2025 (3) TMI 287 - AT - Income Tax

Validity of the jurisdiction - Validity of assessment made u/s 143(3) by ITO-4(1) Raipur in absence of order u/s 127 - whether or not the assessment order passed by the ITO-4(1) Raipur u/s. 143(3) dated 31.03.2015 can be sustained in absence of any order of transfer u/s. 127 of the Act passed by the Pr. CIT Kolkata? - HELD THAT - We are of a firm conviction that in terms of Section 120 pursuant to a CBDT direction it though might have been possible for the CIT Kolkata-2 Kolkata to have authorized vesting the exercise of powers and performance of functions of one Income- tax authority subordinate to him to another Income-tax authority subordinate to him but are afraid that there was no power vested with him u/s. 120 of the Act to have transferred the jurisdiction to an A.O who was not sub-ordinate to him. Accordingly we are of the view that the claim of DR which in turn is based on the order sheet noting dated 08.09.2014that the case of the assessee company had been transferred to ITO-1(1) Raipur from ITO-4(1) Kolkata pursuant to the order passed u/s.120 dated 08.08.2014 of the CIT Kolkata- 2 Kolkata cannot be accepted and thus fails. Whether transfer of the case of the assessee company from ITO-4(1) Kolkata to ITO-1(1) Raipur i.e. inter se the A.O s who were not sub-ordinate to the same CIT could have been carried out without passing an order as required under sub-section (2) of Section 127 of the Act.? - As the assessee company had not called in question the jurisdiction assumed by the A.O based on viz. (i) territorial area; (ii) persons or classes of persons; (iii) income or classes of income; or (iv) cases or classes of cases but had rather assailed the validity of the assessment order passed by the ITO-4(1) Raipur in absence of an order of transfer that was statutorily required to have been passed by the CIT-2 Kolkata u/s. 127 of the Act therefore it would not be circumscribed by the restriction contemplated under sub-section (3) of Section 124 of the Act. Accordingly we are of a firm conviction that the judgment of Kalinga Institute of Industrial Technology 2019 (3) TMI 1996 - ORISSA HIGH COURT is distinguishable qua the issue involved in the present case of the assessee company before us. Thus in absence of any order of transfer passed by the CIT Kolkata-2 Kolkata u/s.127(2) of the Act which was the very foundation for transferring the case of the assessee company from ITO-4(1) Kolkata to ITO-1(1) Raipur and finally to ITO-4(1) Raipur the latter had invalidly assumed jurisdiction and framed the assessment vide his order u/s.143(3) of the Act dated 31.03.2015. Accordingly the assessment framed by the ITO-4(1) Raipur vide his order passed u/s.143(3) of the Act dated 31.03.2015 in absence of an order of transfer u/s.127 of the Act having been passed by the CIT Kolkata is quashed for want of valid assumption of jurisdiction. Assessment order quashed for want of valid assumption of jurisdiction by the ITO-4(1) Raipur i.e. in absence of an order of transfer u/s. 127 of the Act. Decided against revenue.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

• Whether the Commissioner of Income-Tax (Appeals) was justified in deleting the addition of Rs. 2,25,00,000 made by the Assessing Officer (AO) under Section 68 of the Income-tax Act, 1961.
• Whether the transfer of the case from the jurisdiction of ITO-4(1), Kolkata to ITO-1(1), Raipur was valid in the absence of an order under Section 127 of the Act.
• Whether the assessment order passed by ITO-4(1), Raipur is sustainable in the absence of a valid transfer order under Section 127 of the Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Deletion of Addition under Section 68

• Relevant legal framework and precedents: Section 68 of the Income-tax Act requires the assessee to prove the identity, creditworthiness, and genuineness of transactions involving cash credits. Precedents such as CIT Vs. Lovely Exports (P) Ltd. and other High Court rulings emphasize the onus on the assessee to substantiate these elements.
• Court's interpretation and reasoning: The Tribunal considered the CIT(A)'s findings that the assessee had provided sufficient documentary evidence to establish the identity, creditworthiness, and genuineness of the share applicants. The CIT(A) had relied on various judicial pronouncements to support the deletion of the addition.
• Key evidence and findings: The assessee had submitted details such as share application forms, income tax returns, balance sheets, and bank statements of the investor companies. The CIT(A) found these submissions sufficient to discharge the onus under Section 68.
• Application of law to facts: The Tribunal upheld the CIT(A)'s decision, noting that the AO had not effectively countered the evidence provided by the assessee.
• Treatment of competing arguments: The Tribunal dismissed the revenue's arguments, which relied on the AO's findings and the lack of direct verification of the share applicants.
• Conclusions: The Tribunal concluded that the CIT(A) was justified in deleting the addition as the assessee had discharged its burden of proof under Section 68.

Issue 2: Validity of Transfer under Section 127

• Relevant legal framework and precedents: Section 127 of the Income-tax Act governs the transfer of cases between jurisdictions. It requires an order of transfer to be passed, especially when the transfer is between officers not subordinate to the same Commissioner.
• Court's interpretation and reasoning: The Tribunal found that no order under Section 127 was passed for transferring the case from ITO-4(1), Kolkata to ITO-1(1), Raipur. The Tribunal emphasized the necessity of such an order for valid jurisdiction.
• Key evidence and findings: Correspondence between departmental officers revealed the absence of an order under Section 127. The Tribunal also noted the lack of any opportunity of being heard provided to the assessee regarding the transfer.
• Application of law to facts: The Tribunal applied the statutory requirements of Section 127 and judicial precedents to conclude that the transfer was invalid without the requisite order.
• Treatment of competing arguments: The Tribunal rejected the revenue's argument that the assessee's failure to object to jurisdiction under Section 124(3) precluded it from challenging the transfer, citing the distinction between territorial jurisdiction and jurisdictional validity.
• Conclusions: The Tribunal concluded that the assessment order was invalid due to the lack of a valid transfer order under Section 127.

3. SIGNIFICANT HOLDINGS

• The Tribunal held that the deletion of the addition under Section 68 by the CIT(A) was justified as the assessee had discharged its burden of proof.
• The Tribunal emphasized that a transfer of jurisdiction under Section 127 requires a formal order, especially when the transfer is between officers not subordinate to the same Commissioner.
• The Tribunal quashed the assessment order passed by ITO-4(1), Raipur due to the absence of a valid transfer order under Section 127, rendering the jurisdiction assumed by the AO invalid.
• The Tribunal clarified that objections to jurisdiction under Section 124(3) pertain to territorial jurisdiction and do not preclude challenges to jurisdictional validity under Section 127.
• The Tribunal dismissed the appeal filed by the revenue, affirming the CIT(A)'s decision and quashing the assessment order for lack of jurisdiction.