2023 (11) TMI 1149 - AT - Income Tax

Validity of assessment u/s. 143(3) by change in incumbent but without issuance of order u/s. 127 - Violation of mandatory procedural provision - Assumption of jurisdiction by AO in competing the assessment proceedings u/s. 143(3) - assumption of jurisdiction by the ITO ward 1(4) without issuing any valid notice u/s. 143(2) - whether an order u/s. 127 was issued by the Ld. PCIT in the present case or not to effect the change of incumbent? - HELD THAT - Admittedly, in the present case a notice u/s. 143(2) were issued by ITO ward 1(1) who is not having a valid jurisdiction in the case of assessee, however, subsequently the case was transferred to ITO ward 1(4), who is the jurisdictional AO for the assessee. For change of incumbent no order u/s. 127 was issued by the Ld. PCIT having jurisdiction over such officers and the assessee s case. From the report of the ITO ward 1(1) regarding issuance of order u/s. 127, mentioning that it is not necessary an order u/s. 127 should be passed. Thus, does not mean that the Assessing Officer whether the return of income were earlier filed seized to have jurisdiction, provided the assessee has residence in his area place of business, class, income etc. residence can mean permanent residence as well as current or temporary residence of some permanence , such explanations by the Ld. AO itself proves that no order u/s. 127 was issued by Ld. Principal Commissioner of Income Tax (PCIT). In a case where the assessment proceedings are initiated by an Assessing Officer and the same are later on transferred to another AO then according to section 127(4) an order u/s. 127(1) (2), irrespective of with or without concurrent jurisdiction, has to be issued at any stage of the proceedings, and shall not render necessary the reissue of any notice already issued by the Assessing Officers from whom the case is transferred. Identical issue as been dealt in the case of Shri Bangalore Narayan 2023 (3) TMI 1403 - ITAT BANGALORE as decided the issue of validity of assessment u/s. 143(3) by change in incumbent but without issuance of order u/s. 127, following the guiding principle of law laid down in the case of CIT vs Hotel Blue Moon 2010 (2) TMI 1 - SUPREME COURT wherein it is held that, issue of a legally valid notice u/s. 143(2) is mandatory for usurping jurisdiction to frame scrutiny assessment u/s.143(3) of the Act and absence of a valid notice u/s. 143(2) is not a curable defect. The view taken in the case of Hotel Blue Moon (supra) was reiterated by Hon'ble Supreme Court in another case of CIT vs Laxman Das Khandelwal 2019 (8) TMI 660 - SUPREME COURT Issuance of notice u/s. 143(2) by the non-jurisdictional AO - Also issuance of a notice u/s. 143(2)(a) of the Act by the jurisdictional AO within the prescribed time limit is mandatory, without which the assessment order passed following such proceedings in violation of provisions of section 143(2)(a) is liable to be set aside. See S.K. industries 2017 (5) TMI 1800 - DELHI HIGH COURT Thus assessment proceedings in absence of an order u/s. 127 for change of incumbent embedded with no notice issued u/s. 143(2) by jurisdictional AO, cannot be validated merely because the notice was issued earlier by an AO not having valid jurisdiction over the case of assessee. Violating mandatory procedural provision of the Act, which is prerequisite for framing an assessment u/s. 143(3) rendered the entire assessment proceedings and the assessment order passed u/s. 143(3) of the Act without jurisdiction - Decided in favour of assessee.

Summary

Issues Involved:
1. Validity of Jurisdiction and Notice under Section 143(2)
2. Deletion of Additions under Section 40A(3)
3. Deletion of Additions under Section 68
4. Deletion of Additions for Unexplained Cash Credits

Summary:

1. Validity of Jurisdiction and Notice under Section 143(2):
The assessee raised additional grounds challenging the jurisdiction of the Assessing Officer (AO) who issued the notice under Section 143(2). The return was filed with ITO-1(4), but the notice was issued by ITO-1(1), who lacked lawful jurisdiction. The Tribunal noted that no order under Section 127 for transfer of jurisdiction was issued, rendering the assessment invalid. The Tribunal quashed the assessment order under Section 143(3) due to the absence of a valid notice under Section 143(2) by the jurisdictional AO.

2. Deletion of Additions under Section 40A(3):
The department contested the deletion of an addition of Rs. 1,42,85,000/- made under Section 40A(3) for cash payments towards the purchase of land. The CIT(A) had deleted the addition, but the Tribunal did not address this issue in detail as the assessment was quashed on jurisdictional grounds.

3. Deletion of Additions under Section 68:
The department challenged the deletion of Rs. 1,66,50,000/- out of a total addition of Rs. 1,73,00,000/- made under Section 68 for unexplained cash credits. The CIT(A) had deleted the addition based on an affidavit, but the Tribunal did not delve into this issue due to the quashing of the assessment order.

4. Deletion of Additions for Unexplained Cash Credits:
The department also contested the deletion of Rs. 18,05,000/- credited in the bank account, which was not disclosed in the return or audit report. The Tribunal did not adjudicate this issue as the assessment was quashed on jurisdictional grounds.

Conclusion:
The Tribunal quashed the assessment order under Section 143(3) due to the invalid assumption of jurisdiction by the AO who issued the notice under Section 143(2). Consequently, the other grounds raised by both the assessee and the department became academic and were not adjudicated. The appeal of the assessee was allowed, and the appeal of the revenue was dismissed.