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2021 (7) TMI 678 - AT - Income TaxCIT(A) assuming jurisdiction u/s 246A - Jurisdiction by AO to suo-moto convert protective assessment into substantive assessment post completion of original assessment proceedings - Undisclosed investment in the land - order of Settlement Commission u/s 245D(4) wherein the AO converted the earlier protective addition made in the hands of the assessee on account of undisclosed investment in the land situated at village Jugalpura, Chitanukalan, Teh. Amer, Jaipur into substantive addition - modification of the original assessment order passed u/s 143(3) r/w section 153A - HELD THAT - A clear acknowledgment by the AO that the assessee was not an applicant before Income Tax Settlement Commission and there was no discussion relating to investment in the land at Jugalpura in the order so passed by the Income Tax Settlement Commission - question of any direction by the Income Tax Settlement Commission and passing of any order by the AO to give effect to non-existent directions doesn t arise at first place and that too, in the hands of the assessee who is not an appellant before the Income Tax Settlement Commission. Therefore, we see no reason but to agree with the ld CIT(A), who after going through the order passed by the AO as well as by Income Tax Settlement Commission, has recorded a finding that the assessee was not an applicant before Income Tax Settlement Commission and there being no direction by the Income Tax Settlement Commission in respect of the assessee by way of modification of the original assessment order passed u/s 143(3) r/w section 153A dated 29.12.2016, the order so passed by the AO purportedly giving effect to the order of ITSC u/s 245D(4) is without jurisdiction. As apparent from the original assessment order passed u/s 143(3) r/w section 153A the department has claimed the undisclosed investment in impugned land purchase in the hands of Indian Medical Trust and substantive addition was thus proposed by the department before the Income Tax Settlement Commission in the hands of Indian Medical Trust. There was thus a proposal to make substantive addition in the hands of Indian Medical Trust, however, in the order so passed by the Income Tax Settlement Commission u/s 245D(4), there was no discussion about any undisclosed investment in aforesaid immoveable property which is apparently suggestive of the fact that such a proposal was not accepted by Income Tax Settlement Commission and as a matter of fact, no addition was made in the hands of M/s Indian Medical Trust on substantive basis. It is case where there was no substantive addition made in the hands of Indian Medical trust at first place and in absence of substantive addition, the AO has proceeded with protective assessment in the hands of the assessee. Secondly, subsequent to completion of original assessment proceedings made on protective basis in hands of the assessee, realizing the fact that no substantive addition has been made in hands of either of two assessees, the AO changed his position and took a suo-moto decision to convert protective addition into substantive addition in the hands of the assessee. It is AO s own independent decision subsequent to completion of original assessment and not something which is directed by the Income Tax Settlement Commission. Once the ld CIT(A) was ceased of the matter, the AO could have brought this up before the ld CIT(A) and sought necessary directions. Where however, the AO still hold the belief to take suo-moto action to convert protective assessment into substantive assessment, he could have invoked his jurisdiction in terms of section 147 on satisfaction of conditions specified therein and in absence of thereof, the present action of the AO cannot be sustained in the eyes of law. CIT(A) has rightly held that once an assessment has been framed by the AO, he becomes functus officio and whenever the AO wishes to modify and/or enhance the assessment, he is required to reassume the jurisdiction under the Act after satisfying the conditions as so contained in section 154 or section 147 - AO can assume jurisdiction so as to give effect to an order or directions so contained in order passed u/s 250/254/263/264 of the Act. In the instant case, the AO has not invoked his jurisdiction under section 154 and section 147 and the order so passed is again not an order to give effect to the directions contained in any order passed u/s 250/254/263/264 of the Act, thus, the action of the AO doesn t have the necessary sanction of the relevant provisions and the order so passed has been rightly set-aside by the ld CIT(A) for want of jurisdiction and requisite sanction under law. Given the fact that the order so passed by the AO whereby protective assessment u/s 153A r/w 143(3) has been converted into substantive assessment alongwith raising the demand notice on the assessee u/s 156 and initiating the recovery proceedings, the order so passed is clearly an order against which the assessee can appeal before the ld CIT(A) u/s 246A which clearly provides that the assessee can appeal against an order where the assessee denies his liability to be assessed under the Act. Therefore, there is no infirmity in the action of ld CIT(A) in assuming jurisdiction u/s 246A in the instant case and passing the impugned order after calling for the remand report from the AO and providing adequate opportunity to both the parties. All the additional grounds of appeal as well as original ground of appeal no. 3 taken by the Revenue are hereby dismissed.
Issues Involved:
1. Validity of the addition of ?3,27,83,846/- as undisclosed investment. 2. Jurisdiction of CIT(A) to adjudicate the appeal against the AO's order dated 15.09.2017. 3. Procedural fairness in providing an opportunity of hearing to the Revenue. 4. Legality of the AO’s action in converting protective addition to substantive addition. Issue-wise Detailed Analysis: 1. Validity of the Addition of ?3,27,83,846/- as Undisclosed Investment: The Revenue's appeal questioned whether the CIT(A) was justified in deleting the addition of ?3,27,83,846/- on the grounds that the assessee had not explained the source of the undisclosed investment in the land. The CIT(A) had deleted this addition, stating that the addition was made without reference to any incriminating material. The Tribunal upheld this decision, noting that the addition was not sustainable as it lacked substantive evidence. 2. Jurisdiction of CIT(A) to Adjudicate the Appeal Against the AO's Order Dated 15.09.2017: The Revenue contended that the CIT(A) exceeded its jurisdiction by adjudicating an order that was not appealable under section 246A of the IT Act, 1961. The Tribunal examined the CIT(A)'s findings and the AO's order, which purportedly gave effect to the Settlement Commission's order. The Tribunal found that the Settlement Commission had not issued any direction to modify the assessee's assessment. Therefore, the AO's order was without jurisdiction. The Tribunal agreed with the CIT(A) that the AO had become functus officio after completing the original assessment and could not modify it without proper jurisdiction. Thus, the CIT(A) was within its rights to adjudicate the appeal. 3. Procedural Fairness in Providing an Opportunity of Hearing to the Revenue: The Revenue argued that the CIT(A) had not provided a proper opportunity for a hearing, violating the principles of natural justice. The Tribunal noted that the CIT(A) had forwarded the additional grounds raised by the assessee to the AO and had called for a remand report, which was duly considered. Therefore, the Tribunal found no merit in the Revenue's claim of procedural unfairness. 4. Legality of the AO’s Action in Converting Protective Addition to Substantive Addition: The Tribunal scrutinized the AO's order dated 15.09.2017, which converted the protective addition into a substantive addition. It was noted that the AO had based this conversion on the fact that the Settlement Commission had not discussed the issue of investment in the land at Jugalpura in its order. The Tribunal found that the AO had no jurisdiction to convert the protective addition into a substantive addition without fresh evidence or direction from the Settlement Commission. The Tribunal upheld the CIT(A)'s decision that the AO's action was beyond his jurisdiction and lacked legal sanction. The Tribunal concluded that the CIT(A) had correctly set aside the AO's order for want of jurisdiction and necessary legal sanction. Consequently, the Revenue's appeal was dismissed, and the assessee's cross-objection was also disposed of in light of these directions. Order Pronounced: The Tribunal pronounced the order on 14/07/2021, dismissing both the Revenue's appeal and the assessee's cross-objection.
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