(2) was issued by the jurisdictional A.O only after expiry of a period of about 8 months from the limitation date specified in the Act.
The CIT(A) observed that pursuant to the electronic system of filing of Income tax returns the jurisdiction over the case of the assessee was vested with the ACIT, Circle-1. Further, it was observed by him that pursuant to taking up of the issue as regards the jurisdiction over its case by the assessee, the case records would have been transferred to the ACIT/DCIT, Circle-IV.
The CIT(A) also observed that the assessee had not raised any objections in the course of the assessment proceedings and had furnished complete details with the AO.
The CIT(A) also held a conviction that the provisions of Section 292B of the Act would provide a cushion to the AO for such instances.
On the basis of his aforesaid deliberations, the contentions of the assessee as regards the validity of the jurisdiction assumed by the AO were rejected by the CIT(A).
The Tribunal observed that as per sub-section (1) to Section 120 of the Act, the income tax authorities exercise powers and perform functions conferred/assigned by the Act or in accordance with directions of the CBDT.
Thus, it is by virtue of the section 120, that an AO as per subsection (1) to Sec.124 assumes jurisdiction in respect of an assessee who is carrying on a business or profession or is residing within a specific area.
The Tribunal further noted that as per sub-section (3) to Section 124 an assessee is entitled to call in question the jurisdiction of an A.O, subject to satisfaction of certain conditions carved out in the said statutory provision.
The Tribunal stated that where an assessee had validly called in question the assumption of jurisdiction by an AO, then as per subsection (4) to Sec.124 the assessing officer shall, if not satisfied with the correctness of the claim, obligated to refer the matter for determination of jurisdiction to the appropriate authority as envisaged in sub-section (2) of Sec.124.
The Tribunal further noted that, the power to transfer cases is contemplated in Section 127 of the Act. Under sub-section (2) to Section 127, a case can be transferred from one assessing officer to another, subject to satisfaction of twin conditions viz. (i) the assessee is afforded a reasonable opportunity of being heard in the matter, wherever it is possible to do so; and (ii) the reasons for transfer of the case have to be recorded at the time of passing of the order of transfer of the case.
The Tribunal also noted that as per sub-section (3) to Section 127, the requirement of giving an opportunity to the assessee where the transfer is from one assessing officer to another assessing officer, wherein the office of the said officers are situated in the same city, locality or place, had been dispensed with. However, the statutory requirement of recording of reasons for transfer of the case, before passing the order of transfer has not been dispensed with by the legislature in all its wisdom.
The Tribunal opined that it is obligatory on the part of the appropriate authorities envisaged in sub-section (2) to Section 127 to record the reasons for affecting the transfer of the case from one assessing officer to another.
The Tribunal observed that despite a specific objection having been raised by the assessee as regards the jurisdiction over its case, notices under Section 143(2)/142(1) were thereafter issued by the ACIT, Circle 1. Neither of the lower authorities had challenged the maintainability of the objection that was raised by the assessee as regards the jurisdiction assumed by the ACIT, Circle-1 in its case. Rather, the CIT(A) had brushed aside the challenge thrown by the assessee to the validity of the jurisdiction assumed by the A.O, observing that at the time of issuance of notice under Section 143(2) the jurisdiction over the case of the assessee was vested with the ACIT, Circle-1.
The Tribunal opined that the observations of the CIT(A) as regards the validity of assumption of jurisdiction by the ACIT/DCIT, Circle-1 suffered from certain serious infirmities viz.
(i) that no order issued by the CBDT under Sec.124(1) r.w.s. 120(1) vesting jurisdiction in the case of the assessee with the ACIT/DCIT, Circle-1 was either discernible from the orders of the lower authorities, nor any material in support thereof was placed in the course of the hearing of the appeal;
(ii) that despite the fact that the assessee remaining well within the realm of sub-section (3) to Section 124 had objected to the jurisdiction of DCIT/ACIT, Circle-1, however, the AO had gravely erred in law by not referring the determining of the jurisdiction as per the mandate of subsection (2) to Section 124 to the appropriate authorities before passing the order;
(iii) that the jurisdiction over its case was vested during the aforesaid period with the ACIT, Range-IV,
(iv) that nothing was placed on our records which would reveal as to how the jurisdiction in the case of the assessee was subsequently transferred from the ACIT, Range-IV, to DCIT/ACIT Circle-1.
(v) that even if it is to be presumed that there was a transfer of jurisdiction [as inferred by the CIT(A)] from the ACIT, Range-IV, to DCIT/ACIT, Range-1, then the statutory obligation of recording of reasons for transferring the case by the appropriate authority as envisaged under sub-section (2) to Sec. 127, prior to passing of the order also was not discernible from the records; and
(iv) that as to how the jurisdiction in the case of the assessee for framing of the assessment for the year under consideration subsequent to issuance of notice under Section 143(2)/142(1) by the DCIT/ACIT, Circle-1 was thereafter most casually transferred to the DCIT, Circle-IV, who had for the first time issued a notice under Section 143(2) had neither been explained nor was discernible from the records.
The Tribunal opined that the validity of the transfer of jurisdiction over the case of the assessee from the ACIT/DCIT, Circle-IV to ACIT/DCIT, Circle-1 and vice versa cannot be summarily accepted at the very face of it. Even if the observations of the CIT(A) that the jurisdiction over the case of the assessee pursuant to electronic system of filing of the income tax returns was transferred is accepted, even then in the absence of recording of reasons for such transfer as envisaged under Section 127(2)(a) of the Act, the said claim of the AO cannot be subscribed to and accepted as such.
The Tribunal opined that the observation of the CIT(A) that even if the assumption of jurisdiction by the DCIT/ACIT suffered from any infirmity, the same being a curable defect as per the provision of Section 292B would not have any material bearing on the validity of jurisdiction assumed by the A.O was an absolutely misconceived view arrived at by the said appellate authority.
The Tribunal stated that Section 292B would come into play in a case where the notice issued or assessment framed is in substance and effect in conformity with or according to the intent and purpose of the Act. It is only subject to satisfaction of the aforesaid conditions that a notice or an assessment framed shall not be deemed to be invalid merely for the reason that any mistake, defect or omission had crept in the notice issued or the assessment framed.
The Tribunal opined that both, the validity of the notice issued under Section 143(2) as well as the consequential assessment thereafter framed under Section 143(3) suffered from a jurisdictional defect, thus the same can in no way be cured by taking support of the provisions of Section 292B of the Act.
The Tribunal held that ACIT/DCIt Curcle-1 was not the AO vested with the jurisdiction over the case of the assessee and the notice issued by the DCIT Circle-4 i.e. the AO vested with the jurisdiction over the case of the assessee had only issued a notice u/s 143(2) beyond the specified time period contemplated under Section 143(2), hence the same had no existence in the eyes of law.
We are of the considered view that as there was no valid transfer of jurisdiction over the case of the assessee from the ACIT, Range–IV, Jalandhar to Dy. CIT/ACIT, Circle-I Jalandhar, therefore, no valid notice could have been issued by the latter under Sec.143(2) of the I.T. Act
The Tribunal opined that if the view taken by the CIT(A) that the jurisdiction over the case of the assessee pursuant to electronic system of filing of the income tax returns was transferred from the ACIT/DCIT, Circle-IV to Dy. CIT/ACIT,Circle-1 is accepted, even then in the absence of recording of reasons for the subsequent transfer of jurisdiction, as required as per the mandate of Setion 127(2)(a) of the Act, cannot be subscribed to and merit acceptance.
Accordingly, the Tribunal held that the AO exercising the jurisdiction over the case of the assessee had failed to issue a notice u/s. 143(2) within the stipulated time period, therefore, the assessment framed by him under Sec.143 (3) san issuance of the aforesaid notice was absolutely bereft of any force of law and could not be sustained.
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