2011 (1) TMI 1123 - HC - Income Tax

Assessment - whether Income-tax Officer had the jurisdiction when the assessment proceedings commenced and a draft assessment order was submitted to the Inspecting Assistant Commissioner - Subsequent change in the jurisdiction if any unless brought to the notice of the authority concerned, will not in any manner vitiate the assessment order in the absence of any objection with regard to lack of jurisdiction by the assessee - It is a case where both the Assessing Officer and the assessee proceeded as if there is no transfer order transferring jurisdiction, assessment order made by the Assessing Officer is valid in the eyes of law and this could not have been set aside by the Tribunal notwithstanding the transfer order, appeals are allowed in favor of revenue. The matter is restored back to the Tribunal

Issues Involved:
1. Jurisdiction of the Assessing Officer
2. Validity of the assessment order post-transfer of jurisdiction
3. Authority of appellate bodies to entertain jurisdictional objections not raised before the Assessing Officer
4. Procedural versus substantive jurisdiction in tax matters
5. Prejudice caused by jurisdictional errors

Issue-wise Detailed Analysis:

1. Jurisdiction of the Assessing Officer:
The primary issue revolves around whether the Income-tax Officer, Central Circle-I (CC-I), had the jurisdiction to frame the assessment order after the case was transferred to the Inspecting Assistant Commissioner (IAC) by an order dated July 1, 1977. The Tribunal held that the assessment order was void ab initio due to lack of jurisdiction following the transfer order.

2. Validity of the Assessment Order Post-Transfer of Jurisdiction:
The Tribunal's decision was based on the premise that the transfer order was effective from July 1, 1977, and thus, the Income-tax Officer, CC-I, lacked jurisdiction to pass the assessment order on September 7, 1977. The Tribunal did not examine other merits of the appeal but annulled the assessment order solely on jurisdictional grounds.

3. Authority of Appellate Bodies to Entertain Jurisdictional Objections Not Raised Before the Assessing Officer:
The Commissioner of Income-tax (Appeals) initially rejected the jurisdictional objection on the grounds that it was not raised before the Assessing Officer and that the question of territorial jurisdiction is an administrative matter, not subject to appellate scrutiny. The Tribunal, however, allowed the jurisdictional objection, noting that there was no evidence of when the transfer order was communicated to the assessee, thus permitting the objection to be raised in appeal.

4. Procedural Versus Substantive Jurisdiction in Tax Matters:
The court emphasized that the allocation of functions among income-tax authorities is administrative in nature. Citing Hindustan Transport Co. v. IAC of I.T., it was held that the Act treats jurisdictional assignments as procedural rather than substantive, and defects in procedural jurisdiction do not invalidate assessment orders. The court also referred to section 124 of the Income-tax Act, which outlines that jurisdictional disputes should be resolved by the Commissioner or the Board, not by appellate authorities.

5. Prejudice Caused by Jurisdictional Errors:
The court noted that no prejudice was demonstrated by the assessee due to the assessment order being passed by the Income-tax Officer, CC-I. Citing Mantoo Sarkar v. Oriental Insurance Co. Ltd. and Kiran Singh v. Chaman Paswan, the court reiterated that jurisdictional errors related to territorial or pecuniary aspects do not nullify an order unless prejudice is shown. The court found no evidence that the assessee was prejudiced by the assessment order.

Conclusion:
The court concluded that the Tribunal erred in annulling the assessment order based on jurisdictional grounds. It held that the assessment order by the Income-tax Officer, CC-I, was valid despite the transfer order, as the jurisdictional objection was not timely raised and no prejudice was demonstrated. The court also found that the Tribunal should have remitted the matter back to the IAC rather than annulling the assessment order. Consequently, the appeals were allowed, and the matter was remitted back to the Tribunal to decide the appeals afresh on the merits, excluding jurisdictional issues. No costs were awarded.

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