2024 (5) TMI 506 - HC - Income Tax

Non-jurisdictional AO proceeding with the assessment - absence of any order of transfer u/s 127 - whether, in the absence of any decentralization order or transfer order made under Section 127 of the Act, the case of the assessee can be transferred from the board of one AO to another? - HELD THAT - As legislative mandate enshrined under Sections 120, 124 and 127 of the Act and the judicial pronouncements mentioned above, it is clear that Section 124 of the Act deals with the jurisdiction of the assessing officers, whereby, the AO has been vested with the jurisdiction over any person carrying on business or profession over any prescribed territorial limit or where the principal place of business of persons is within such area and any person residing within such prescribed territorial limits. However, in cases where the case was transferred from one AO having jurisdiction over the assessee to another AO who otherwise did not have jurisdiction in terms of the direction of the Board under Section 120 and 124 of the Act, then transfer order under Section 127 is mandatory, without which the jurisdiction of the AO cannot be conferred to pass any assessment order. It is imperative to point out that the underlying objective of such a statutory procedure is to avoid chaos and to ease the administrative convenience on the part of the Revenue for coordinated investigation. The word case includes the umbrella or class of all cases related to the assessee, wherein, the order has been passed under Sections 120 and 127 of the Act. Section 127 of the Act is a machinery provision and it must be construed in a manner to finally effectuate a charging section and for the purpose of effective collection of tax. Considering the case in hand, vide order of centralization dated 16.07.2008, the case of the assessee was transferred from the jurisdictional AO to the DCIT, Central Circle-16, New Delhi. It be noted that since AY 2008-09 to AY 2015-16, the assessee was being assessed by the office of DCIT, Central Circle-16/20, New Delhi. Furthermore, as the record would reflect that the case of the assessee was transferred to ITO Ward 21(1), New Delhi without any transfer order passed under Section 127 of the Act, which is a pre-requisite before transferring the case. As noted that till date no decentralization order has been placed before us which may evidence a legitimate transfer of the assessee s case from DCIT, Central Circle-16/20, New Delhi to ITO Ward 21(1), New Delhi. Furthermore, we find no merit in the contention of the Revenue that by virtue of an order dated 15.11.2014 passed under Section 120 of the Act under the pen of ACIT read with CBDT notification dated 22.10.2014, the office of ITO Ward 21(1), New Delhi has inherent jurisdiction over the assessee. Such a position if accepted would lead to confusion and chaos as it would lead to a position where at one point, one or more assessing officers not only will have jurisdiction over the assessee but also can proceed with the assessment proceedings simultaneously. Such a situation cannot be countenanced in the law. Once the case of the assessee is centralized, then the transfer of the case of the assessee to another AO would not be permissible without a decentralization order or transfer order under Section 127 of the Act as contrary to such a position dehors the underlying objective which the Act seeks to achieve by virtue of powers enshrined under Section 127 of the Act. We accordingly set aside the impugned orders Writ petition is allowed.

Summary

Issues Involved:
1. Jurisdiction of the Assessing Officer (AO) in absence of a transfer order u/s 127 of the Income Tax Act.
2. Validity of assessment orders passed by a non-jurisdictional AO.
3. Applicability of CBDT notifications and orders u/s 120 of the Income Tax Act.

Summary:

1. Jurisdiction of the Assessing Officer (AO) in absence of a transfer order u/s 127 of the Income Tax Act:
The principal issue is whether, in the absence of any order of transfer u/s 127 of the Act, the non-jurisdictional AO can proceed with the assessment. The assessee, a private limited company, had been assessed by Central Circle-16/20, New Delhi since AY 2008-09. However, for AY 2015-16, the ITO Ward 21(1), New Delhi issued a notice u/s 143(2) and subsequently passed an assessment order adding INR 1,35,11,59,300 to the assessee's income. The assessee challenged the jurisdiction of ITO Ward 21(1), claiming no valid transfer order u/s 127 was passed.

2. Validity of assessment orders passed by a non-jurisdictional AO:
The assessee appealed to CIT(A) and ITAT, both of which addressed the jurisdiction issue. ITAT remanded the matter to the AO to ascertain the existence of a transfer order u/s 127. Subsequent proceedings confirmed a transfer order was allegedly issued but not traceable. The High Court scrutinized the legislative mandate of Section 127, emphasizing that transfer orders must be based on public interest and administrative convenience. The court noted that without a valid transfer order, the jurisdiction of the AO cannot be conferred to pass any assessment order.

3. Applicability of CBDT notifications and orders u/s 120 of the Income Tax Act:
The Revenue contended that CBDT notifications dated 22.10.2014 and 15.11.2014 conferred inherent jurisdiction to ITO Ward 21(1) over the assessee. However, the court held that such notifications cannot override the legislative mandate of Section 127, which requires a transfer order for jurisdictional changes. The court highlighted the necessity of a decentralization order or transfer order u/s 127 to avoid chaos and ensure administrative convenience.

Conclusion:
The High Court set aside the impugned assessment orders dated 31.12.2017 and 30.09.2021 on the ground of jurisdictional error, as no valid transfer order u/s 127 was produced. Consequently, the ITAT order dated 09.08.2019 was also set aside. The court clarified that the Revenue could take fresh steps through jurisdictional authorities if permissible by law.