Kamlesh Kumar Agarwal vs ITO

This appeal is filed by the assessee against the order of the Ld. Commissioner of Income Tax (Appeals), Ghaziabad dated 06.12.2016 for the AY 2008-09. The assessee in his appeal raised the following grounds: -

1) “That having regard to the fact and circumstances of the case, Ld. CIT(A) has erred in law and on facts in confirming the action of Ld. AO in framing the impugned reassessment order as the assessment order was passed without complying with the mandatory conditions of section 147 to 151 of the Income Tax Act, 1961 and without recording valid reasons as per law and without obtaining valid approval as per law and in any case reopening of the assessment and framing of the reassessment order was contrary to law.

2) That in any view of the matter and in any case, action of Ld. CIT(A) in confirming the action of Ld. AO in reopening of the impugned assessment u/s 143(3)/147 is bad in law and against the facts and circumstances of the case.

3) That having regard to the facts and circumstances of the case, Ld. CIT(A) has erred in law and on facts in upholding the action of the Ld. AO in making an addition of Rs.37,00,000/- allegedly on account of bogus purchases and that too by recording incorrect facts and findings and by disregarding the evidences/submissions filed by the assessee and in violation of principles of natural justice.

4) That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the addition of Rs.37,00,000/- is bad in law and against the facts and circumstances of the case.

5) That having regard to the facts and circumstances of the case, the Ld. CIT(A) has erred in law and on facts in confirming the action of the Ld. AO in passing the impugned order without giving adequate opportunity of being heard.

6) That in any case and in any view of the matter, action of Ld. CIT(A) in confirming the action of Ld. AO in making the impugned addition is bad in law and against the facts and circumstances of the case.

7) That the appellant craves the leave to add, alter or amend the grounds of appeal at any stage and all the grounds are without prejudice to each other.”

The assessee in the grounds of appeal challenged the very jurisdiction of the AO in reopening the assessment u/s 147 of the Act apart from various other legal grounds as well as grounds on merits.

The Ld. Counsel for the assessee at the outset submits that the AO who assumed jurisdiction to reopen the present assessment was not the AO who was having jurisdiction over the assessee. The Ld. Counsel submits that as the assessee was always assessed to tax by ITO, Ghaziabad as assessee has all along being filing his Income tax return at Ghaziabad which is evident from the copy of acknowledgement of return filed by the assessee for the assessment years 2008-09 and also 2006-07 as appearing at pages 1 & 85 of the Paper Book respectively. The Ld. Counsel for the assessee submits that in the instant case jurisdiction was assumed by the Ld. AO at New Delhi which is evident from the notice issued u/s 148 dated 30.03.2015 which is placed at page 3 of the Paper Book. Therefore, the Ld. Counsel submits that reopening by a Non-Jurisdictional Officer is bad in law. Ld. Counsel placed reliance on the following decisions:

• M.I. Builders (P) Ltd. vs. ITO, 115 ITD 419 (Lucknow);

• Anil Kohsla (Delhi High Court), ITA 838/2008, Date of order 01.09.2008;

• Ranjeet Singh vs. ACIT, (2009) 120 TTJ 0517 (Del.);

• Chetna Kukreja vs. ACIT in ITA 2141/Del/2009, ITAT, Delhi.

On the other hand, Ld. DR supported the orders of the authorities below.

In this case the assessee resident of B-10, Balram Nagar, Lohni, Ghaziabad, Uttar Pradesh filed return of income in Range-1, Ghaziabad on 17.12.2008 declaring income of Rs.1,11,090/-. Subsequently, notice u/s 148 of the Act dated 30.03.2015 was issued for the assessment year under consideration by the Income Tax Officer, Ward 70(3), New Delhi stating that income chargeable to tax for AY 2008-09 has escaped assessment within the meaning of section 147 of the Act. In response to the said notice the assessee filed letter dated 16.04.2015 stating that the return filed on 17.12.2008 may be treated as return filed in response to the said notice. Assessee also requested for reasons for reopening of assessment by initiating proceedings u/s 148. The ITO, Ward 70(3), New Delhi by letter dated 02.06.2015 communicated the reasons for reopening of assessment. The assessee by letter dated 21.12.2015 objected to reopening of assessment stating it as bad in law. It was contended that the reasons recorded are vague and there is no material evidence for forming the belief that income has escaped assessment. However, the reassessment was completed on 28.12.2015 u/s 147 read with section 143(3) of the Act determining the income of the assessee at Rs.38,11,090/- by the Income Tax Officer, Ward 1(3), Ghaziabad. Assessee contends that the notice u/s 148 was issued by the ITO, Ward 70(3), New Delhi, whereas the jurisdictional AO was ITO, Ghaziabad and, therefore, since the notice for reopening of assessment was issued by non-jurisdictional authority the reassessment proceedings are invalid and, the assessment order passed in pursuance to such notice is a nullity.

5.1 On perusal of the notice issued u/s 148 it is observed that ITO, Ward 70(3), New Delhi has issued notice u/s 148 for reopening the assessment of the assessee who is a resident of Ghaziabad and filing returns in Range-1, Ghaziabad. The assessee filed returns for the assessment years 2006-07 and 2008-09 in Range-1, Ghaziabad as is evident from pages 1 & 85 of the Paper Book. Therefore, it is amply clear that the jurisdictional AO for making assessments of the assessee is ITO, Ghaziabad and not ITO, Ward 70(3), New Delhi.

In the case of M.I. Builders Pvt. Ltd. vs. ITO [115 ITR 491 (Luck.)] similar issue came up for adjudication and the Tribunal held as under: -

The Hon'ble Allahabad High Court in CIT v. Metal Goods Manufacturing Co. Pvt. Ltd. held that a court or a tribunal deciding the matter must possess the jurisdiction. It also should have power to decide the matter before it. Hon'ble Kerala High Court in K.V. Ceder Haji (Deed) v. CIT clarified distinction between Sections 120 and 127. It was held that Section 120 uses the expression 'jurisdiction' whereas Section 127 uses the expression 'power' having different meaning and content. While exercising Section 127 gives power to the Chief Commissioner to transfer case from one officer to another officer whereas Section 120 gives jurisdiction to the Assessing Officer to make assessment over the assessee assigned to them.

The Hon'ble Calcutta High Court in ITO v. Ashoke Glass Works held that there is no right to an assessee to be heard by a particular officer. He can be heard by an officer having jurisdiction over the matter. The jurisdiction is transferred to another officer as soon as an order to this effect is passed by the competent authority. Thus, after having passed an order Under Section 120. ACIT. Range-IV. Lucknow ceased to have jurisdiction over the assessee. He cannot issue nonce Under Section 148(1) as he lacked jurisdiction. Since assessee has challenged the jurisdiction of the ACTT. Range-IV, Lucknow vide his letter dated 19.4.2004. ACIT. Range-1V Lucknow ought not to have proceeded with the reassessment proceedings. In any case, according to the protest by the assessee, ACIT, Range-IV. Lucknow transferred the proceedings for the assessment year 1997-0 to the Addl. CIT. Range-1. Lucknow. who finally passed a reassessment Order. It was not the case that assessee had, not objected to the assumption of jurisdiction by ACIT, Range-1V, Lucknow within one month Under Section 124 as claimed by IA. DR. However, estoppel cannot be invoked from the proceeding for the assessment year 2001-02 which were initialed by the ACIT, Range-IV, Lucknow on the basis of return filed by the assessee with him prior to change of jurisdiction vide order Under Section 120 of 1.8.2001 it is settled principle of law that jurisdiction cannot be assumed by consent. It has to be given by the statute or by the authorities under the statute who are empowered in this behalf. Firstly, the Assessing Officer, ACIT, Range-1V, Lucknow ought to have transferred the proceedings relating to assessment year 2001-02 to the addl. CIT. Range-1, Lucknow immediately after receipt of order Under Section 120. An order Under Section 120 operates not only against the assessee but also against the Assessing Officer holding jurisdiction at the time of passing of the order Under Section 120. To continue with the proceedings after passing of the order Under Section 120; by the same old officer would be without jurisdiction and hence would be bad in law. Learned D.R. submits that Section 124(3) protects assessments so framed if the assessee does not object within a month of initiation of such proceeding. In our considered view, this validation of proceeding by virtue of Section 124(3) is specific from proceeding to proceeding and Section *24(3) cannot correct or create a jurisdiction in respect of other proceedings if the Assessing Officer otherwise does not have jurisdiction. In other words. the failure to object by the assessee within a month of the initiation of proceedings validates only that proceeding and assessment made thereafter if so provided Under Section 124(3) and does not validate any other proceedings if undertaken by the same Assessing Officer having otherwise no jurisdiction over the assessee. In this regard it would be pertinent to refer to Section 124(3).

(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 (I) of Section 115WD or] under Sub-section (1) of Section Iv. after the expiry of one month from the date on which he was served with a notice tinder 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 (I) of Section 142 or under Sub-section (i) 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.

The Clause (a) of above sub-section clearly shows that proceeding initiated by virtue of return filed or notice issued Under Section 142(1)/143(2) has to be objected within a month by the assessee if he calls in question the jurisdiction of the Assessing Officer. This clause provides validation of the proceedings initialed on filing of a return, or by issuance of notice Under Section 142(0. or under Section 143(2). or to a show cause notice issued to complete the assessment Under Section 144 if there is a failure to object within one month of imitation of such proceeding. As per Clause (b) where assessee has not filed return originally, then Assessing Officer can issue notice Under Section 148(1) asking the assessee to file the return and in that situation if the assessee does not call in question the jurisdiction of the Assessing Officer issuing the notice Under Section 148(1) then such proceedings and reassessment made thereafter is protected. In the present case, the assessee was originally assessed for the assessment year 1997-98 for which return was filed on 30.11.1997 along with the annual accounts and auditors report. An intimation Under Section 1430)(a) was issued by ACIT, Range-1V. Lucknow on 24.7.1998. Thereafter the Assessing Officer (ACIT, R-IV. Lukcnow) issued notice Under Section 148(1) on 29.3.2004. The protection of proceedings initiated Under Section 148(1) is covered by Clause (b) only and not by Clause (a) (if assessee does not object within a month). Clause (b) is applicable only in respect of those assessees who have not filed any return Under Section 139 for the relevant assessment year. Since the assessee had in fact filed a return Under Section :39 for the assessment year 1997-98 the protection to the proceeding initiated Under Section 148(1) in the case of this assessee will not be available to the revenue by virtue of Clause (b). But such protection will also not be available (on failure to protest within one month of the proceedings) under Clause (a) as that is not applicable to a proceeding initialed Under Section 149(1). Thus, in the present ease, it would be immaterial whether assessee has objected within one month of the issuance of notice Under Section 148 or not. Notwithstanding as the assessee has protested within one month of the issuance of notice Under Section 148(1) then right course to the Assessing Officer was to refer the matter to the Chief Commissioner as provided under Sub-section (2). In any case, invoking of Section *24(2) would arise if there was any chance of validation of proceedings by virtue of Section 124(3) which in our view is not available to the Assessing Officer in the present case either under Clause (a) or under Clause (b) of Section 124(3).

In the instant case, the assessment has been framed by Addl. CIT. Range-1. Lucknow in pursuance to the notice issued Under Section 148(1) by the ACTT. Range-1V. Lucknow. Even though the Addl. CIT. Range-t. Lucknow held jurisdiction over the assessee to frame the assessment but as the initiation of reassessment proceedings Under Section 148(1) are bad in law• therefore. reassessment so framed cannot be held to be legally valid. Hon'ble P&H High Court in Lt. Col. Paramjit Singh v. CIT (Supra), relied on in the l.d. A.R. of the assessee, held that reassessment framed by an officer having no jurisdiction would be invalid. In that case the notice was issued Under Section 148(1) by ITO. Jalandhar to reassess the assessee for the assessment year 1988-89 but it was quashed by Hon'ble P&H High Court. on the ground that assessee is being assessed regularly at Pune and his case has not been transferred from Pune to Jalandhar even though, the assessee has shifted his residence from Pune to Jalandhar. Similarly, llon'ble Gauhati High Court in Naginmara Veneer and Saw Mill Pvt. Ltd. v. DCIT (Supra). relied on by the 1.d. A.R. of the assessee, held that notice issued Under Section 148(1) by DCIT was invalid as he did not have jurisdiction to do so even though his ITO did have jurisdiction to issue such notice.

The argument of Learned D.R. that since the assessee has not objected to the assessment framed for the assessment year 2001-02 and, therefore, ACIT. Range-IV. Lucknow can validly issue notice Under Section 148(1) is not sustainable in law. As discussed above. protection of the proceedings and assessment thereafter on account of failure of the assessee to object within the time allowed Under Section 124(3) is available to specific proceeding and not to every proceedings. Erroneous assumption of jurisdiction cannot, in general. be validated. Such validation is specific in Section 124(3). Secondly. principles of estoppel are not applicable to Income tax proceedings. What may be acceptable or held in one year or in one proceeding cannot be in general held to be applicable to other proceedings. It is held by Hon'ble Gujarat High Court in Anant Mills Ltd. v. CIT (Supra) that estoppel is not applicable to successive assessments. In any case. estoppel cannot be made applicable to assumption of jurisdiction. It has to be specifically provided in the statute. We. therefore, do not find any force in the arguments in this regard submitted by the Learned D.R. The same are, therefore, rejected. So far as the merit of the case is concerned. in our considered view they arc merely academic as reassessment is cancelled as having been initialed without jurisdiction.

As a result, we hold that the Issuance of notice Under Section IOW by ACTT, Range-1V. Lucknow was without jurisdiction and therefore. invalid. The assessment framed on that basis by Addl. CIT. Range-t. Lucknow will also be invalid and therefore, is cancelled. The appeal of the assessee is therefore, allowed.

As could be seen from the above decision the Tribunal held that when the initiation of reassessment proceedings was made by the non-jurisdictional Assessing Officer the assessment made pursuant to such notice is invalid. This decision squarely applies to the facts of this case.

The second contention of the assessee was that the objections raised by the assessee for reopening of assessment which is placed at page 84 were not disposed off before completion of assessment by the AO. The Ld. Counsel submits that in spite of extracting the objections of the assessee on reopening of assessment by the AO in the assessment order, these objections were never disposed off in terms of the decision of Hon’ble Supreme Court in the case of GKN Driveshafts (India) Ltd. Vs. ITO [259 ITR 19].

Ld. Counsel further submits that this is also evident from the remand report which is placed at page 112 of the Paper Book submitted by the Ld. Assessing Officer who has stated that assessee never raised any objection on the proceedings u/s 147/148 of the Act. The Ld. Counsel referring to page 84 of the Paper Book which are the objections filed by the assessee submits that this is factually wrong. The Ld. Counsel submits that the assessee did file his objections on reopening of assessment which were never disposed off and, therefore, the assumption of jurisdiction u/s 147 is invalid. Reliance was placed on the decision of Hon’ble Delhi High Court in the case of PCIT Vs. Tupperware (India) Pvt. Ltd. [236 Taxman 494. Reliance was also placed on the following decisions of Delhi Benches of ITAT:

• Suresh Chandra Vs. ITO (ITA 3061/Del/2012 dated 13.03.2015);

• S Power Pvt. Ltd. Vs. ITO (ITA 454/Del/2014).

On hearing both the sides and perusing the order of the authorities below and the paper book filed before me it is noticed that the assessee by letter dated 21.12.2015 objected for reopening of assessment stating as under:

Dated: 2112/2015

To,

The Income Tax Officer,

Ward 1(3),

Ghaziabad.

Subject: Assessment/re-assessment proceedings u/s 147 r.w.s. 148 of the Income Tax Act, 1961 in the case of Sh. Kamlesh Kumar Agarwal for the AY 2008-09.

R/Madam,

As required by your goodself, we are herewith submitting that-

During the year in consideration, the assessee had incurred the losses and also closed down the business. Therefore, the assessee had not claimed losses incurred in the business as there was no remote chance to continue the business in near future. After the assessment year under consideration, assessee has also not carried out any business activity. Except this business loss of Rs.34,779/-, there was no difference between the original return filed and return filed under section 148.

During the year in consideration, the assessee has made total purchases of Rs.38,30,153/- and sales of Rs.40,05,000/-against which how the purchases of Rs.37,00,000/- can be disallowed. Therefore, purchase of Rs.37,00,000/- can’t be added in income to the year under consideration against the only sales of Rs.40,05,000/-.

It is respectfully submitted that the reopening of the present case and the subsequent proceedings thereto are bad in law and are not in accordance with law. The reason recorded is vague and there is no material evidence for forming the belief that income has escaped assessment. We seriously object these proceedings.

Hope you will find everything in order.

Thanking you,

For Kamlesh Kumar Agarwal

Sd/-

Sunil Agrawal

(Authorised Representative)

I also noticed that the AO in the assessment order even though the objections raised by the assessee were extracted they were not disposed off by a speaking order.

In the case of CIT Vs. Tupperware India Pvt. Ltd. (supra) the Hon’ble High Court held as under:

Apparently, the Assessee did raise an objection to the order of the AO reopening the assessment. In the order dated 28th January 2011 allowing the Assessee's appeal, the Commissioner of Income Tax (Appeals) NIT (A)'] noted that the Assessee had indeed filed objections to the reopening of the assessment by its letter dated 9th August 2006. In the remand report dated 20th December 2010, the AO quoted a paragraph from the order sheet which stated that the aforementioned letter dated 9th August 2006 had been handed over to the AO and that the AO had sought some more information which the Assessee had not filed. The CIT (A) accordingly held that by stating that no objections had been filed, the AO had "very conveniently disregarded the guidelines" laid down by the Supreme Court in G.K.N. Driveshafts (India) Ltd. l. ITO (2003) 259 ITR 19 (SC). The CIT (A), therefore, agreed with the Assessee that since the procedure laid down by the SC in the aforementioned decision was mandatory, the AO had in fact not disposed of the objections by a speaking order. Nevertheless, the CIT (A) held that the said defect "does not make the assessment order illegal and hence it cannot be quashed. It is a technical mistake which is curable."

The Court is sif the considefed view that after having correctly understood the decision of the Supreme Court in G. R.:\: Driveshafts (India) Ltd. (supra) as mandatorily requiring the AO to comply with the procedure laid down therein and to dispose of the objections to the reopening order with a speaking order. the C1T (A) committed an error in not quashing the reopening order and the consequent assessment.

The CIT (A) in the order dated 28th Janury 2011 proceeded to examine on merits the challenge by the Assessee (in Ground No.4) to the order of the AO disallowing the management service fee. The CIT (A) agreed with the submissions of the Assessee and held that in view of the 'Nil' withholding certificate issued by the DDIT Circle 1 (2) of the International Tax Division in favour of the Assessee in terms of the Double Taxation Avoidance Agreement (‘DTAA’) between the India and the USA, there was no need for the Assessee to charge tax or withhold tax under Section 195 of the Act. Therefore, on merits the CIT (A) deleted the disallowance of the above deduction. The CIT (A) also noted that the said expenses were not disallowed in AY 2004-05 "even when the assessment for the said order so completed with the disallowance of this order."

The above findings on merits in Ground 4 by the CIT (A) in favour of the Assessee, was not challenged by the Revenue before the ITAT in ITA No. 2140/De1i2011 for 2003-04. With the Revenue not having challenged the order of the CIT (A) deleting the disallowance made by the AO pursuant to the reopening of the assessment, the challenge by the Revenue only to that portion of the order olthe 11 A holding that the reopening was not legally sustainable, ren emilie issue academic.

Consequently, for both the aforementioned reasons, viz., that there was a failure by the AO to comply with the mandatory requirementlif disposing of the objections of the Assessee to the reopeniig in terms of tie law explained by the Supreme Court in G.K.N. Driveshafts (India) Ltd. (supra) as well as on account of the failure of the Revenue to challenge before the ITAT the order of the CIT (A) deleting on merits the disallowance made by the AO of the management service fee consequent upon reopening of the assessment, there appears to be no need to examine the issue projected by the Revenue in this appeal viz., the justification for re-opening the assessment under Section 147/148 of the Act.

In the case on hand also the AO did not comply with the procedure as laid down by the Hon’ble Supreme Court in the case of GKN Driveshafts (India) Pvt. Ltd. making the assessment as bad in law. Therefore, in view of the above discussion, I hold that the reassessment made by the AO is bad in law and accordingly the reassessment order is quashed. As the reassessment was held to be bad in law on the preliminary grounds and the very jurisdiction of initiation of proceedings u/s 148 of the Act the other grounds raised by the assessee are not gone into as they become academic at this stage.

In the result, the appeal of the assessee is allowed as indicated above.