2017 (12) TMI 110 - AT - Income Tax

Transfer of case u/s 127 - reason for transferring the entity was not mentioned in the order - deemed service of notice u/s 148 - Held that - The order dated March 24, 2009 passed by the learned Commissioner of Income-tax Gwalior under section 127 of the Act, the entity centralised with the Assistant Commissioner of Income-tax (Central Circle) is M/s. Welcome Coir Industries with permanent account number which pertains to a firm and it was earlier getting assessed with Income-tax Officer 2(2), Gwalior, while the assessee, M/s. Welcome Coir Industries Ltd. is a company having a different permanent account number. Also, in this order, nothing has been discussed as to whether before passing of this order, any reasonable opportunity of being heard was ever given to the concerned entity or not and as per the information collected by the Commissioner of Income-tax (Appeals) from the office of the learned Commissioner of Income-tax, Gwalior, it has been found that the order under section 127 of the Act was passed just on the basis of the approval granted by the Chief Commissioner of Income-tax, Bhopal and no opportunity of being heard was given to the assessee before passing of this order. It has also been found that the reason for transferring the case under section 127 of the Act was not mentioned in the order. Further, and importantly, even if the order under section 127 dated March 24, 2009 is considered to be existing even today, as not having been challenged in a court under appropriate proceedings, the Assessing Officer cannot assume jurisdiction on the assessee, M/s. Welcome Coir Industries Ltd. on the strength of this order, because the entity centralised with the Deputy Commissioner of Income-tax/Assistant Commissioner of Income-tax (CC) on the basis of this order is M/s. Welcome Coir Industries, the firm and not M/s. Welcome Coir Industries Ltd., the company, as even admitted by the Assessing Officer in his letter dated April 30, 2012 written to the Joint Commissioner of Income-tax, Central Range, Kanpur. Deemed service of notice under section 292BB does not deal with, nor would cure such jurisdictional defect, i.e., the absence of jurisdiction. As discussed by the learned Commissioner of Income-tax (Appeals) in paragraph 12.10 of his order, the Assessing Officer claims jurisdiction by virtue of the order dated March 24, 2009 passed under section 127 of the Act, i.e., by way of transfer of jurisdiction. However, the said order has been found to be void ab initio, as the case of the assessee was not centralised thereunder. Thus, the Assessing Officer never acquired jurisdiction over the assessee. Therefore, section 292BB of the Act does not come to the aid of the Department. Compliances would not bestow jurisdiction on the Assessing Officer, once such jurisdiction never lay with the Assessing Officer to begin with. Acquiance neither confers, nor takes away jurisdiction is the applicable legal maxim here. Accordingly, this grievance of the Department is rejected as sans merit.

Summary

Issues Involved:
1. Validity of the jurisdiction of the Assessing Officer (AO).
2. Application of Section 292B of the Income-tax Act.
3. Application of Section 292BB of the Income-tax Act.
4. Addition of deemed interest on advances.

Detailed Analysis:

1. Validity of the jurisdiction of the Assessing Officer (AO):

The core issue in these appeals was the jurisdiction of the AO. The case was centralized under section 127 of the Income-tax Act, 1961, by the Commissioner of Income-tax, Gwalior, to the Deputy Commissioner of Income-tax/Assistant Commissioner of Income-tax, Central Circle, Agra. However, it was found that the centralization order was in respect of a firm named "M/s. Welcome Coir Industries" and not the assessee-company "M/s. Welcome Coir Industries Ltd." The Commissioner of Income-tax (Appeals) observed that the order under section 127 did not confer jurisdiction over the assessee-company to the AO, as the particulars of the assessee including its name, status, address, and permanent account number were incorrectly mentioned. The AO's assumption of jurisdiction was thus invalid, rendering the reassessment proceedings ab initio void.

2. Application of Section 292B of the Income-tax Act:

The Department argued that the Commissioner of Income-tax (Appeals) erred in annulling the assessment order based on jurisdictional defects, citing Section 292B of the Act. However, the Commissioner of Income-tax (Appeals) relied on the precedent set by CIT v. Norton Motors [2005] 275 ITR 595 (P&H), which held that Section 292B cannot cure jurisdictional defects. The section can only address procedural errors, not substantive jurisdictional issues. The Commissioner of Income-tax (Appeals) correctly concluded that the defects in the centralization order were jurisdictional and not curable under Section 292B.

3. Application of Section 292BB of the Income-tax Act:

For the assessment year 2008-09, the Department contended that the Commissioner of Income-tax (Appeals) overlooked Section 292BB, which deems a notice valid if the assessee appears and makes compliance. However, since the AO lacked jurisdiction over the assessee, the service of notice by such AO was invalid. Section 292BB does not cure jurisdictional defects, and compliance by the assessee does not bestow jurisdiction on the AO. The Commissioner of Income-tax (Appeals) rightly rejected this argument, emphasizing that jurisdiction must be conferred by statute or authorized authorities, not by acquiescence.

4. Addition of deemed interest on advances:

The AO had added ?40,41,140 as deemed interest on advances, arguing that the assessee did not show any interest from advances of ?5,05,51,750. The Commissioner of Income-tax (Appeals) found no evidence that such interest was either charged or received by the assessee. The advances were shown in the books of group companies as share capital, not loans. The AO failed to provide evidence of interest being charged or received. Consequently, the Commissioner of Income-tax (Appeals) deleted the addition, and this decision was upheld as the assessment order was annulled due to jurisdictional issues, rendering further adjudication unnecessary.

Conclusion:

The appeals were dismissed, and the jurisdictional defect was upheld as the primary reason for annulling the assessment orders. The Commissioner of Income-tax (Appeals)'s detailed and reasoned order was confirmed, rejecting the Department's grievances. The order pronounced on October 16, 2017, concluded that the AO's lack of jurisdiction invalidated the reassessment proceedings, and the additions made were not sustainable.