2024 (9) TMI 953 - AT - Income Tax

Validity of assessment order passed u/s. 147 r.w.s. 144C(13) - residential status of assessee - Eligible assessee as per section 144C(15)(ii) - jurisdiction of the AO for issuing notice - Jurisdictional error in treating the appellant as a non-resident - HELD THAT - It is well settled that the law applicable for the relevant AY should be seen. The assessee is not an eligible assessee as per section 144C(15). See SHREE CHOUDHARY TRANSPORT COMPANY VERSUS INCOME TAX OFFICER 2020 (8) TMI 23 - SUPREME COURT In income tax matters, the law to be applied is the law in force for the relevant assessment year, unless otherwise stated or implied. Here in the case on hand, for the impugned assessment year, the assessee was resident. However, the revenue authorities have considered the residential status as Non- Resident of the assessee on the date of issue of notice u/s. 148 which is not correct. Accordingly, assessee is not eligible assessee as per section 144C(15)(ii) of the Act for the impugned assessment year being a resident. Assessee appeal allowed.

Issues Involved:
1. Validity of directions and order by the Dispute Resolution Panel (DRP) and Assessing Officer (AO).
2. Jurisdictional error in treating the appellant as a non-resident.
3. Jurisdiction of AO to assess the appellant.
4. Legality of proceedings initiated under sections 147 and 148.
5. Denial of exemption under section 10(35) for tax-free dividend from mutual funds.
6. Tax treatment of the amount considered as a return of capital.
7. Denial of the benefit of carrying forward short-term capital loss under section 111A.
8. Reliance on a survey report without furnishing it to the appellant.

Detailed Analysis:

1. Validity of Directions and Order by the DRP and AO:
The appellant argued that the directions of the DRP and the order of the AO were bad in law, lacking jurisdiction, violative of the principles of natural justice, and non-speaking. The tribunal noted that the AO had issued notice under section 148 based on information regarding escapement of income, which emerged after the completion of scrutiny assessment. The tribunal found that the entire proceedings were initiated and conducted on the premise that the appellant was a non-resident, which was incorrect.

2. Jurisdictional Error in Treating the Appellant as a Non-Resident:
The appellant contended that the DRP and AO erred in treating him as a non-resident. The tribunal observed that during the relevant assessment year (AY 2016-17), the appellant was a resident in India. The DRP had wrongly considered the residential status of the appellant on the date of issuing the notice under section 148, which was incorrect. The tribunal emphasized that the law applicable for the relevant assessment year should be considered, not the law on the date of issuing the notice.

3. Jurisdiction of AO to Assess the Appellant:
The appellant argued that the AO had no jurisdiction to assess him as he was a resident during the relevant assessment year. The tribunal agreed, noting that the AO (International Taxation) wrongly assumed jurisdiction based on the appellant's non-resident status at the time of reopening the case. The tribunal cited the Supreme Court judgment in Shree Choudhary Transport Company v. ITO, which clarified that the law applicable for the relevant assessment year should be applied.

4. Legality of Proceedings Initiated Under Sections 147 and 148:
The appellant claimed that the initiation of proceedings under sections 147 and 148 was bad in law. The tribunal found that the AO had issued notice under section 148 based on information regarding escapement of income. However, since the appellant was a resident during the relevant assessment year, the notice issued by the AO (International Taxation) was invalid due to lack of jurisdiction.

5. Denial of Exemption Under Section 10(35) for Tax-Free Dividend from Mutual Funds:
The appellant contended that the AO erred in denying exemption under section 10(35) for tax-free dividend from mutual funds. The tribunal noted that the AO had added back Rs. 1,36,96,832 as dividend income under the head "income from other sources," considering it as not a true dividend income. However, since the proceedings were quashed due to jurisdictional errors, this issue was not further examined.

6. Tax Treatment of the Amount Considered as a Return of Capital:
The appellant argued that the amount considered as a return of capital should not have been taxed as income from other sources. The tribunal did not delve into the merits of this issue as the proceedings were quashed on jurisdictional grounds.

7. Denial of the Benefit of Carrying Forward Short-Term Capital Loss Under Section 111A:
The appellant contended that the AO erred in denying the benefit of carrying forward short-term capital loss under section 111A. This issue was not further examined as the tribunal quashed the proceedings due to jurisdictional errors.

8. Reliance on a Survey Report Without Furnishing It to the Appellant:
The appellant argued that the addition of Rs. 1,36,96,832 was based on a survey report of another entity, which was not furnished to him, violating the principles of natural justice. The tribunal did not address this issue in detail as the proceedings were quashed on jurisdictional grounds.

Conclusion:
The tribunal concluded that the entire proceedings were invalid due to jurisdictional errors, as the appellant was a resident during the relevant assessment year. The tribunal quashed the proceedings and allowed the appeal. The tribunal emphasized that the law applicable for the relevant assessment year should be applied, as clarified by the Supreme Court in Shree Choudhary Transport Company v. ITO. Consequently, the tribunal did not delve into the merits of the case. The appeal was allowed, and the proceedings were quashed.

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