* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ ITA Nos. 255/2002, 256/2002, 257/2002, 1577/2006, 314/2002
315/2002, 316/2002, 1578/2006, 1580/2006
Reserved on: 27th November, 2013
% Date of Decision: 14th March, 2014
COMMISSIONER OF INCOME TAX DELHI-XVI....Appellant
Through Mr. AmolSinha, Sr. Standing Counsel &
Mr. Anshum Jain, Rahul Kochar, Advs.
Versus
S.S. AHLUWALIA ..... Respondent
Through Mr. S. Krishnan, Advocate.
WTA Nos. 13/2006, 14/2006, 15/2006, 16/2006, 18/2006
COMMISSIONER OF WEALTH TAX ..... Appellant
Through Mr. AmolSinha, Sr. Standing Counsel &
Mr. Anshum Jain, Rahul Kochar, Advs.
versus
S.S. AHLUWALIA ..... Respondent
Through Mr. S. Krishnan, Advocate.
CORAM:
HON'BLE MR. JUSTICE SANJIV KHANNA
HON'BLE MR. JUSTICE SANJEEV SACHDEVA
SANJIV KHANNA, J.
ITA Nos. 255/2002, 256/2002, 257/2002, 1577/2006, 315/2002,
1578/2006, 316/2002, 1580/2006, 314/2002
The respondent assessee is an IAS Officer of Nagaland cadre,
who was compulsorily retired in January, 1993. During the period
1971-72 to 1978-79, the respondent had filed income tax returns at
ITA 255/2002 + connected Page 1 of 61
Dimapur, Nagaland as he was posted and working there. In July 1978,
he was posted to Delhi on deputation in the Ministry of Home Affairs,
a position which he continued to hold till 1984. Income tax returns for
the assessment years 1980-81 to 1983-84 were filed at Delhi with the
Income Tax Officer, Salary Circle.
2. As per the respondent assessee, return for the assessment year
1984-85 was filed by the respondent at Dimapur, Nagaland on or about
8th August, 1985. The return was not taken up for scrutiny assessment
but was processed on 31st March, 1987 under Section 143(1) of the
Act.
3. The respondent assessee was subjected to search by the Central
Bureau of Investigation on 27th March, 1987. It is the case of the
Revenue that the assessee had acquired 18 commercial properties in
Delhi, 370 acres agricultural land in and around Delhi and had
substantial unaccounted/undisclosed deposits in form of Fixed Deposit
Receipts. These assets/properties were in names of the respondent and
his family members.
4. The Assessing Officer at Delhi i.e. Assistant Commissioner of
Income Tax (Investigation), Circle 8(1) (hereinafter referred to as the
AO, Delhi) issued notice under Section 148 of the Act dated 26 th June,
1987 in respect of assessment years 1984-85, 1985-86, 1986-87 and
1987-88. Commissioner of Income Tax, Delhi by order dated 10th
November, 1987 transferred the case of the respondent assessee from
Income Tax Officer, Salary Circle to AO, Delhi i.e. Assistant
Commissioner of Income Tax (Investigation). Proceedings in respect
of assessment year 1988-89 were taken up for scrutiny assessment by
issue of notice under Section 143(2) of the Act. It appears that
ITA 255/2002 + connected Page 2 of 61
proceedings for the assessment year 1984-85 under Section 148 of the
Act were dropped. We are not concerned with the said proceedings in
the present appeals. We are also not concerned with the proceedings
in respect of 1988-89 in the present income tax appeals as these
appeals relate to assessment years 1985-86, 1986-87 and 1987-88.
Appeals, ITA No. 89/2003 and ITA No. 1579/2006 relating to
assessment year 1988-89 were disposed of vide orders dated 7th April,
2011 and 24th July, 2011, due to low tax effect.
5. The respondent assessee did not file returns pursuant to the
above notices for the assessment years 1985-86, 1986-87 and 1987-88
under Section 148 of the Act. Subsequently, the assessing officer
issued notice under Section 142(1) on 22nd March, 1988 and thereafter
vide letter dated 25th March, 1988, the respondent assessee raised
objection to the jurisdiction of the AO, Delhi. It was, inter alia, stated
that the respondent was employed with the Government of Nagaland
and was regularly assessed by the ITO, A Ward, Dimapur for the last
many years.
6. In respect of assessment year 1985-86, the AO, Delhi passed the
assessment order dated 27th March, 1990 and for assessment years
1986-87 and 1987-88, assessment orders were passed on 28th March,
1990. A few days before the assessment orders were passed, ITO,
Dimapur had written letter dated 15th March, 1990 enclosing therewith
income tax assessment records in two parts as directed by the AO,
Delhi. Copy of the said letter was marked to Commissioner of Income
Tax (Investigation) as well as Commissioner of Income Tax, North
Eastern Region, Shillong and other authorities. This was followed by
another letter dated 20th September, 1990 written by the ITO, Dimapur
ITA 255/2002 + connected Page 3 of 61
to the AO, Delhi enclosing therewith return for the assessment year
1990-91.
7. These two letters dated 15th March, 1990 and 20th September,
1990 written by the ITO, Dimapur were made subject matter of
challenge before the Gauhati High Court in a writ petition filed in
February, 1991. On an interim application, the income tax proceedings
for assessment years 1975-76, 1976-77 and 1988-89 in respect of
which notice dated 27th September, 1990 was issued by the AO, Delhi
were stayed till further orders. The prayers made in the writ petition
read as under:
In the premises aforesaid, it is prayed that your
Lordships may graciously be pleased to issue Rule, call
for the records directing the Respondents to show cause
as to why an appropriate Writ shall not be issued
declaring the impugned Orders dated 15.03.1990 and
dated 20.09.1990 (Annexure A and B) and any orders
passed by the Respondent No. 5 under given assessment
jurisdiction and as illegal, unconstitutional and void ab
initio and/or why a Writ in the nature of
Mandamus/Certiorari/Prohibition and/or any other
appropriate Writ shall not be issued quashing the
aforesaid impugned Orders dated 15.03.1990 and
20.09.1990 and any orders passed by the Respondent No.
5 under given assessment jurisdiction and prohibiting the
Respondent No. 5 from proceeding further in the matter
or exercising any jurisdiction in the matter of Income Tax
not vested in him in respect of the Petitioner and on cause
or causes being shown and upon hearing the parties, be
pleased to make the Rule absolute and/or pass any other
Order or further orders as your Lordships may deem fit
and proper.
Pending disposal of the Rule be further pleased to
pass an Order staying the income Tax proceedings before
the Respondent No.5 and also restraining the Respondent
No. 5 in exercising any jurisdiction in the aforesaid
matter in respect of the Petitioner.
And for this act of your Kindness the humble Petitioner
as in duty bound shall ever pray.
ITA 255/2002 + connected Page 4 of 61
8. By order dated 17th July, 1993, this writ petition was
substantially but partly allowed holding that the two letters issued by
the ITO, Dimapur were without following due process as postulated
under Section 127 of the Act. The dictum of the Gauhati High Court
was as under:-
14. After hearing learned counsel for the parties and on
careful examination of the relevant documents placed
before me and relied upon by the parties, I am of the view
that orders/letters dated 15-3-90 and 20-9-90 cannot be
sustained in as much as there is no order of transfer of
jurisdiction from Dimapur to Delhi by a competent
authority. I also hold that Respondent 5 has no authority
to give direction to Respondent 4 regarding transfer of
jurisdiction and in calling for the records of the
petitioner.
9. The aforesaid judgment also takes on record earlier
correspondence exchanged between the respondent assessee and the
ITO, Dimapur on transfer of records in terms of letter dated 5 th
February, 1982 written by ITO, Dimapur and reply dated 27 th
November, 1982 by the respondent to the said officer that he was not
permanently transferred to Delhi and on completion of deputation
period he was likely to come back to the parent cadre in Nagaland for
posting. Response to this letter was purportedly written by the ITO,
Dimapur on 27th February, 1985 and the respondent was informed that
the assessment records had not been sent to Delhi.
10. On 23rd December, 1988, Commissioner of Income Tax, North-
eastern Region, Shillong, had issued statutory notice under Section 127
of the Act for transfer of respondent's case from ITO, Dimapur to the
AO, Delhi to which response/objection was filed vide letter dated 5 th
January, 1989. The respondent assessee had objected to transfer of the
ITA 255/2002 + connected Page 5 of 61
case to Delhi. There is nothing on record and it is not known whether
any order was passed thereupon by the Commissioner of Income Tax,
Dimapur.
11. In respect of assessment year 1985-86, the respondent had filed
return of income with ITO, Dimapur on 8th August, 1985. The return
was, however, defective as no TDS certificate was enclosed and defect
memo dated 31st March, 1987 was issued. As per Section 139(9) of
the Act, defects were required to be removed by 30 th April, 1987. The
same were not removed and as per respondent, he had written a letter
on 18th April, 1988. The ITO, Dimapur thereupon issued notice dated
26th June, 1987 under Section 148 of the Act for the assessment year
1985-86.
12. In respect of assessment year 1986-87, there is a dispute. As per
the Revenue, no return was filed by the respondent before the ITO,
Dimapur and notice under Section 148 of the Act dated 26 th June, 1987
was issued by ITO, Dimapur. The respondent, however, claims that he
had filed return for the assessment year 1986-87 on 30th July, 1986
with ITO, Dimapur. We notice that in the assessment order dated 28th
March, 1990, passed by the AO, Delhi, it is recorded that the
respondent assessee had not filed any proof of filing of return at
Dimapur for the assessment year 1986-87. Notice under Section 148
ITA 255/2002 + connected Page 6 of 61
issued by the ITO, Dimapur on 26th June, 1987 was on record (see
assessment order dated 28th March, 1990 relating to assessment year
1986-87 in ITA No. 257/2002).
13. In respect of assessment year 1987-88, the respondent assessee
had filed return of income on 27th April, 1988 but defect memo dated
6th July, 1988 was issued on the ground that annexures, statements in
columns in the return under the heads of income, computation of gross
total income and total income had not been fully filled up; statement of
computation of income on statement of facts had not been furnished;
dividend warrants have not been attached; TDS and self assessment
advance tax challans had not been attached etc. The respondent has
not stated or averred that he had filed the requisite papers as mentioned
in the said notice dated 6th July, 1988. However, there is no order of
the income tax authority at Dimapur declaring the return to be void or
invalid.
14. The assessment orders passed by the AO, Delhi dated 27th
March, 1990 and 28th March, 1990, were made subject matter of
appeals before Commissioner of Income Tax (Appeals), New Delhi
[CIT (Appeals), for short] and were decided by a common order dated
26th February, 1993. The said order is fairly detailed and has become
the substratum of subsequent orders passed by the tribunal
ITA 255/2002 + connected Page 7 of 61
in the second, third and fourth round. CIT(Appeals) in order dated 26 th
February, 1993 has given the following findings:-
(i) Return for the assessment year 1985-86 filed with ITO, Dimapur
was rightly declared to be invalid and the assessee had belatedly tried
to rectify the defects after a period of 13 months from the date of issue
of defect notice dated 30th April, 1987 vide letter dated 13th April,
1988. ITO Dimapur was therefore right and fully justified in initiating
proceedings under Section 148 of the Act for the assessment year
1985-86.
(ii) Notice issued by ITO, Dimapur under Section 148 of the Act
was legal and valid for the assessment years 1985-86 as well as 1986-
87.
(iii) The respondent assessee was assessed at Delhi only for the
period of five years during his tenure in Delhi and was regularly
assessed with ITO, Dimapur and on his reversion to the parent cadre;
the jurisdiction was with ITO, Dimapur only.
(iv) Commissioner of Income Tax, Shillong had rightly initiated the
proceedings under Section 127 of the Act for transfer of the
jurisdiction from ITO,Dimapur to AO, Delhi, but ITO Dimapur was
ITA 255/2002 + connected Page 8 of 61
wrong and had erred in transferring records to the AO, Delhi without
an order under Section 127 of the Act.
(v) Instruction No. 1739 of the CBDT dated 19th December, 1986
stipulated, the procedure for transfer of assessment records of an
assessee on change of his residence for the convenience of the assessee
but the instruction by itself cannot and did not result or cause transfer
of jurisdiction.
(vi) The respondent was reverted to Nagaland in 1984 and
instruction No. 1739 of the CBDT was issued on 19 th December, 1986.
The search was conducted only on 19th March, 1987 at which date the
respondent was residing within the jurisdiction of ITO, Dimapur.
Thus, AO, Delhi should have transferred the records to ITO, Dimapur
in terms of instruction No. 1731 dated 19th December, 1986 and not
vice versa.
(vii) Upon receipt of notice under Section 142(1), the respondent had
objected to the jurisdiction of the AO, Delhi. The respondent assessee
denied receipt of notice under Section 148 of the Act issued by AO,
Delhi for the three assessment years. The respondent had correctly
objected to the assumption of jurisdiction by the AO, Delhi within the
statutory time limit fixed/stipulated under Section 124 of the Act. The
AO, Delhi should have approached the Board to decide the question of
ITA 255/2002 + connected Page 9 of 61
jurisdiction under Section 124(4) of the Act or an order under Section
127 of the Act was required for transfer of jurisdiction from the
Commissioner of Income Tax, North Eastern Region (NER), Shillong
to New Delhi.
(viii) The initiation of proceedings by ITO, Dimapur for assessment
years 1985-86, 1986-87 and 1987-88 were legal and valid and there
was infirmity in the proceedings assumed/conducted by the AO, New
Delhi. All proceedings before the AO, New Delhi were illegal and set
aside.
(ix) However, AO, Delhi could acquire proper jurisdiction from the
Chief Commissioner, NER, Shillong under Section 127 of the Act or
Section 120 from CBDT and frame fresh assessment as per law for the
three assessment years.
(x) As the assessments were set aside on the point of jurisdiction,
there was no need to discuss merits as this could be examined during
fresh assessment proceedings before the Assessing Officer. It was
finally observed as under:-
4. Since the assessment have been set aside on the
point of jurisdiction, I do not want to discuss the addition
made on merits. The objections of the ld Counsel in this
regard will be considered by the A.O. During fresh
assessment proceedings and a decision will be taken as
per law after giving adequate opportunity to the appellant
in respect of the investments made in flats, land and bank
ITA 255/2002 + connected Page 10 of 61
deposits etc. In the name of family members and close
relatives.
Assessment for A.Y. 85-86, 86-87 and 87-88 are
hereby set aside for statistical purposes, the appeals for
these 3 years will be partly allowed.
15. Both Revenue and the respondent preferred cross-appeals before
the tribunal which were disposed of 9 years later vide order dated 19th
March, 2002. This order dated 19th March, 2002 has become subject
matters of ITA 256/2002, 257/2002 and 255/2002, filed by the
Revenue relating to the assessment years 1985-86, 1986-87 and 1987-
88. In the order dated 19th March, 2002 passed by the tribunal, it has
held as under:-
(i) It has not been disputed by the Revenue that jurisdiction was
with ITO Dimapur with whom the assessee was filing returns
after repatriation from deputation.
(ii) The assessee had objected to assumption of jurisdiction by the
AO, Delhi upon issue of notice under Section 142(1) of the Act.
(iii) The respondent had successfully challenged transfer of
assessment records to Delhi before the Gauhati High Court and
succeeded vide judgment dated 15th July, 1993.
(iv) There was no specific order of transfer of jurisdiction by the
competent authority under Section 127 of the Act.
It was further held:
7. Ld. Counsel for the assessee has further invited our
attention to the order dated 14.8.1995 passed by the CIT,
N.E.R., Shillong u/s 127(2)(a) of the IT Act transferring
the jurisdiction over the assessee from ITO Ward
Dimapur to ITO Ward 20(3), New Delhi. Admittedly,
till 14.8.95 no order for transferring the jurisdiction over
the assessee was ever passed by any competent authority
u/s 127(2)(a) of the IT Act.
ITA 255/2002 + connected Page 11 of 61
8. On careful perusal of these documents, we find
that till 14th August, 1995, the jurisdiction over the
assessee as per Section 124(1) lies with the ITO, Ward
Dimapur with whom the return of income were regularly
filed by the assessee. But the impugned assessment
orders for the AY 85-86 to AY 87-88 were passed by the
ACIT Inv. Circle 8(1), New Delhi on 27.3.90 and
28.3.90. The appeals against these assessment orders
were filed before the CIT(A) who had decided these
appeals by a single consolidated order on 22nd February,
1993. It means till the disposal of the appeal by the
CIT(A), the AO did not assume jurisdiction over the
assessee. Hence, the order passed by the AO is defective.
Now, the question arises before us whether this defect is
curable or it goes to the root of the case and makes the
order null and void. In support of his contention that
order was passed by an authority having no jurisdiction is
a void ab initio and liable to be quashed, ld. counsel for
the assessee has relied upon the following judgments:-
State of Gujarat v. Rajesh Kumar ChianLal AIR
1996 P.2664
Raza Textiles Ltd. v. ITO 87 ITR 539 (S.C.).
ChoubeyJagdish Prasad v. Gaya Pal Chaturvedi
AIR 1959 492
P. Das Muni Reddy v. AppaRao AIR 1974 208
Sant Baba Mphan Singh v. CIT 90 ITR 197
77 Taxman 265 SitaramRathore vs. CIT
9. We have carefully perused the aforesaid
judgments and we find that whenever an order is passed
by an officer having no jurisdiction to pass such order,
that order is void ab initio and it deserves to be annulled.
The defect in this order is not curable and it cannot be
rectified even by sending the matter back to the
concerned officer. In these circumstances, we are of the
considered opinion that since the assessment orders were
passed by the ACIT Circle 8(1), New Delhi without
assuming proper jurisdiction over the assessee, his orders
are void ab-initio and CIT(A) should have annulled the
same instead of setting it aside. We, therefore, set aside
the order of CIT(A) and annul all the assessment orders
for the AY 85-86, 86-87 and 87-88 passed by the ACIT,
Cir.8(1), New Delhi.
ITA 255/2002 + connected Page 12 of 61
10. In the result, the appeals of the assessee are
allowed and that of the Revenue are dismissed.
16. During this period of 9 years from 27th March, 1990 to 19th
March, 2002, there were three more rounds of assessment.
17. ITO Dimapur passed three assessment orders all dated 1st March,
1995 for the assessment years 1985-86, 1986-87 and 1987-88,
assessing total income of the respondent assessee at Rs.44,93,340/-,
Rs.86,97,230/- and Rs.67,79,930/- respectively.
18. Meanwhile, on 14th August, 1995, an order under Section
127(2)(a) of the Act was passed by Commissioner NER, Shillong
transferring the case from ITO Ward Dimapur to ITO Ward 20(3),
New Delhi. Reason given for transfer was administrative convenience
and it was stated that the transfer order would take effect from 21 st
August, 1995. This order was accepted by the respondent assessee
and has not been challenged.
19. In view of the order under Section 127(2)(a) of the Act, the
respondent assessee preferred appeals against three assessment orders
dated 1st March, 1995 passed by ITO, Dimapur before the CIT
(Appeals), New Delhi. These appeals were allowed by the CIT
(Appeals) vide order dated 27th March, 1997 recording as under:
2. I have considered the facts and circumstances of the
case. The records of the assessee do not indicate that the
assessee was given adequate opportunity to explain these
investments. Further, it was also enjoined upon the
assessing officer to make independent enquiries about
these investments from the assessee's relatives. I,
therefore, hold that the assessee has not been granted
proper opportunity of being heard. The assessment is,
therefore, set aside and the assessing officer is, therefore,
directed to frame the assessment denovo in accordance
with law after giving a fair and reasonable opportunity to
the assessee.
ITA 255/2002 + connected Page 13 of 61
20. It is noticeable that the aforesaid order does not refer to the
merits or jurisdiction of the assessing officer but an order of remand
was passed for fresh adjudication after fair opportunity of hearing
being given to the respondent assessee.
21. Pursuant to the order of remand, ACIT, Circle 15 (2), New Delhi
passed three assessment orders dated 30th March, 1999 assessing total
income of the assessee at Rs. 41,19,344/-, Rs. 86,97,227 and
Rs.67,79,930/- for the assessment years 1985-86, 1986-87 and 1986-87
respectively. The assessee preferred appeals which were allowed vide
order dated 29th February, 2000 of the CIT (Appeals) recording as
under:-
From the perusal of assessment order and after
discussion of the case with the A.O., I find that the
infirmities and irregularities pointed by my learned
predecessor still persists and there is nothing before me to
defer with the decision of my learned predecessor CIT
(A) V. I am of the view that these assessments should
be set aside again for allowing another opportunity to the
A.O. Accordingly, I set aside all the three assessment
orders from the stage the A.O. New Delhi assumed
jurisdiction for issuing notice u/s 148 and completing the
assessment. In my above decision to set aside the order,
I am supported by the decision of Hon'ble Supreme
Court in the case of Gudhudhar Brothers Vs. ITO 40 ITR
289. Further the Hon'ble Supreme court has also held in
the case of Kapoor Chand Srimat v. CIT AP 131 ITR
page 551, 560 that it is well known that an appellate
authority has the jurisdiction as well as the duty to correct
all errors in the proceedings under appeal and to issue, if
necessary, appropriate directions to the authority against
whose decision the appeal is preferred to dispose of the
whole or any part of the matter afresh unless forbidden
by the Statute.
(emphasis supplied)
ITA 255/2002 + connected Page 14 of 61
22. Before that the CIT(Appeals) had quoted from the order of the
CIT (Appeals) dated 26th February, 1993, the gist of which we have
reproduced above.
23. This order of the CIT (Appeals) dated 29th February, 2000 was
not challenged, either the Revenue or the respondent assessee and thus
has attained finality.
24. Pursuant to the order of remit passed by the CIT(Appeals) dated
29th February, 2000, in the fourth round, DCIT, Circle-2 passed
assessment orders dated 23rd March, 2001 assessing the income at
Rs.41,19,344/- Rs.86,97,227/- and Rs.67,79,390/- for the assessments
years 1985-86, 1986-87 and 1987-88 respectively. The respondent
assessee there upon preferred appeals and succeeded before the CIT
(Appeals) vide order dated 28th February, 2003. The CIT (Appeals)
relied upon order of the tribunal in the first round dated 19th March,
2002 and held that the first assessments had been annulled. There
could not have been a further or fresh assessment. He did not notice
or refer to the position that the ITO, Dimapur had passed the
assessments order in the second round or the order of the CIT
(Appeals), Delhi dated 29th February, 2000.
25. Against the order of CIT (Appeals) dated 27th March, 1990,
relating to second round, assessee preferred appeals which stand
allowed by the order dated 13th May, 2002. Tribunal in this order
relied upon their earlier order dated 19th March, 2002 in the first round.
Order dated 13th May, 2002 of the tribunal has been made subject
matter of appeals of Revenue being ITA Nos.314/02, 315/02 and
316/02.
ITA 255/2002 + connected Page 15 of 61
26. Similarly appeals relating to the fourth round against the order
of CIT (Appeals) dated 28th February, 2002 have been dismissed by the
tribunal vide order dated 21st February, 2006. The said order also
relies upon the order of the tribunal dated 19 th March, 2002, annulling
the assessments in the first round. This order of the tribunal has been
made subject matter of ITA Nos. 1578/06, 1577/06 and 1580/06.
Substantial Questions of Law
27. ITA Nos. 256/02, 257/02 and 255/02 were admitted for hearing
vide order dated 10th November, 2005 on the following substantial
question of law:
Whether the ITAT was correct in law in
holding that the order of assessment passed by
the ACIT, Investigation Circle 8(1), New
Delhi were without jurisdiction and therefore
void ab initio?
28. ITA Nos. 314/02, 315/02 and 316/02 were admitted for hearing
vide order dated 10th November, 2005 on the following substantial
question of law:
Whether the Income Tax Tribunal was
correct in law in holding that the assessment
made by the assessing officer was
unsustainable in law?
29. ITA Nos. 1578/06, 1577/06 and 1580/06 were admitted for
hearing vide order dated 20th February, 2007 on the following
substantial question of law:
Whether the Income Tax Appellate Tribunal
was correct in law in holding that the
assessment made by the Assessing Officer
was not sustainable in law?
ITA 255/2002 + connected Page 16 of 61
However, in the said ITAs vide order dated 26th November, 2011 the
following question of law on similar lines was framed:-
Whether the Income Tax Appellate Tribunal
was right in dismissing the appeal of the
Revenue following their earlier orders dated
19th March, 2002 and 13th May, 2002?
The substantial question of law dated 20th February, 2007 is being
answered.
30. In order to decide the question, it would be appropriate to first
reproduce and understand the ambit and scope of Sections 120, 124
and 127 of the Act both pre-amendment and post-amendment i.e. w.e.f
1.4.1988.
31. Pre-Amendment Section 120 reads:
"120. Jurisdiction of Directors of Inspection.--Directors of
Inspection shall perform such functions of any other
Income-tax authority as may be assigned to them by the
Board."
Post-Amendment Section 120 reads:
120. (1) Income-tax authorities shall exercise all or any of
the powers and perform all or any of the functions conferred
on, or, as the case may be, assigned to such authorities by or
under this Act in accordance with such directions as the
Board may issue for the exercise of the powers and
performance of the functions by all or any of those
authorities.
[Explanation.--For the removal of doubts, it is hereby
declared that any income-tax authority, being an authority
higher in rank, may, if so directed by the Board, exercise the
powers and perform the functions of the income-tax
authority lower in rank and any such direction issued by the
ITA 255/2002 + connected Page 17 of 61
Board shall be deemed to be a direction issued under sub-
section (1).]
(2) The directions of the Board under sub-section (1) may
authorise any other income-tax authority to issue orders in
writing for the exercise of the powers and performance of the
functions by all or any of the other income-tax authorities
who are subordinate to it.
(3) In issuing the directions or orders referred to in sub-
sections (1) and (2), the Board or other income-tax authority
authorised by it may have regard to any one or more of the
following criteria, namely :--
(a) territorial area;
(b) persons or classes of persons;
(c) incomes or classes of income; and
(d) cases or classes of cases.
(4) Without prejudice to the provisions of sub-sections (1)
and (2), the Board may, by general or special order, and
subject to such conditions, restrictions or limitations as may
be specified therein,--
(a) authorise any Director General or Director to perform such
functions of any other income-tax authority as may be
assigned to him by the Board;
(b) empower the Director General or Chief Commissioner or
Commissioner to issue orders in writing that the powers and
functions conferred on, or as the case may be, assigned to,
the Assessing Officer by or under this Act in respect of any
specified area or persons or classes of persons or incomes or
classes of income or cases or classes of cases, shall be
exercised or performed by a 25[Joint] Commissioner 26[or
a 25[Joint] Director], and, where any order is made under this
clause, references in any other provision of this Act, or in
any rule made thereunder to the Assessing Officer shall be
deemed to be references to such 25[Joint]
26 25
Commissioner [or [Joint] Director] by whom the powers
and functions are to be exercised or performed under such
order, and any provision of this Act requiring approval or
sanction of the 25[Joint] Commissioner shall not apply.
(5) The directions and orders referred to in sub-sections (1)
and (2) may, wherever considered necessary or appropriate
ITA 255/2002 + connected Page 18 of 61
for the proper management of the work, require two or more
Assessing Officers (whether or not of the same class) to
exercise and perform, concurrently, the powers and functions
in respect of any area or persons or classes of persons or
incomes or classes of income or cases or classes of cases;
and, where such powers and functions are exercised and
performed concurrently by the Assessing Officers of
different classes, any authority lower in rank amongst them
shall exercise the powers and perform the functions as any
higher authority amongst them may direct, and, further,
references in any other provision of this Act or in any rule
made thereunder to the Assessing Officer shall be deemed to
be references to such higher authority and any provision of
this Act requiring approval or sanction of any such authority
shall not apply.
(6) Notwithstanding anything contained in any direction or
order issued under this section, or in section 124, the Board
may, by notification in the Official Gazette, direct that for
the purpose of furnishing of the return of income or the
doing of any other act or thing under this Act or any rule
made thereunder by any person or class of persons, the
income-tax authority exercising and performing the powers
and functions in relation to the said person or class of
persons shall be such authority as may be specified in the
notification.]
32. Sub-Section (1) to Section 120 post- amendment stipulates that
Income Tax authorities shall exercise any of the powers and perform
all or any functions conferred on, or assigned to any authority by or
under the Act as per directions of the Board. The explanation
elucidates that the power can be exercised by an authority higher in
rank. Sub-section (2) states that the Board may issue orders in writing
under sub-section (1) for exercise of powers and performance of
functions by income-tax authorities. Sub-section (3) postulates that the
Board while issuing directions or issuing orders can have regard to the
four-fold criteria, namely, territorial area; persons or classes of person;
incomes or classes of income; and cases or classes of cases. The
aforesaid criteria is very broad and by the orders referred to sub-
sections (1) and (2), the Board can authorize any income-tax authority
ITA 255/2002 + connected Page 19 of 61
to perform function based upon territorial area, type/class of person(s),
income or case(s). Sub-section (4) confers power on the Board to pass
general or special order as may be desired without prejudice to sub-
section (1) and (2). Sub-section (5) is relevant and stipulates that
orders/directions under sub-sections (1) and (2) wherever considered
necessary and appropriate may require two or more Assessing Officers
to perform concurrent power and functions in respect of area,
person(s), income(s) or case(s) and when so stipulated, the higher
authority may direct the authority lower in rank. This enables
distribution of work between two or more Assessing Officers having
concurrent jurisdiction under a single higher authority. Under sub-
section (6), the Board retains power by way notification to direct
furnishing of return or any act or thing under the Act or rules, shall be
made before such authority as may be specified, in relation to class of
persons. Thus, it is apparent that Act does not by itself confer
jurisdiction by way of territory, class of persons, income or cases. It is
left to the discretion and wisdom of the Board who have been given
wide powers and latitude. The said exercise, is administrative and
broad choice/option given to the Board. Though Section 120 refers to
jurisdiction of the Assessing Officer or authorities but the said term has
been used rather loosely and does not refer to subject matter
jurisdiction as such. Concurrent jurisdictions are not an anathema, but
clearly postulated and accepted. This becomes clear when we refer to
Section 124 of the Act both prior and past 1.4.1988.
33. Pre-Amendment Section 124 reads:
"124. (1) Income Tax Officers shall perform their functions
in respect of such areas or of such persons or classes of
persons or of such incomes or classes of income as the
Commissioner may direct.
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(2) Where any directions issued under sub-section (1) have
assigned to two or more Income Tax Officers, the same area
or the same persons or classes of persons or the same
incomes or classes of income, they shall perform their
functions in accordance with any orders which the
Commissioner may make for the distribution and allocation
of the work to be performed.
(3) Within the limits of the area assigned to him, the Income
Tax Officer shall have jurisdiction -
(a) in respect of any person carrying on a business or
profession, if the place at which he carries on his business or
profession is situate within the area, or where his business or
profession is carried on in more places than one, if the
principal place of his business or profession is situate within
the area, and
(b) in respect of any other person residing within the area.
(4) Where a question arises under this section as to whether
an Income Tax Officer has jurisdiction to assess any person,
the question shall be determined by the Commissioner; or
where the question is one relating to areas within the
jurisdiction of different Commissioners, by the
Commissioners concerned or if they are not in agreement, by
the Board.
(5) No person shall be entitled to call in question the
jurisdiction of an Income Tax Officer -
(a) after the expiry of one month from the date on which he
has made a return under sub-section (1) of section 139 or
after the completion of the assessment, whichever is earlier;
(b) where he has made no such return, after the expiry of the
time allowed by the notice under sub-section (2) of section
139 or under section 148 for the making of the return.
(6) Subject to the provisions of sub-section (5), where an
assessee calls in question the jurisdiction of an Income Tax
Officer, then, the Income Tax Officer shall, if not satisfied
with the correctness of the claim, refer the matter for
determination under sub-section (4) before assessment is
made.
(7) Notwithstanding anything contained in this section, or in
section 130A, every Income Tax Officer shall have all the
powers conferred by or under this Act on an Income Tax
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Officer in respect of any income accruing or arising or
received within the area for which he is appointed."
Post-Amendment Section 124 reads:
124. Jurisdiction of Assessing Officers.- (1) Where by
virtue of any direction or order issued under sub-section (1)
or sub-section (2) of section 120, the Assessing Officer has
been vested with jurisdiction over any area, within the limits
of such area, he shall have jurisdiction--
(a) in respect of any person carrying on a business or
profession, if the place at which he carries on his business or
profession is situate within the area, or where his business
or profession is carried on in more places than one, if the
principal place of his business or profession is situate within
the area, and
(b) in respect of any other person residing within the area.
(2) Where a question arises under this section as to whether
an Assessing Officer has jurisdiction to assess any person,
the question shall be determined by the Director General or
the Chief Commissioner or the Commissioner; or where the
question is one relating to areas within the jurisdiction of
different Directors General or Chief Commissioners or
Commissioners, by the Directors General or Chief
Commissioners or Commissioners concerned or, if they are
not in agreement, by the Board or by such Director General
or Chief Commissioner or Commissioner as the Board may,
by notification in the Official Gazette, specify.
(3) No person shall be entitled to call in question the
jurisdiction of an Assessing Officer--
(a) where he has made a return under sub-section (1) of
section 115WD or under sub-section (1) of section 139,
after the expiry of one month from the date on which he was
served with a notice under sub-section (1) of section 142 or
[sub-section (2) of section 115WE or sub-section (2) of
section 143 or after the completion of the assessment,
whichever is earlier;
(b) where he has made no such return, after the expiry of the
time allowed by the notice under sub-section (2) of section
115WD or sub-section (1) of section 142 or under sub-
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section (1) of section 115WH or under section 148 for the
making of the return or by the notice under the first proviso
to section 115WF or under the first proviso to section 144 to
show cause why the assessment should not be completed to
the best of the judgment of the Assessing Officer, whichever
is earlier.
(4) Subject to the provisions of sub-section (3), where an
assessee calls in question the jurisdiction of an Assessing
Officer, then the Assessing Officer shall, if not satisfied
with the correctness of the claim, refer the matter for
determination under sub-section (2) before the assessment is
made.
(5) Notwithstanding anything contained in this section or in
any direction or order issued under section 120, every
Assessing Officer shall have all the powers conferred by or
under this Act on an Assessing Officer in respect of the
income accruing or arising or received within the area, if
any, over which he has been vested with jurisdiction by
virtue of the directions or orders issued under sub-section
(1) or sub-section (2) of section 120.
34. On analyzing the new Section 124, it is viewed that as per sub-
section (1), Assessing Officer has jurisdiction in respect of persons
carrying on business or profession where such business or profession
was being carried out or situated within the area or where the business
or profession was carried on in different areas, if the principal place of
business or profession was situated within the area. Assessing Officer
under sub-clause (b) also had jurisdiction in respect of any other
person(s) residing within the area. Residence and place of business
being the basis. Sub-section (2) stipulates that question/ dispute of
jurisdiction among two or more Assessing Officers, if raised, shall be
determined by the Director- General, Chief Commissioner or the
Commissioner, or if the question relates to areas falling within the
jurisdiction of different Directors- General, Chief Commissioners or
Commissioners, then by the Directors- General, Chief Commissioners
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or Commissioners concerned, and if they are not in agreement, by the
Board or by such Director-General, Chief Commissioner or
Commissioner that the Board may by an Official Gazette specify. Sub-
section (3) further stipulates that the objection to the jurisdiction could
be questioned by an assessee or a person within one month from the
date on which return of income under Section 139(1) was made or
within one month from the date of issuance of notice under Section
142(1) or 143(2) or after completion of assessment, whichever was
earlier. If no return of income was made, objection to the jurisdiction
could be entertained, if made within the time allowed by way of notice
under Section 115WD(2)/142(1)/115WH(1)/148 of the Act to make the
return or by notice under first proviso to Sections 115WF or 144 to
show cause why the assessment should not be completed by the best
judgment of the Assessing Officer, whichever was earlier. Sub-section
(4) lays down that when an assessee raises a dispute regarding
jurisdiction of the Assessing Officer and the Assessing Officer if not
satisfied with the correctness of the claim, he shall refer the matter for
determination as per sub-section (2) of Section 124, however, this
should be done before the assessment was made. The aforesaid
Section, therefore, postulates waiver of objection to assumption of
jurisdiction by the Assessing Officer. Time limit for raising the
objection stands stipulated. Principle of deemed waiver applies. This
could only happen when the authority does not lack or suffer from
inherent lack of subject matter jurisdiction. When there is inherent
lack of subject matter jurisdiction, principle of waiver does not apply.
The principle being simple that by consent one cannot confer
jurisdiction on authority which lacks inherent subject matter
jurisdiction. The provisions ensure that conflict between Assessing
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Officers having concurrent jurisdictions is avoid and curtailed and the
assessment proceeding do not get misdirected on side issues. Such
deviation should be avoided. It is also clear that question of
jurisdiction cannot be made subject matter of appeal, as the issue has to
be decided on the administrative side by the
Commissioner/Commissioners/ Board. Appeal can, however, be filed
questioning the action of the Assessing Officer in not following the
procedure mentioned/stipulated in Section 124. In Wallace Brothers &
Co. Ltd. v. CIT [1945] 13 ITR 39, Federal Court had held that the
objection to place of assessment could not be raised in an appeal
against the assessment under the Income Tax Act, 1922. This view
was affirmed by the Supreme Court in RaiBahadur Seth Teomal Vs.
The Commissioner of Income Tax,[1959] 36 ITR 9(SC) holding that
the objection as to the place of objection under the 1922 Act could not
be made a subject or issue before the appellate forums including the
Tribunal and reference to the High Court. Thus, the question of place
or authority of the particular Assessing Officer was the matter of
administrative convenience and not strictly a matter of subject matter
jurisdiction and where there was an error or erroneous exercise by the
Assessing Officer/Commissioner notwithstanding the challenge within
stipulated time, it could be corrected by way of writ jurisdiction. The
position is no different under the Act i.e. Income Tax Act 1961, as was
elucidated by a Division Bench of this Court in Kanji Mal & Sons vs.
C.I.T. (1982) 138 ITR 391 (Del), wherein reference to said two
decisions was made and it was observed that if the assessee fails to
raise objection before the Income Tax Officer within the time, he will
be shut out from raising the question altogether. Further, if the issue
was raised and decided by the Commissioner, the decision would be
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final and cannot be questioned in the appellate forums but where the
Income Tax Officer does not refer the question to the Commissioner,
the following proposition emerges:
But where he raises the issue but the ITO does not refer the
question to the CIT as in the present case (or the CIT or the
Board does not decide the question before the assessment is
completed) what will be the result of such failure ? Clearly,
one answer to the question would be that this failure should
not be held to vitiate the assessment altogether and that it
should be open to the appellate authority to set aside the
assessment for being redone in accordance with law after
having the matter referred to the CIT and obtaining his
decision. There is nothing wrong in adopting this course and
it will not prejudice anyone. By adopting this course, the
appellate authority will not be deciding the question of
jurisdiction itself but will only be getting it done by the
appropriate authority. The appellate order will not also help
the department in any way if eventually the CIT (or the
Board) comes to the conclusion that the ITO, who completed
the assessment, had no jurisdiction in the matter and it will
not confer any right on any other ITO having jurisdiction to
proceed against the assessee, if he is otherwise not
competent to do so. It will only help the department in the
event of the CIT (or the Board) coming to the conclusion that
the ITO who completed the assessment had the jurisdiction
so to do.
The above approach to the issue derives support from
the recent decision of the Supreme Court in the case of
KapurchandShrimal v. CIT [1981]131ITR451. In that case
(under the 1922 Act) the ITO completed the assessments of
an HUF without disposing of the claim for partition that had
been made by the members of the family. Before the
Tribunal, the assessee contended that the assessments should
be cancelled but the department contended that even if there
had been a violation of s. 25A of the Act the proper order to
be passed was either to direct the ITO to give effect to
Section 25A or to set aside the assessments with a direction
to the ITO to pass fresh orders of assessment. The Tribunal
came to the conclusion that the assessments were in clear
violation of the procedure prescribed for that purpose in s.
25A and cancelled the same. The Tribunal added : "We do
not consider it necessary to direct first assessments. It would
be open to the ITO to do so if the law otherwise so permits."
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The Supreme Court held that this was not the right procedure
to be adopted. It observed as follows (p.460) :
"The Tribunal was, Therefore, right in holding that the
assessments in question were liable to be set aside as there
was no compliance with s. 25A(1) of the Act. It is, however,
difficult to agree with the submission made on behalf of the
assessee that the duty of the Tribunal ends with making a
declaration that the assessments are illegal and it has no duty
to issue any further direction. It is well known that an
appellate authority has the jurisdiction as well as the duty to
correct all errors in the proceedings under appeal and to
issue, if necessary, appropriate directions to the authority
against whose decision the appeal is preferred to dispose of
the whole or any part of the matter afresh unless forbidden
from doing so by the statute. The statute does not say that
such a direction cannot be issued by the appellate authority
in a case of this nature. In interpreting s. 25A(1), we cannot
also be oblivious to cases where there is a possibility of
claims of partition being made almost at the end of the
period within which assessments can be completed making it
impossible for the ITO to hold an inquiry as required by s.
25A(1) of the Act by following the procedure prescribed
therefor. We, however, do not propose to express any
opinion on the consequence that may ensue in a case where
the claim of partition is made at a very late stage where it
may not be reasonably possible at all to complete the inquiry
before the last date before which the assessment must be
completed. In the instant case, however, since it is not
established that the claim was a belated one, the proper order
to be passed is to set aside the assessments and to direct the
ITO to make assessments in accordance with the procedure
prescribed by law. The Tribunal, Therefore, erred in merely
cancelling the assessment orders and in not issuing further
directions as stated above."
It was further observed:-
It is, however, possible to look at the matter from
another point of view. It can be said that the issue involved is
one of jurisdiction and when an assessed puts it in challenge
immediately he receives a notice or files a return, it must be
resolved one way or the other in the manner provided for in
the statute before the ITO can assume jurisdiction to proceed
further and complete an assessment. The statute requires this
to be done before the assessment is made. A failure to do so
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will render the assessment null and void and without
jurisdiction as held in Dina NathHemraj v. CIT [1927] 2 ITC
304 (All) which has been referred to and in no way
disapproved in Teomal's case [1959]36ITR9(SC). Once the
ITO fails to follow the statutory course prescribed before
assessment, it can be said, he misses the bus and cannot be
given a second chance to rectify matters. It appears that the
Tribunal was inclined to accept this line of argument and to
hold "that the AAC could not have rendered an assessment
which was illegal into a legal assessment by putting the
clock back, so to speak, and enabling the Commissioner to
decide the question of jurisdiction." In the view of the
Tribunal, "for the exercise of the Commissioner's
jurisdiction, the sands had clearly run not". It is for this
reason that the Tribunal also said that the department could
not rely upon Jajodia's case [1971]79ITR505(SC) to uphold
the validity of a direction of the redoing of the assessment.
However, in the facts of the said case, the Division Bench
refrained from expressing their final conclusion on the question raised,
though they were inclined to accept the former view that the
assessment would not be a nullity, as the order of the Tribunal in the
said case had attained finality and there was no reference at the
instance of the Commissioner. It would be also important to reproduce
the conclusion drawn by the Division Bench of the High Court on the
said aspect which reads:-
(2) The failure of the ITO to follow the above procedure
may not render the assessment invalid. A view is possible
that, in appeal, it is open to the AAC or the Tribunal to set
aside the assessment and direct a fresh assessment after
following the procedure mentioned in s.124(4) & (6)
provided such a direction does not prejudice or affect the
right of the assessee to challenge the reassessment as not
being in accordance with any other provision of the Act. It is,
however, not necessary to decide this question as the view of
the Tribunal seems to be that such an assessment would be
invalid and this matter is not in issue before us.
35. The said issue directly arises before us in the present appeals and
it is time we give affirmative approval to the aforesaid principle as the
question has been raised by the Commissioner. Reasons for the same
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are mentioned by the Division Bench of this Court in Kanji Mal's case
(supra) and is also apparent and clear to us. Sub-section (4) and (6) of
Section 124 and for that matter sub-section (2) and (4) of Section 124
after amendment w.e.f. 1st April, 1988 are procedural sections. They
relate to administration and exercise of powers/authority by the
Assessing Officers/Income Tax Officers and are not part of the
substantive law. That the Act i.e. Income Tax Act 1961 being a
complete code deals with substantive and procedural aspects. Section
120/124/127 govern the process of procedure for assessment and not
the subject matter or its purpose. They relate to conduct of the
Assessing Officer/Income Tax Officers and the assessees in respect of
the assessment proceedings. It is a matter of merely a process. A
irregularity in procedure need not result in annulment unless the statute
specifically stipulates to the contrary. The appellate authorities have
right to put a clock back and direct the Income Tax Officer/Assessing
Officer to follow the procedure notwithstanding the difference between
mandatory and directory procedural norms. In Grindlays Bank vs.
Income Tax Officer AIR 1980 656 (SC), the Supreme Court quashed
the assessment order but then issued directions to make fresh
assessment in the circumstances of the case. The said principle has
been followed in cases of violation of principles of natural justice
wherein an order of remit/remand when justified are passed. The
courts have taken recourse of pragmatism and exigencies of the
situation rather than legalistic approach of void and voidable (see
Principle of Administrative Law, M.P. Jain and S.N. Jain, Fifth
Edition, 2007 at pages 592-95).
36. In Budhia Swain and Ors.Vs. GopinathDev and Ors.(1999) 4
SCC 396, it was highlighted that distinction exists and was well
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recognized between lack of jurisdiction and mere error in exercise of
jurisdiction. Lack of jurisdiction strikes at the very root of the
action/act and want of jurisdiction might vitiate proceedings rendering
the orders passed and exercise thereof, a nullity. But a mere error in
exercise of jurisdiction would not vitiate the legality and validity of the
proceedings and the said order was valid unless set aside in the manner
known to law by laying a challenge, subject to law of limitation. The
following portion of HiraLalPatni vs. Kali Nath, AIR 1962 SC 199
was quoted:
... The validity of a decree can be challenged in execution
proceedings only on the ground that the court which passed
the decree was lacking in inherent jurisdiction in the sense
that it could not have seisin of the case because the subject
matter was wholly foreign to its jurisdiction or that the
defendant was dead at the time the suit had been instituted or
decree passed, or some such other ground which could have
the effect of rendering the court entirely lacking in
jurisdiction in respect of the subject matter of the suit or over
the parties to it.
37. The view we have taken, finds support from the decision of the
Patna High Court in MahalliramRamniranjan Das vs. CIT (1985) 156
ITR 885, wherein the decision of Delhi High Court in Kanji Mal &
Son's case (supra) was referred to. Reference was also made to the
decision of the Supreme Court in Guduthur Bros. vs. ITO (1960) 40
ITR 298 (SC), and the matter was remanded to the authority to
continue with the proceedings from the stage irregularity had occurred.
It was observed that the tribunal was not right in annulling the
assessment. It would be also appropriate here to refer to the decision
in Hindustan Transport Co. vs. Inspecting Asstt. Commissioner of
Income Tax and Anr. (1991) 189 ITR 326 of the Allahabad High
Court-Lucknow Bench, wherein it has been observed as under:-
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A survey of the above provisions of the Act
highlights the following situations. After creating the various
Income Tax authorities, the Act does not prescribe their
respective jurisdiction or functions. Any case can be dealt
with by any Income Tax authority with the possible
exception of the Board. Accordingly, the various Income
Tax authorities are of co-ordinate jurisdiction. What function
or functions, which authority or officer, shall perform is left
to be decided either by the Board or by the Commissioner.
On what principles the Board and the Commissioner will
allocate the functions is not indicated in the Act. The
principle is, however, apparent from the nature of the
enactment. The Act has been enacted with a view to collect
revenue. Income Tax is the main source of revenue for the
State. It is through revenue that the machinery of the State is
run. It is desirable that the tax should be collected as early as
possible. Collection of tax is preceded by assessment thereof.
It is consequently desirable that the assessment proceedings
should be completed expeditiously but expeditious disposal
of an assessment does not mean that the assessee may be put
to unwarranted harassment or prejudice. Therefore, the
Board and the Commissioner shall take into account the
convenience of the assessee also. It is with this purpose in
view that it has been provided in Sub-section (1) of
Section 127 that, whenever possible, an opportunity of
hearing may be given to the assessee while transferring a
case from one place to another. Since the assessee does not
suffer any inconvenience or prejudice if a case is transferred
locally, no such opportunity has been prescribed. From these
provisions it is obvious that the Board and the Commissioner
will exercise the power of allocation of functions to various
authorities or officers in the exigency of tax collection with
due regard to the convenience of the assessee. In other
words, the allocation is a measure of administrative
convenience. In such a situation, the concept of jurisdiction
cannot be imported and, certainly, not in the sense of
invalidating the resultant action on account of the defect in
the exercise of functions.
Being an enactment aimed at collecting revenue, the
Legislature did not intend collection of revenue to be bogged
down on account of technical plea of jurisdiction. It has,
therefore, prescribed the limit up to which the plea of
jurisdiction may be raised. As provided in Section 124(5)(a),
the right is lost as soon as the assessment has been
completed. Even where the right is exercised before the
assessment is completed, the question is to be decided by the
Commissioner or by the Board. Courts do not come into the
picture.
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From the above provisions of the Act, it is apparent
that the Act does not treat the allocation of functions to
various authorities or officers as one of substance. It treats
the matter as one of procedure and a defect of procedure
does not invalidate the end action. The answer to the first
question, therefore, is that the power is administrative and
procedural and is to be exercised in the interest of exigencies
of tax collection and the answer to the second question is
that, under the Act, a defect arising from allocation of
functions is a mere irregularity which does not affect the
resultant action.
38. In Commissioner of Income Tax vs. ShivkumarAgrawal (1990)
186 ITR 734 (Orissa), it was held that imposition of penalty by the
Assistant Commissioner in view of the amendment was without
jurisdiction in light of an earlier judgment but there was no dispute
about validity of initiation of the said proceedings. Once proceedings
were validly initiated but disposed of by an officer having no
jurisdiction, the proceedings do not come to an end but should be
finalized by an officer having jurisdiction. Therefore, while accepting
the decision of the tribunal on the question of cancellation of penalty,
the High Court held that the proceedings had not been finalized and
could be finalized by the Income Tax Officer. In the present case,
proceedings were initiated both by the AO, Delhi and ITO, Dimapur.
Even if it is assumed that the proceedings initiated by AO, Delhi were
not in accordance with law, there is no finding and indeed the
respondent did not contest the proceedings initiated by ITO, Dimapur.
ITO, Dimapur had accepted that the assessment order should be passed
by AO, Delhi. Even if the said opinion/belief was wrong, it would not
affect the initial initiation of proceedings by ITO, Dimapur, who had
passed the assessment orders in the second round.
ITA 255/2002 + connected Page 32 of 61
39. A Division Bench of Bombay High Court in Commissioner of
Income Tax vs. BharatkumarModi (2000) 246 ITR 693, referred to
the well settled principle of law; setting out the difference between
lack of jurisdiction and irregular exercise of authority/ jurisdiction.
Proceedings are a nullity when the authority taking it, has a no power
to have seisin over the case. But an order is not a nullity or in exercise
of void abintio jurisdiction, when the Assessing Officer does not
confront the assessee with the material in his possession. The said
error is an irregularity which could be corrected by remitting the
matter. Powers of annulment and power to set aside and remit the
case, have to be exercised keeping in mind the distinction between
lack of jurisdiction and irregularity in exercise of
authority/jurisdiction. The latter can be rectified and should be
rectified as early as possible. Annulment of assessment would mean
that the entire assessment proceedings would become ab initio void
and the consequences were different from merely setting aside.
40. We will now like to refer to the decisions quoted by the
Tribunal in the impugned order to hold that the assessments should be
annulled. The citations given in the orders of the Tribunal
unfortunately are incomplete except for two, namely; Raza Textiles
Ltd. vs. Income Tax Officer, Rampur (1973) 87 ITR 539 (SC) and
Sant Baba Mohan Singh vs. Commissioner of Income Tax, U.P.
(1973) 90 ITR 197 (All). We have gone through the said decisions. In
Raza Textiles Ltd. (supra) it has been observed that no authority much
less the quasi judicial authority could confer jurisdiction on itself by
deciding the jurisdictional facts wrongly. Jurisdictional facts could be
examined by the High Court in an application for Writ of Certiorari.
The said decision does not help us in determining when an order
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would be a nullity and when an error relates to irregular exercise of
jurisdiction. In Sant Baba Mohan Singh (supra), it was observed that
the assessment proceedings would be a nullity when the Assessing
Officer had no jurisdiction ab initio to take the proceedings i.e. he had
no power to have seisin over the case. When, however, the authority
has overall jurisdiction over the case and power to initiate the
proceedings, an omission to issue notice under Section 23(2) of the
Income Tax Act, 1922 did not affect the jurisdiction and could be
rectified. These were steps within the overall jurisdiction, therefore,
omission to issue notice under Section 23(2) of the Income Tax Act,
1922 had not resulted in annulment of assessment but setting aside of
the assessment was justified. Allahabad High Court in the said case,
no doubt, referred to jurisdiction as to pecuniary jurisdiction, territorial
jurisdiction and jurisdiction over the subject matter of proceedings, but
the said observations have to be read in light of procedural provisions
in the Act on the question of waiver, etc. Territorial jurisdiction when
the authority has subject matter jurisdiction is normally not equated
with the latter as is clear from Section 124 of the Act which prescribes
time or limitation period during which the objection has to be raised.
Similarly, as per Section 21 of the Code of Civil Procedure 1908,
objection to the place of suing cannot be allowed to be raised in the
appellate or revisional proceedings unless such objection is taken in
the court of first instance at the earliest possible opportunity and in all
cases where issues were settled or before settlement, unless there has
been consequent failure of justice.
41. In Sitaram Rathore versus Commissioner of Income Tax,
(1994) 77 Taxman 265 (MP) it was observed that Section 124 of the
Act refers to jurisdiction of ITO/Assessing Officer with reference to
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area, classes of persons or classes of income or of such classes as the
Commissioner may direct and in such cases an assessee could waive
objection to irregular exercise or assumption of jurisdiction and an
order thereupon would not be a nullity. However, when there was
inherent lack of jurisdiction, the order passed was a nullity as the
authority lacks jurisdiction when the subject matter was not at all
amenable to its jurisdiction and in such cases acquiescence was
immaterial because agreement or consent cannot confer jurisdiction.
Lack of jurisdiction could be of various varieties, including lack of
authority under law but distinction between inherent lack of
jurisdiction and irregular exercise or assumption of jurisdiction should
be kept in mind. The reference was made to the following
observations in Central Potteries versus State of Maharashtra, AIR
1966 SC 932 wherein with reference to C.P. and Bazar Sales Tax Act,
1947 and jurisdiction of taxing authorities to make assessment, when
the assessee voluntarily filed a return, it was observed:-
7. In this connection it should be
remembered that there is a fundamental
distinction between want of jurisdiction and
irregular assumption of jurisdiction, and that
whereas an order passed by an authority with
respect to a matter over which it has no
jurisdiction is a nullity and is open to collateral
attack, an order passed by an authority which
has jurisdiction over the matter, but has assumed
it otherwise than in the mode prescribed by law,
is not a nullity. It may be liable to be questioned
in those very proceedings, but subject to that it is
good, and not open to collateral attack.
Therefore, even if the proceedings for
assessment were taken against a non-registered
dealer without the issue of a notice under
Section 10(1) that would be a mere irregularity
ITA 255/2002 + connected Page 35 of 61
in the assumption of jurisdiction and the orders
of assessment in those proceedings cannot be
held to be without jurisdiction and no suit will
lie for impeaching them on the ground that
Section 10(1) had not been followed. This must
a fortiori be so when the appellant has itself
submitted to the jurisdiction and made a return.
We accordingly agree with the learned Judges
that even if the registration of the appellant as a
dealer under Section 8 is bad that has no effect
on the validity of the proceedings taken against
it under the Act and the assessment of tax made
thereunder.
42. In the said case, it was observed that it would be idle to contend
that the proceedings were without jurisdiction. Reference was also
made to the decision of the Full Bench of Kerala High Court in
George versus ThekkekkaraVareed, AIR 1979 Kerala 1 (FB) wherein
it has been held that jurisdictional defect or procedural irregularity was
open to correction by the appellate court, where it had occasioned
failure of justice or had resulted in prejudice.
43. In P. Dasa Muni Reddy v. P. AppaRao(1974) 2 SCC 725, the
appellant before the Supreme Court, had filed eviction petition before
the Rent Controller for eviction which was dismissed, but
subsequently the landlord filed a suit for ejectment propounding that
the building was constructed after 26th August, 1957 and therefore, the
rent control legislation did not apply. The Supreme Court reversed
the decision of the High Court and affirmed the view of the trial court
and the first appellate court observing that neither estoppel nor res
judicata could give jurisdiction when the rent controller did not have
jurisdiction over the subject matter. The rent control legislation,
operated in rem and mere fact that the landlord had instituted
ITA 255/2002 + connected Page 36 of 61
proceedings before the rent controller by mistake would not confer
jurisdiction by consent on the rent controller, when the civil court
possessed jurisdiction and the building was outside the realm of rent
control legislation. The said decision does not apply to the facts of the
present appeals as it relates to subject matter jurisdiction and inherent
lack of jurisdiction in the absence of subject matter jurisdiction.
44. We will now like to deal with and refer to the decisions relied
upon by the counsel for the respondent before us. Decision of the
Kerala High Court in P.A. Ahammed versus Chief Commissioner of
Income Tax, (2006) 282 ITR 334 (Kerala) relates to challenge made to
an order under Section 127 of the Act. It was observed that two
Assessing Officers cannot retain concurrent jurisdiction over the same
assessee and when an order of transfer under Section 127 was affected,
old and pending cases were also transferred. The said decision has no
application to the facts of the present case, except to the extent that an
order under Section 127 dated 14.08.1995 was passed and was never
challenged by the respondent-assessee. Similar view was taken earlier
by the Kerala High Court in Redwood Hotel (P) Limited versus Chief
Commissioner of Income Tax and Others, (2003) 259 ITR 191
(Kerala) wherein an order under Section 127 was upheld in spite of the
plea of inconvenience raised by the assessee therein. It was observed
that the order of transfer under Section 127 was purely administrative
in nature and except when there were allegations of mala fide and want
of jurisdiction, there was little scope for interference. An assessee has
no vested right to have his assessment decided by an officer at a
specific place. Decision of the Delhi High Court in Valvoline
Cummins Limited versus Deputy Commissioner of Income Tax and
Others, (2008) 307 ITR 103 (Delhi) relates to a different factual
ITA 255/2002 + connected Page 37 of 61
matrix. An application under Section 220(6) of the Act was filed but
the assessee was advised by Additional Commissioner to approach
Deputy Commissioner, who had concurrent jurisdiction. Assessee
complied and moved an application requesting Deputy Commissioner
for stay of demand by way of two applications and a direction was
passed to deposit 15% of the tax liability. Dispute arose whether the
application under Section 220(6) should have been decided by
Additional Commissioner or Deputy Commissioner. Reference was
made to the term Assessing Officer as defined in Section 2(7A) of
the Act and it was observed that under Section 220(6) discretionary
power vested with the Assessing Officer and since Additional
Commissioner was the Assessing Officer, he was required to exercise
the discretion and pass an order on the stay application. The
expression concurrent jurisdiction was interpreted to mean two or
more authorities having equal power to deal with the situation.
However, it was observed that this does not mean that one part of the
assessment should be dealt with by one officer and the other part by the
superior officer having concurrent jurisdiction. Either of them could
have exercised the power but once a decision was taken by any one of
the said authorities, the exercise must be terminated by the said
authority. It was accordingly observed that the application under
Section 220(6) was still pending, yet the Revenue was seeking to
enforce the demand thereby putting the cart before the horse.
Accordingly, appropriate directions were issued. In Commissioner of
Income Tax versus Anjali Dua, (2008) 219 CTR (Delhi) 183 the High
Court refused to interfere in view of the factual finding recorded by the
tribunal that the assessee had shifted her residence from Ludhiana to
Delhi and there was correspondence, which showed change in
ITA 255/2002 + connected Page 38 of 61
jurisdiction and place of assessment to Delhi, which was accepted and
there was a case of transfer of records, i.e., a transfer under Section 127
of the Act. It was accordingly held that upon transfer the Revenue
authorities at Delhi had necessary power and were competent to issue
notice under Section 148 of the Act. The aforesaid decision does not
deal with the question relating to annulment or setting aside of the
assessment. Reference has not been made to Section 124 of the Act
and the Revenue had not pleaded that at best the assessment could have
been set aside and not annulled. The aforesaid decision is not,
therefore, directly dealing with the issue and question raised before us,
i.e., the effect of not following the procedure prescribed under Section
124 and whether this would result in annulment or setting aside.
45. In Smriti Kedia versus Union of India and Others, (2011) 339
ITR 37 (Calcutta), a single Judge of the said High Court struck down
the notice issued by the Revenue authority at Delhi as there was no
transfer under Section 127 of the Act. The petitioner was all along
assessed at Kolkata. In the present case, we have noticed that the
respondent was assessed in Delhi and also had properties in Delhi as
per the claim of the Revenue. Question of annulment or setting aside
was not raised or answered. Lt. Col. Paramjit Singh versus
Commissioner of Income Tax and Another, (1996) 220 ITR 446
(P&H) has been dissented from by the Delhi High Court in the case of
K.K. Loomba vs. CIT and Ors. (2000) 241 ITR 152 (Del.). The last
decision referred is in the case of Rishabh Buildcon (P) Limited
versus Commissioner of Income Tax, Delhi-V, (2011) 10
Taxman.com 227 (Delhi). In this writ petition, order of transfer under
Section 127 was challenged. It was observed that the reasons given by
the authority should be cogent and germane having nexus to the facts.
ITA 255/2002 + connected Page 39 of 61
Noticing that facts relied by the Revenue were absent and not recorded
in the impugned order, direction for fresh decision after affording
adequate opportunity of hearing and by ascribing reasons was passed.
46. At this stage, we would like to examine and deal with the
contention that the decision in the case of S.S. Ahluwalia vs. State of
Nagaland reported in (1996) 220 ITR 523 (Gauhati), which has been
referred to earlier, operates as res-judicata. We have already quoted
the prayer clause in the writ petition and also the direction and the
findings given by Gauhati High Court in the case of the respondent
assessee. The said findings are in fact the entire reasoning and ratio of
the said decision, as earlier paragraphs refer to the submissions on
behalf of the respondent assessee and the Revenue. What was
quashed in the said decision were letters dated 15th March, 1990 and
20th September, 1990. The said letters have been noticed above. Letter
dated 15th March, 1990 related to transfer of records by the ITO,
Dimapur to the Assessing Officer at Delhi. Letter dated 20 th
September, 1990 was written by the Income Tax Officer/Assessing
Officer at Dimapur for transfer of income tax return for the year 1990-
91 filed before him. The second letter also stated that the jurisdiction
of the case was with ACIT (Investigation) Delhi, Circle 8(1). There is
no observation for finding in the said judgment relating to jurisdiction
of the Assessing Officer with reference to the assessment year 1985-
86, 1986-87 and 1987-88.
47. Section 124 (7) of old provisions and new Section 124(5) require
clarification and elucidation. In Kanji Mal & Sons (supra), it was held
that sub section (7) to Section 124 was an overriding clause that
brushes away all technicalities of Section 124 (1) to (6) including sub
ITA 255/2002 + connected Page 40 of 61
section (4). It protects validity of an assessment even when there was
violation in pursing the procedure outlined in sub-section 4, despite
challenge made by the assessee. However, sub section (7) to Section
124 would come into play and an order of assessment under the said
sub-section could be sustained only in very limited class of cases; i.e.
when an assessee has income accruing, arising or received only and
within a particular area and does not have income anywhere else.
48. This brings us to the Section 127 of the Act.
Pre-Amendment Section 127:
"127. Power to transfer cases.--(1) The
Commissioner may, after giving the assessee a
reasonable opportunity of being heard in the matter,
wherever it is possible to do so, and after recording
his reasons for doing so, transfer any case from one
or more of the following officers subordinate to him,
namely:--
(a) any Income-tax Officer or Income-tax Officers
;
(b) any Income-tax Officer or Income-tax Officers
having concurrent jurisdiction with the Inspecting
Assistant Commissioner, to any other Income-tax
Officer or Income-tax Officers (whether with or
without concurrent jurisdiction with the Inspecting
Assistant Commissioner) also subordinate to him
and the Board may similarly transfer any case from-
-
(i) any Income-tax Officer or Income-tax Officers,
or
(ii) any Income-tax Officer or Income-tax Officers
having concurrent jurisdiction with the Inspecting
Assistant Commissioner, to any other Income-tax
Officer or Income-tax Officers (whether with or
without concurrent jurisdiction with the Inspecting
Assistant Commissioner):
Provided that nothing in this sub-section shall be
deemed to require any- such opportunity to be given
ITA 255/2002 + connected Page 41 of 61
where the transfer is from any Income-tax Officer or
Income-tax Officers (whether with or without
concurrent jurisdiction with the Inspecting Assistant
Commissioner) to any other Income-tax Officer or
Income-tax Officers (whether with or without
concurrent jurisdiction with the Inspecting Assistant
Commissioner) and the offices of all such officers
are situated in the same city, locality or place:
Provided further that--
(a) where any case has been transferred from any
Income-tax Officer or Income-tax Officers to two or
more Income-tax Officers, the Income-tax Officers
to whom the case is so transferred shall have
concurrent jurisdiction over such case and shall
perform their functions in accordance with such
general or special orders in writing as the Board or
the Commissioner or the Inspecting Assistant
Commissioner authorised by the Commissioner in
this behalf, may make for the purpose of facilitating
the performance of such functions ;
(b) where any case has been transferred from any
Income-tax Officer or Income-tax Officers (whether
with or without concurrent jurisdiction with the
Inspecting Assistant Commissioner), to two or more
Income-tax Officers (with concurrent jurisdiction
with the Inspecting Assistant Commissioner), the
Officers (including the Inspecting Assistant
Commissioner) to whom the case is so transferred
shall have concurrent jurisdiction over such case and
shall perform their functions in accordance with
such general or special orders in writing as the
Board or the Commissioner may make for the
purpose of facilitating the performance of such
functions, and the Income-tax Officers shall perform
their functions also in accordance with such orders
or directions as the Inspecting Assistant
Commissioner may make under sub-section (2) of
section 124 or, as the case may be, under sub-section
(2) of section 125A.
(2) The transfer of a case under sub-section (1) may
be made at any stage of the proceedings, and shall
not render necessary the reissue of any notice
already issued by the Income-tax Officer or Income-
tax Officers from whom the case is transferred.
ITA 255/2002 + connected Page 42 of 61
Explanation.--In this section and in sections 121,
123, 124 and 125, the word "case", in relation to any
person whose name is specified in any order or
direction issued thereunder, means all proceedings
under this Act in respect of any year which may be
pending on the date of such order or direction or
which may have been completed on or before such
date, and includes also all proceedings under this
Act which may be commenced after the date of such
order or direction in respect of any year.
Post- Amendment Section 127 reads:
"127. Power to transfer cases.--(1) The Director
General or Chief Commissioner or Commissioner
may, after giving the assessee a reasonable
opportunity of being heard in the matter, wherever it
is possible to do so, and after recording his reasons
for doing so, transfer any case from one or more
Assessing officers subordinate to him (whether with
or without concurrent jurisdiction) to any other
Assessing officer or Assessing officers (whether
with or without concurrent jurisdiction) also
subordinate to him.
(2) Where the Assessing officer or Assessing
Officers from whom the case is to be transferred and
the Assessing officer or Assessing officers to whom
the case is to be transferred are not subordinate to
the same Director General or Chief Commissioner
or Commissioner,--
(a) where the Directors General or Chief
Commissioners or Commissioners to whom such
Assessing officers are subordinate are in agreement,
then the Director General or Chief Commissioner or
Commissioner from whose jurisdiction the case is to
be transferred may, after giving the assessee a
reasonable opportunity of being heard in the matter,
wherever it is possible to do so, and after recording
his reasons for doing so, pass the order;
(b) where the Directors General or Chief
Commissioners or Commissioners aforesaid are not
in agreement, the order transferring the case may,
similarly, be passed by the Board or any such
Director General or Chief Commissioner or
ITA 255/2002 + connected Page 43 of 61
Commissioner as the Board may, by notification in
the official Gazette, authorise in this behalf.
(3) Nothing in sub-section (1) or sub-section (2)
shall be deemed to require any such opportunity to
be given where the transfer is from any Assessing
officer or Assessing officers (whether with or
without concurrent jurisdiction) to any other
Assessing officer or Assessing officers (whether
with or without concurrent jurisdiction) and the
offices of all such officers are situated in the same
city, locality or place.
(4) The transfer of a case under sub-section (1) or
sub-section (2) may be made at any stage of the
proceedings, and shall not render necessary the re-
issue of any notice already issued by the Assessing
officer or Assessing officers from whom the case is
transferred.
Explanation.--In section 120 and this section, the
word "case", in relation to any person whose name
is specified in any order or direction issued
thereunder, means all proceedings under this Act in
respect of any year which may be pending on the
date of such order or direction or which may have
been completed on or before such date, and includes
also all proceedings under this Act which may be
commenced after the date of such order or direction
in respect of any year.
49. The said provision is different from Section 124 and deals with
transfer of cases both presently pending and where assessment have
concluded, as is clear from the Explanation to the said Section. It can
also relate to future assessments. We are for convenience considering
post amendment provisions. Transfer need not be to an assessing
officer having jurisdiction under Section 124(1) of the Act. The
procedure which has to be adopted/followed for transfer has been
stipulated. Opportunity of hearing where it is possible is stipulated
under sub-section (1) and it also mandates recording of reasons for
transfer of case from one Assessing Officer to another, whether or not
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having concurrent jurisdiction. This transfer can be made by Director-
General/Chief Commissioner or Commissioner. In case the Assessing
Officers are not subordinate to the same Director General/Chief
Commissioner or Commissioner, sub-section (2) comes into play and
this requires concurrence of the Directors-General, Chief
Commissioners or Commissioners. In case of disagreement, matter
has to be referred to the Board or Director General/Chief
Commissioner/Commissioner notified by the Board in the Official
Gazette. However, as per sub-section (3) opportunity of hearing is not
required when the transfer is to an officer within the same city, locality
or place. It must also be noted that as per sub-section (4) transfer of a
case under sub-section (1) or (2) can be made at any stage of the
proceedings and re-issue of notice by the Assessing Officer from
whom the case is transferred is not mandated.
50. Territorial aspect relating to authority of the Assessing Officer in
each assessment year was examined by a Division Bench of this Court
in K.K. Loomba (supra). In the said case, notices under Section 148
had been issued by the Assistant Commissioner of Income Tax
(Investigation), Circle 11(1), New Delhi, in respect of assessment years
1985-86 to 1987-88, 1988-99 to 1990-91 and 1992-93. Some
assessments had been made, while others were pending. Procedure
under Section 124(2) was followed and it was held that the Assessing
Officer at Delhi had jurisdiction as the petitioners had shifted their
business and profession to New Delhi after they had closed their
business and profession at Amritsar. For some of the years, the
petitioner had also filed returns at Amritsar. Referring to Section 127
of the Act, it was observed as under:-
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Section 120 provides for jurisdiction conferred on the
Income Tax authorities to exercise the powers and perform
the functions conferred by the Act. The jurisdiction between
different authorities can be divided by reference to (i)
territorial area, (ii) person or persons, (iii) income and
classes of income, and (iv) cases or classes of cases.
Section 124(1) has relevance to territorial jurisdiction. If area
wise jurisdiction has been conferred on the Assessing Officer
then a person carrying on business or profession must find
out the Assessing Officer having jurisdiction over the place
within which business or profession is being carried on. If
the assessee be a person not carrying on a business or
profession then he is subject to the jurisdiction of the
Assessing Officer vested with jurisdiction over the area
where he is residing.
Section 127 does not speak of power to transfer jurisdiction
; it speaks of transfer of "case", as defined in the Explanation
enacted to Section 127.
That being the position of law, we are very clear in our mind
that the petitioners having shifted their business/profession
and residence--both--in July, 1984, from Amritsar to Delhi,
the return could have been filed only before an Assessing
Officer having jurisdiction over the area where the
business/profession of the petitioners was situated. If there
was any doubt, the petitioners could have moved under
Section 124(2) for determining the question of jurisdiction
which the petitioners have not done. The proceedings
finalised at Amritsar after the petitioners had ceased to have
their business/profession at Amritsar would be without
jurisdiction. However, this observation would not obviously
apply to such proceedings which have been taken without
any objection as to the jurisdiction by either side and
permitted to achieve a finality.
It was further observed:
If a case falls under Section 124(4) then the question of
jurisdiction can be resolved only in the manner outlined in
that section and it cannot be challenged before or decided by
the appellate authorities. If the assessment can be supported
under Section 124(7), the provisions of Section 124(4) will
not apply and there is nothing to bar the jurisdiction of the
appellate authorities to uphold the assessment on that
ground. In such a case, there is no conflict between the
procedure outlined in Sub-sections (4) and (6) and the
appellate powers of the Appellate Assistant Commissioner
and the Tribunal.
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Section 124(7) is very limited in its operation. All
that it saves is an assessment made by an Income Tax Officer
(whether he has or not jurisdiction otherwise) provided that
the assessment does not bring to tax anything other than
income accruing, arising or received within the area over
which he exercises territorial jurisdiction.
Once it has been found that the two petitioners had their
business/profession situated at Delhi, the assessing authority
having natural jurisdiction over the area would have
jurisdiction to assess them, issue notices under
Section 148 as well, though referable to the period when they
were assessed or were assessable at Amritsar by virtue of
Sections 124(1) and 124(5) read with Section 120(1). No
order under Section 127 or even Section124(2) was called
for. Such an interpretation and the view of the law satisfies
the twin test of (i) the convenience of the assessee, and (ii)
the exigencies of tax collection.
51. In light of the aforesaid discussion, the following propositions
emerge:
(1) The respondent assessee was assessed at Delhi from 1980-81 to
1983-84.
(2) For the assessment years 1985-86, 1986-87 and 1987-88, the
Assessing Officer at Delhi had issued notices under Section
147/148 to the respondent assessee. There is no finding of the
tribunal, when these notices were to be served and whether the
respondent assessee within one month had raised objection to
the jurisdiction of the Assessing Officer at Delhi. However,
objection was raised during the course of the assessment
proceedings and as per the finding of the CIT (Appeals), within
one month of issue of notice under Section 142(1) of the Act,
but this aspect has not been discussed by the tribunal.
ITA 255/2002 + connected Page 47 of 61
(3) Aforesaid notices were issued to the respondent assessee at his
residential address namely F-5, N.D.S.E. Part II, New Delhi, a
property purchased and owned by the respondent assessee.
(4) For assessment year 1984-85, the respondent assessee had filed
his return with Income Tax Officer, Dimapur and proceedings
initiated by the AO, Delhi were dropped but the reasons for
dropping the proceedings at Delhi are not on record.
(5) For the assessment year 1985-86, the respondent had filed return
of income with ITO, Dimapur on 8th August, 1985 but the said
return was declared null and void by the ITO, Dimapur in view
of non-compliance of Section 139(9) i.e. failure to rectify the
defects as per the finding of the CIT (Appeals) in order dated
26th February, 1993. ITO Dimapur, thereupon issued notice
dated 26th June, 1987 under Section 148 of the Act for the
assessment year 1985-86. This finding has not been reversed or
commented upon by the tribunal.
(6) There is a dispute whether any return of income was filed by the
assessee at Dimapur for assessment year 1986-87. The
assessee claims that return of income was filed for the
assessment year 1986-87 on 30th July, 1986 with ITO, Dimapur
but there is no proof or evidence. Notice under Section 148
was issued by ITO, Dimapur on 26th June, 1987.
(7) For the assessment year 1987-88, the respondent had filed return
with ITO, Dimapur on 27th April, 1988 but defect memo dated
6th July, 1988 was issued. However, no order was passed
declaring the return void or bad on account of the fact that TDS,
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self assessment and advance tax challans and dividend warrants
etc. had not been attached.
(8) There was exchange of correspondence between Assessing
Officer at Delhi and ITO, Dimapur. ITO, Dimapur conceded
and accepted that for the assessment years 1985-86, 1986-87
and 1987-88, the Assessing Officer at Delhi had jurisdiction to
initiate and complete the assessment proceedings. However, the
procedure under Section 124 of the Act was not followed and
the Commissioners concerned did not deliberate in writing upon
the said issue. Even if they did, no such document or evidence
was brought on record.
(9) After the order of the CIT (Appeals) dated 26.02.1993 setting
aside the assessment but permitting the Assessing Officer to
proceed further from the stage of default and directing
compliance of Section 127 of the Act, ITO, Dimapur had passed
assessment orders in respect of assessment years 1985-86, 1986-
87 and 1987-88. This fact has not been adverted to and noticed
by the tribunal in the appeals relating to second and fourth
round. Thus the assessment orders in the second round were not
passed by the Assessing Officer at Delhi but the ITO Dimapur.
This was crucial and relevant fact but was not referred to and
considered by the tribunal while examining the appeals in the
second and fourth round.
(10) Subsequently, an order under Section 127 of the Act
dated 14th August, 1995 was passed and the case was transferred
to ITO, Ward No. 20(3), New Delhi. In terms of the said
transfer, the respondent assessee had preferred appeals against
ITA 255/2002 + connected Page 49 of 61
the assessment orders for assessment years 1985-86, 1986-87
and 1987-88 passed by ITO, Dimapur before the CIT(Appeals)
at Delhi which was allowed vide order dated 27th March, 1997
with remit to the Assessing Officer to re-examine the issue on
merits after giving fair and reasonable opportunity to the
respondent assessee. The assessee did not challenge and
question the jurisdiction of the ITO, Dimapur or the Assessing
Officer at Delhi after order dated 14th August, 1995 under
Section 127 of the Act.
(11) In the third round, the Assessing Officer at Delhi passed
the assessment orders in view of the order under Section
127(2)(a) dated 14th August, 1995. But this order was again set
aside by the CIT (Appeals) for want of fair and adequate
opportunity, with the order of remand to the Assessing Officer
at Delhi. The said order remained unchallenged by both the
respondent assessee and the Revenue meaning thereby that they
accepted the order of remit to the Assessing Officer at Delhi.
However, this would not affect the challenge to the earlier order
of remand in the first round and if the said order is struck down
or set aside, the orders passed by the Assessing Officer in the
second, third or fourth round would be inconsequential.
(12) Sections 120, 124 and 127 of the Act underwent
amendments with effect from 1st April, 1988. The said
provisions being procedural in nature, the amendments would
apply to the pending proceedings. Notices under Section 148 of
the Act by the appellant i.e., A.O, Delhi were issued prior to 1 st
April, 1988 and therefore, earlier provisions would apply with
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reference to proceedings upto 31st March, 1988 and accordingly,
limitation period for challenging of assessment etc. would be
applicable. However, the assessment orders were passed post
1.4.1988. CIT (Appeals) has observed that in absence of proof
of service of notices under Section 148, date of notice under
Section 142(1) was relevant. Notices under Section 142(1) were
post 1.4.1988. There is no factual finding on service of notices
under Section 148 of the Act by the Tribunal. It is imperative to
observe that in spite of the amendments, the basic postulates of
the provisions both pre and post amendments remain
substantially similar. The provisions as they existed before and
after the amendments, postulate filing of objections before the
Assessing Officer within stipulated periods, reference to the
Commissioner or Commissioners concerned and a decision by
the said Commissioner/ Commissioners/ the Board/ appropriate
authority in case of disagreement between the Commissioners.
(13) The provisions indicate that Sections 120, 124 and 127 of
the Act recognizes flexibility and choice, both with the assessee
and the authorities i.e. the Assessing Office before whom return
of income could be filed and assessment could be made. The
Assessing Officer within whose area an assessee was carrying
on business, resided or otherwise income had accrued or arisen (
in the last case, subject to the limitation noticed above) has
jurisdiction. Similarly, the Assessing Officer also has authority
due to class of income or nature and type of business. The Act,
therefore, recognized multiple or concurrent jurisdictions.
Provisions of Section 124 ensures and prevents two assessments
by different assessing officers, having or enforcing concurrent
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jurisdiction. There cannot be and the Act does not envisage two
assessments for the same year by different officers.
(Reassessment order can be by a different officer).
(14) In view of the decision of Delhi High Court in K.K.
Loomba (supra), each year is separate and distinct year and in
case the assessee shifts his residence or place of business or
work etc., the Assessing Officer of the place where the assessee
has shifted or otherwise, will have jurisdiction and it is not
necessary that an order under Section 127 of the Act should be
passed. This, however, does not mean that the Assessing Officer
where the returns of income were earlier filed ceases 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. There is no specific finding by the Tribunal
with reference to Section 124 of the Act on the question of
jurisdiction on the basis of residence, class, income etc.
(15) The Assessing Officer at Delhi as well as ITO, Dimapur
had issued notice under Section 148 of the Act in respect of
assessment years 1985-86 and 1986-87. For the assessment year
1987-88 AO, Delhi had issued notice under Section 148 and
ITO,Dimapur had taken up regular assessment proceedings.
Return of income for the assessment year 1985-86 filed by the
respondent assessee before ITO, Dimapur was declared invalid
and as per Revenue no return of income has been filed by the
assessee for the assessment year 1986-87. In respect of
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assessment year 1987-88, return of income was filed by the
assessee with ITO, Dimapur but defective notice was issued.
(16) Assessing Officer, Delhi was wrong in assuming that as
returns for the assessment years 1980-81 to 1983-84 were filed
in Delhi, he would alone continued or had exclusive jurisdiction
for assessment year 1985-86 onwards as well. ITO, Dimapur
wrongly accepted the said plea/contention and had erroneously
understood the legal provisions. They had concurrent
jurisdictions, if the respondent assessee had residence in Delhi.
The said stance and stand of the Revenue is contrary to their
own stand in the case of K.K. Loomba (supra). On the said
aspect, decision of the Delhi High Court in the case of K.K.
Loomba (supra) is binding on us. Thus, the question of
jurisdiction or the place of filing has to be examined each year
with reference to provisions of Section 124 of the Act. Decision
in K.K Loomba (supra) was pronounced in the year 2000 and
dissents from the view/ratio of the Punjab and Haryana High
Court in Lt. Col Paramjit Singh (supra). Thus, when the
proceedings were going on, the legal position was not clear and
hence, debatable. However, as noticed above, Section 124 of the
Act provides flexibility and postulates multiple and concurrent
jurisdiction including filing of return and where the assessee has
permanent or current residence or where he has sole/only source
of income.
(17) The Tribunal could not have gone into the question of
jurisdiction of AO, Delhi except on the question and issue
whether there was any lapse on the part of the Assessing Officer
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in not following the procedure prescribed under Section 124 of
the Act and effect thereof. As in the present case, the procedure
under Section 124 was not followed by the Assessing Officer,
the effect thereof could have been considered and examined by
the Tribunal.
(18) The Tribunal has erred and incorrectly held that failure to
follow the procedure under Section 124 makes the assessment
order a nullity and an order of annulment should be passed. We
have held that an assessment order passed without making
reference to Commissioner/ Commissioners under Section 124 is
not a nullity for want of jurisdiction but it results in irregularity
which can be rectified by order of remit and directing the
Assessing Officer to continue with the proceedings from the
stage where the error had occurred. This was directed and held
by the CIT (Appeals), but 9 years later reversed by the Tribunal.
To this extent, the decision of the Tribunal cannot be sustained.
52. In view of the aforesaid discussion, we answer the substantial
questions of law relating to the first round, i.e., ITA Nos. 256/02,
257/02 and 255/02 holding:-
(i) There was failure on the part of the Assessing Officer,
Delhi and ITO, Dimapur in not following the procedure
prescribed under Section 124 of the Act, but this would not
make the assessment in the first round a nullity. The
assessment order passed should have been set aside as was
directed by CIT(Appeals) and assessments remitted for a fresh
decision. Question of law is accordingly answered in favour
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of the Revenue and against the respondent-assessee but in the
aforesaid terms.
(ii) ITA Nos. 314/02, 315/02 and 316/02 which relate to the
second round, the substantial question of law is answered in
favour of the Revenue and against the respondent-assessee.
The tribunal clearly erred in not noticing that in the second
round assessment order were passed by ITO, Dimapur and
consequent to the order under Section 127, the first appeal
was decided by CIT(Appeals) at Delhi. In view of the
decision in ITA Nos. 256/02, 257/02 and 255/02 relating to
the first round, the order of the tribunal dated 13.05.2002
cannot be sustained.
(iii) In view of the answers to the substantial questions of law
mentioned above relating to the first and the second round,
the substantial question of law in the fourth round i.e. ITA
Nos. 1577/2006, 1578/2006 and 1580/2006 has to be
answered in favour of the Revenue and against the
respondent-assessee but subject to the observations made
above.
53. In light of the aforesaid discussions, ITA Nos. 314/02, 315/02,
316/02, 1577/06, 1578/06 and 1580/06 relating to the second and the
fourth round are remitted to the tribunal for fresh decision on merits
on the additions made by the Assessing Officer. Paper books relating
to the first round subject matter of ITA Nos. 256/02, 257/02 and
255/02 will be also made available and placed before the tribunal. To
cut short delay, parties are directed to appear before the tribunal on
15th April, 2014, when a date of hearing will be fixed.
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WTAs 13/2006, 14/2006, 15/2006, 16/2006 & 18/2006
54. At the outset, we notice that two appeals being WTA Nos.
15/2006 and 16/2006 have been filed in respect of assessment year
1986-87. The reason, it appears, is that there were two cross appeals
before the tribunal for the said assessment year.
55. By order dated 20th February, 2007, the following substantial
question of law has been framed in the Wealth Tax Appeals:
Whether the Income Tax Appellate Tribunal
was correct in law in holding that the Wealth
Tax Officer has no jurisdiction to pass the
assessment order in the case of Assessee and
thereby quash the assessment framed?
56. For the purpose of record, we observe that the tribunal had
passed a common order dated 8th February, 2006 in respect of four
assessment years and has held that the Wealth Tax Officer had no
jurisdiction to pass the assessment orders under the Wealth Tax Act,
1957 (WT Act, for short) in view of the orders passed by the Income
Tax Appellate Tribunal under the Act i.e. Income Tax Act, 1961 in
different income tax appeals relating to assessment years 1985-86,
1986-87, 1987-88 and 1988-89 vide orders dated 13th May, 2002 and
9th August, 2002. The tribunal in the impugned order has not
discussed factual matrix or details relating to wealth tax proceedings.
Section 11 of the WT Act before its amendment by the Direct Tax
Laws (Amendment) Act, 1987 before 31st March, 1988 stipulated that
the authorities shall perform their functions in accordance with such
orders as the Commissioner may make for allocation of work to be
performed. With effect from 1st April, 1988, Section 11(1) of the WT
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Act stipulated that the provisions of Section 124 and 127 of the Act i.e.
the Income Tax Act so far as it may be, shall apply subject to
modifications in sub-section (2). (The said sub section is not relevant
for the present decision).
57. We may now refer to the factual matrix as is apparent from the
assessment orders and appellate orders relating to assessment years
1985-86 to 1988-89.
WTA 13/2006 (A.Y. 1985-86) -Valuation dated 31st March, 1985
(1) A notice under Section 17 of the WT Act was issued and return
of wealth tax declaring wealth of Rs.1,14,900/- dated 18th
October, 1994 was filed by the respondent assessee. By
assessment order dated 17th March, 1997, the net wealth was
assessed at 67,80,000/-.
(2) The respondent assessee did not object to the jurisdiction of the
Assessing Officer in Delhi and the address as disclosed in the
wealth tax assessment order was F-5, N.D.S.E. Part II, New
Delhi.
(3) The respondent assessee filed an appeal but did not question the
jurisdiction of the Assessing Officer. Commissioner (Appeals)
by order dated 27th January, 1999 passed an order of remand on
the ground that question of ownership of 18 flats assessed as
wealth of the assessee was to be examined and was a subject
matter of the income tax proceedings. These flats as per the
assessee belonged to assessee's relatives. Assessment order
was accordingly set aside for de novo assessment in accordance
law with the direction that the question of ownership of the
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assets could be examined and established more appropriately in
the income tax proceedings. The assessee did not prefer any
appeal against the order of the Commissioner (Appeals) and as
noticed above, the question of jurisdiction of the Assessing
Officer was not challenged.
(4) The Assessing Officer thereupon passed order dated 23rd March,
2001 and taxable wealth was assessed at Rs.23,48,670/-.
(5) Commissioner (Appeals) substantially upheld the additions
made by the Assessing Officer including additions made on
account of 18 commercial flats and he also upheld the issue of
notice under Section 17 of the WT Act. He also upheld
addition of Rs.18,54,000/- as unexplained deposits and
Rs.5,00,000/- and Rs.60,450/- on account of FDRs etc. He
directed that income tax and wealth tax liabilities should,
however, be allowed as deduction. It is noticeable that the
question of territorial jurisdiction of the Assessing Officer was
not challenged before the Commissioner (Appeals).
WTA 15/2006 (A.Y. 1986-87)
1) In this year notice under Section 17 was issued and return of net
wealth of Rs.1,06,900/- was filed on 18th October, 1993 with the
address F-5 N.D.S.E. Part II, New Delhi. Respondent did not
object to jurisdiction of the Assessing Officer. By assessment
order dated 17th March, 1997, net taxable wealth tax was
assessed at Rs.1,24,91,000/-.
2) Commissioner (Appeals) vide order dated 27th January, 1999
set aside the said assessment with direction for de novo
assessment on the basis of income tax proceedings as in the last
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year. Respondent assessee did not challenge jurisdiction of the
Assessing Officer before the Commissioner (Appeals).
3) By de novo assessment order dated 23rd March, 2001,
assessment was again framed at taxable wealth of
Rs.1,19,91,400/-. Commissioner (Appeals) substantially
upheld the said additions including additions made on account
of 18 flats but held that that income tax and wealth tax liability
should be allowed as per Wealth Tax Act. The assessee did not
challenge and question jurisdiction of the Assessing Officer
before the Commissioner (Appeals).
WTAs 16/2006 and 18/2005 (Assessment year 1987-88)
1) Return of income was filed after issue notice under Section 17
on 18th October, 1993 declaring net wealth of Rs.1,19,900/-.
The assessee did not challenge jurisdiction of the Assessing
Officer. By assessment order dated 17th March, 1997,
assessment made at taxable wealth of Rs. 99,49,000/-.
2) The assessment was set aside with direction for de novo
assessment for reasons and as in the assessment year 1985-86
and 1986-87. The assessee did not challenge the jurisdiction of
the Assessing Officer at Delhi.
3) De novo fresh assessment order dated 23rd March, 2001 was
passed computing the taxable wealth of Rs.99,49,000/-.
4) Commissioner (Appeals) by order dated 31st March, 2005
upheld the validity of Section 17 notice and substantially upheld
the additions. However, he granted exemption/relief in respect
of value of trees on agricultural land which were held to be
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exempt. He further directed that liabilities on account of wealth
tax and income tax should be allowed as per laws. The assessee
did not challenge and question the jurisdiction of Assessing
Officer at Delhi.
WTA 14/2006(A.Y. 1988-89)
1) Notice under Section 17 of the WT Act was issued and return of
wealth declaring wealth of Rs.1,38,400/- was filed on 18th
October, 1993. By assessment order dated 17th March, 1997,
assessment was framed at a taxable wealth of Rs.53,34,100/-.
The assessee did not question jurisdiction of the Assessing
Officer in Delhi in the assessment proceedings.
2) Commissioner (Appeals) set aside the assessment order as done
in earlier orders vide order dated 27th January, 1999. Question
of jurisdiction was not raised before the Commissioner
(Appeals).
3) The assessment was again framed by de novo assessment order
dated 23rd March, 2001 at taxable wealth of Rs.53,34,100/-.
4) On appeal, Commissioner (Appeals) vide order dated 31st
March, 2005 upheld the validity of notice under Section 17 and
several additions made by the Assessing Officer. However,
relief was granted in respect of value of construction of structure
and eucalyptus trees on the agricultural land, income tax and
wealth tax liabilities. Some other reliefs were also granted.
58. In light of the aforesaid discussion and the position of law, the
substantial question of law raised in the present wealth tax appeals are
answered in favour of the appellant-Revenue and against the
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respondent-assessee. It is apparent that the respondent assessee did
not challenge and object to the jurisdiction of the Assessing Officer at
any stage. Reference to the Commissioner/Commissioners was not
required as per the Section 124 of the Act. There was waiver and
respondent/assessee had accepted jurisdiction of the AO, Delhi.
Tribunal could not have, therefore, held to the contrary. The tribunal
will now decide the appeals of the assessee/Revenue pending before
them on merits and not on the question of jurisdiction of the Assessing
Officer. To cut short delay, parties are directed to appear before the
tribunal on 15th April, 2014, when a date of hearing will be fixed.
59. Appeals are accordingly disposed of. In the facts and
circumstances of the present case, there will be no order as to costs.
(SANJIV KHANNA)
JUDGE
(SANJEEV SACHDEVA)
JUDGE
March 14th, 2014
KKB/NA/VKR
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