2021 (8) TMI 289 - AT - Income Tax

Jurisdiction of AO to complete the assessment u/s 143(3) - Validity of the assessment passed u/s 143(3) due to lack of jurisdiction of AO - absence of the jurisdiction from JCIT to Income Tax Officer, Ward 1(2), Allahabad - Whether order passed under section 127 for transferring by the Assessing Officer is invalid because no power is vested with the JCIT to transfer the case? - HELD THAT - It is pertinent to note that the issue regarding the jurisdiction of the Assessing Officer was undisputedly not raised by the assessee either before the AO before the completion of the assessment or even before the CIT(A). It is also a matter of record that the assessee has not raised this issue in the Form No. 36 or even as an additional ground in writing. However, since the issue is purely legal in nature and goes to the root of the matter, therefore, the legal issue raised by the assessee first time before the Tribunal cannot be rejected on technical ground. Since the assessee has raised this issue first time before the Tribunal and that too in course of argument without prior leave of the Bench in writing therefore, having regard to the facts and circumstances and in the interest of justice, the assessee is allowed to raise this issue before the CIT(A) so that a view of the first appellate authority would be available based on the relevant facts on record- Appeal of the assessee is allowed for statistical purposes.

Issues involved:
1. Disallowance of interest payment
2. Disallowance of commission expenditure
3. Denial of right to cross-examine witnesses
4. Justification of commission payment
5. Arbitrariness in assessment
6. Violation of principles of natural justice
7. Jurisdictional issue regarding assessment authority

Detailed Analysis:
1. The appellant contested the disallowance of interest payment amounting to ?3,77,803 by the CIT(A). The appellant argued that notional disallowance of interest is impermissible under law, especially when the assessee had free reserves and a substantial part of the loan/advance was not utilized during the relevant year. The appellant claimed that there was no consent for withdrawal of a ground of appeal, suggesting inducement by the CIT(A). The appellant emphasized that un-confronted statements/material lack evidentiary value, citing the case of Andaman Timbers. The appellant sought relief from the disallowance based on these arguments.

2. The appellant challenged the disallowance of commission expenditure of ?14,58,107 for procuring sales from different customers. The appellant argued that the disallowance was illegal and contrary to the facts, as the commission payment was made to unrelated persons, resulted in increased sales, and proper TDS was deducted. The appellant highlighted that similar commission payments were accepted in the case of the assessee's son, indicating a flawed approach by the CIT(A) in disallowing the expenditure. The appellant requested the deletion of the disallowance based on these grounds.

3. The appellant raised an issue regarding the denial of the right to cross-examine evidence and witnesses, contending that the authorities illegally relied on un-confronted statements of irrelevant persons. The appellant argued that such evidence lacks evidentiary value and violates the principle established in the Andaman Timbers case. The appellant emphasized the importance of confronting evidence to the assessee before drawing adverse inferences, seeking relief based on these legal principles.

4. The appellant disputed the justification of commission payments, arguing that payments were made to unrelated persons, were not excessive or unreasonable, and led to increased sales. The appellant highlighted that commission agents were not interrogated or examined, and the business model was validated by accepted payments to some agents. The appellant compared the situation to multi-level marketing companies where purchasers may not be aware of commission agents, seeking to justify the commission payments and requesting the quashing of the assessment based on these arguments.

5. The appellant challenged the assessment as arbitrary, based on conjectures and surmises, seeking to have it quashed. The appellant argued that the assessment lacked a proper basis and was not supported by concrete evidence, emphasizing the need for a fair and reasoned assessment based on facts.

6. The appellant contended that the principles of natural justice were violated as no proper opportunity for a hearing was provided before passing the impugned order. The appellant argued that the right to a fair hearing was essential in the assessment process, and the violation of natural justice rendered the order invalid. The appellant requested the quashing of the order based on the violation of these principles.

7. The jurisdictional issue arose regarding the authority of the Assessing Officer to complete the assessment under section 143(3). The appellant argued that the transfer of jurisdiction from the Income Tax Officer to the JCIT and back to the Income Tax Officer was invalid, as no further order was passed under section 127 of the Income Tax Act. The appellant relied on legal precedents to support the contention that the Assessing Officer lacked jurisdiction to frame the assessment. The Tribunal allowed the appellant to raise this issue before the CIT(A) for adjudication, setting aside the issue for further consideration based on the legal points raised by both parties. The appeal was allowed for statistical purposes pending the resolution of the jurisdictional issue.

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