2025 (2) TMI 936 - AT - Income Tax

Reopening of assessment - assessee has challenged the notice u/s 148 on the ground of jurisdiction - notice under section 148 of the IT Act which has been issued by ACIT Circle-1 Jaipur is without jurisdiction HELD THAT - By virtue of section 124 of the IT Act 1961 it comes under the territorial jurisdiction of ITO Ward 70(3) Delhi therefore the jurisdiction of the case of the assessee lies with ITO Ward 70(3) Delhi. In support of his contention he has relied on the order of Jeeri Keerthana Reddy 2024 (1) TMI 1380 - ITAT MUMBAI A/R has also submitted that in the instant case the Income-tax Department did not exercise powers as conferred under section 120 or section 127 of the IT Act 1961 therefore the notice and the subsequent proceedings needs to be quashed. A/R has demonstrated with adequate evidence to prove that the jurisdiction over the case of the assessee lies with ITO Ward 70(3) Delhi whereas notice under section 148 has been issued by ACIT Circle-1 Jaipur which is not correct in terms of the Income Tax Act. We find force in the contention of the ld. A/R. Therefore notice under section 148 and consequent proceedings undertaken on the strength of such illegal notice are quashed. Appeal of the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment are as follows:

(a) Whether the initiation and completion of the assessment proceedings under sections 147/148 of the Income Tax Act, 1961, were illegal and without jurisdiction due to a lack of territorial jurisdiction.

(b) Whether the assessment proceedings violated the principles of natural justice by not providing the assessee a fair opportunity to be heard.

(c) Whether the addition of Rs. 8,94,545/- on account of professional or technical services was justified.

(d) Whether the interest charged under sections 234A, 234B, and 234C of the Act was correct.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Jurisdiction of Assessment Proceedings

- Relevant Legal Framework and Precedents: The jurisdiction of income tax authorities is governed by sections 120 and 124 of the Income Tax Act, 1961. Section 124 specifies that the jurisdiction is based on the location of the assessee's residence or principal place of business. Precedents such as Jeeri Keerthana Reddy v. ITO and Bidi Supply Co. v. Union of India emphasize the importance of correct jurisdiction.

- Court's Interpretation and Reasoning: The Tribunal found that the jurisdiction for the assessee's case lay with the Income Tax Officer (ITO) Ward 70(3), Delhi, as the assessee had been residing and conducting business in Delhi. The assessment was incorrectly conducted by ACIT Circle-1, Jaipur, without exercising powers under sections 120 or 127 to transfer jurisdiction.

- Key Evidence and Findings: The assessee provided evidence of residing in Delhi, including ITR acknowledgments and bank statements showing the Delhi address.

- Application of Law to Facts: The Tribunal applied sections 120 and 124, concluding that the assessment proceedings were conducted without proper jurisdiction, rendering them void.

- Treatment of Competing Arguments: The Tribunal considered the Department's reliance on a Supreme Court judgment but found the jurisdictional error overriding.

- Conclusions: The Tribunal quashed the notice under section 148 and the subsequent proceedings due to lack of jurisdiction.

Issue (b): Violation of Natural Justice

- Relevant Legal Framework and Precedents: The principles of natural justice require that an assessee be given a fair opportunity to be heard. Precedents like Andaman Timber Industries v. Commissioner of Central Excise highlight the necessity of cross-examination rights.

- Court's Interpretation and Reasoning: The Tribunal noted that the assessment was based on third-party information without providing the assessee an opportunity to cross-examine or respond, violating natural justice principles.

- Key Evidence and Findings: The assessment relied on AIR information without further inquiry or verification.

- Application of Law to Facts: The Tribunal found that the lack of opportunity to address the evidence used against the assessee invalidated the assessment proceedings.

- Treatment of Competing Arguments: The Tribunal acknowledged the Department's contentions but prioritized the principles of natural justice.

- Conclusions: The violation of natural justice principles contributed to the quashing of the proceedings.

Issue (c): Addition of Rs. 8,94,545/-

- Relevant Legal Framework and Precedents: The addition was based on unexplained professional receipts and AIR information, requiring proper inquiry and verification.

- Court's Interpretation and Reasoning: The Tribunal found that the addition was made without adequate inquiry or evidence, relying solely on AIR data.

- Key Evidence and Findings: The assessee's declared income and TDS records contradicted the unexplained addition.

- Application of Law to Facts: The Tribunal deemed the addition unjustified due to lack of evidence and inquiry.

- Treatment of Competing Arguments: The Tribunal dismissed the Department's reliance on AIR data without further investigation.

- Conclusions: The addition was not upheld due to insufficient basis.

Issue (d): Interest Charged under Sections 234A, 234B, and 234C

- Relevant Legal Framework and Precedents: These sections pertain to interest for defaults in filing returns and payment of advance tax.

- Court's Interpretation and Reasoning: The Tribunal did not specifically address this issue, as the proceedings were quashed on jurisdictional grounds.

- Key Evidence and Findings: Not applicable due to the quashing of proceedings.

- Application of Law to Facts: The interest issue was rendered moot by the quashing of the assessment.

- Treatment of Competing Arguments: Not applicable.

- Conclusions: The interest charges were not adjudicated due to the primary jurisdictional finding.

3. SIGNIFICANT HOLDINGS

- The Tribunal emphasized the necessity of proper jurisdiction for assessment proceedings, establishing that assessments conducted without jurisdiction are void.

- The principles of natural justice, including the right to a fair hearing and cross-examination, were reinforced as fundamental to valid assessment proceedings.

- The Tribunal highlighted that reliance on AIR information without further inquiry or evidence does not justify additions to income.

- The final determination was to quash the notice under section 148 and all subsequent proceedings due to lack of jurisdiction and violation of natural justice.