2014 (3) TMI 624 - HC - Income Tax

Jurisdiction of the ACIT to pass the order - transfer of case u/s 127 - 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 Held that - As decided in KK. Loomba Versus Commissioner Of Income Tax Ors. 1998 (11) TMI 61 - DELHI HIGH COURT - 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 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. The AO Delhi was wrong in assuming that as returns for the assessment years 1980-81 to 1983-84 were filed in Delhi he would alone continue or had exclusive jurisdiction for assessment year 1985-86 onwards as well - ITO Dimapur wrongly accepted the contention and had erroneously understood the legal provisions - 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 - thus 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 Decided in favour of Revenue. Jurisdiction of WTO officer - Whether the Tribunal was correct in law in holding that the Wealth Tax Officer has no jurisdiction to pass the assessment order Held that - The 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 assessee had accepted jurisdiction of the AO Delhi - Tribunal could not have held to the contrary Decided in favour of Revenue.

Summary

Issues Presented and Considered

The core legal questions considered by the Court in this matter are:

(1) Whether the assessment orders passed by the Assistant Commissioner of Income Tax (Investigation), Circle 8(1), New Delhi (AO, Delhi) for the assessment years 1985-86, 1986-87, and 1987-88 were valid or void ab initio for lack of jurisdiction.

(2) The proper interpretation and application of Sections 120, 124, and 127 of the Income Tax Act, 1961 (the Act), both pre- and post-amendment (effective 1.4.1988), concerning jurisdiction of income tax authorities and transfer of cases.

(3) Whether failure to follow the procedural requirements under Section 124 of the Act renders an assessment order null and void or merely irregular and curable by remand.

(4) The effect of the transfer order under Section 127(2)(a) of the Act dated 14th August, 1995 transferring the respondent's case from ITO, Dimapur to ITO, New Delhi, and whether jurisdiction was validly assumed thereafter.

(5) The implications of the Gauhati High Court's order quashing letters dated 15th March, 1990 and 20th September, 1990 relating to transfer of assessment records, and whether that decision operated as res judicata on jurisdictional issues.

(6) The scope and effect of concurrent jurisdiction of income tax authorities and whether multiple assessments for the same assessment year by different authorities are permissible.

(7) Whether the Wealth Tax Officer had jurisdiction to pass assessment orders under the Wealth Tax Act, 1957, in light of the Income Tax Appellate Tribunal's orders under the Income Tax Act.

Issue-Wise Detailed Analysis

1. Jurisdiction of AO, Delhi and Validity of Assessment Orders for AYs 1985-86, 1986-87, and 1987-88

Legal Framework and Precedents: Sections 120, 124, and 127 of the Income Tax Act govern the jurisdiction of income tax authorities and the transfer of cases. Section 124 defines territorial and subject-matter jurisdiction of Assessing Officers, and Section 127 provides for transfer of cases between officers. The amendments effective from 1.4.1988 expanded and clarified these provisions. Precedents such as Rai Bahadur Seth Teomal v. CIT, Kanji Mal & Sons v. CIT, and K.K. Loomba v. CIT elucidate the principles of jurisdiction, waiver, and procedural requirements.

Court's Interpretation and Reasoning: The Court examined the facts that the respondent was assessed at Dimapur for earlier years and at Delhi during deputation. For AYs 1985-86 to 1987-88, notices under Section 148 were issued by AO, Delhi, but the respondent raised objections to jurisdiction. The Gauhati High Court quashed letters transferring records without following Section 127 procedure but did not decide on jurisdiction for these years. The CIT (Appeals) held that the AO, Delhi had no jurisdiction as no valid transfer under Section 127 was made and set aside the assessments for want of jurisdiction, allowing the Assessing Officer to proceed afresh after compliance with Section 127.

The Tribunal later annulled the assessments as void ab initio for lack of jurisdiction, relying on precedents that an order passed by an officer without jurisdiction is a nullity. However, the Court distinguished between inherent lack of jurisdiction and irregular exercise of jurisdiction, holding that failure to follow procedural requirements under Section 124 is an irregularity, not an absolute nullity. The Court emphasized that Sections 120, 124, and 127 are procedural and administrative, not substantive, and non-compliance should be remedied by setting aside and remitting the assessment for fresh decision rather than annulment.

Key Evidence and Findings: The respondent had filed returns at Dimapur for AY 1985-86, which was declared invalid for non-compliance with defect notice. For AY 1986-87, there was dispute whether return was filed at Dimapur. For AY 1987-88, return was filed but defective. The AO, Dimapur issued notices under Section 148 for these years. Correspondence showed that ITO, Dimapur accepted AO, Delhi's jurisdiction but no formal Section 127 order was passed until 1995. The respondent accepted the 1995 transfer order and did not challenge jurisdiction thereafter.

Application of Law to Facts: The Court held that the AO, Delhi and ITO, Dimapur had concurrent jurisdiction based on residence and place of business of the assessee. The absence of a formal transfer order under Section 127 before 1995 was a procedural lapse. The objection to jurisdiction was timely raised but should have been referred to the Commissioner as per Section 124(4). Failure to do so did not render the assessments void but irregular. The assessments should have been set aside and remitted for fresh adjudication after following proper procedure.

Treatment of Competing Arguments: The Revenue argued that the assessments were valid and that jurisdiction could be conferred by consent or administrative convenience. The respondent contended that no valid transfer occurred and assessments were void. The Court balanced these views, recognizing the procedural lapse but rejecting the notion that it rendered the assessments nullities. The Court relied on precedents distinguishing lack of jurisdiction from irregularity and emphasized the remedial powers of appellate authorities.

Conclusions: The assessments passed by AO, Delhi without following Section 124 procedure were irregular but not void ab initio. The assessments should have been set aside and remitted for fresh decision. The Tribunal's annulment of assessments was erroneous. The subsequent assessments by ITO, Dimapur and under the 1995 Section 127 transfer order were valid.

2. Interpretation and Scope of Sections 120, 124, and 127 of the Income Tax Act

Legal Framework and Precedents: Section 120 empowers the Board to direct income tax authorities to exercise powers and perform functions. Section 124 defines jurisdiction of Assessing Officers based on territorial area, residence, place of business, or class of persons/income. Section 127 allows transfer of cases between Assessing Officers with prescribed procedure including opportunity of hearing and recording reasons. The amendments effective 1.4.1988 expanded these provisions. Precedents include Kanji Mal & Sons, K.K. Loomba, and decisions interpreting jurisdiction as administrative and procedural rather than substantive.

Court's Interpretation and Reasoning: The Court analyzed the pre- and post-amendment provisions and concluded that the Act envisages multiple and concurrent jurisdictions. Jurisdiction is flexible and based on residence, place of business, class of income, or administrative convenience. Section 124(4) requires disputes on jurisdiction to be referred to Commissioners or Board before assessment. Section 127 requires formal transfer orders with reasons and opportunity of hearing, except for intra-city transfers. The Court emphasized that jurisdictional objections must be raised timely or are deemed waived. The Court distinguished between lack of jurisdiction (nullity) and irregular exercise of jurisdiction (curable procedural defect).

Key Evidence and Findings: The Court noted the absence of formal transfer order under Section 127 before 1995 and the failure to refer jurisdictional objections to Commissioners. The Court also noted that the respondent's residence and place of business supported concurrent jurisdiction. The Court relied on the 1995 transfer order and the respondent's acceptance thereof.

Application of Law to Facts: The Court held that the AO, Delhi had no exclusive jurisdiction for AYs 1985-86 to 1987-88 as the respondent had residence and prior filings at Dimapur. Both authorities had concurrent jurisdiction. The absence of formal transfer and failure to follow Section 124 procedure was procedural irregularity. The 1995 transfer order regularized jurisdiction thereafter.

Treatment of Competing Arguments: The Revenue contended that the Board's directions and administrative convenience governed jurisdiction, while the respondent emphasized statutory procedure and prior filings. The Court balanced these views, recognizing the administrative nature of jurisdiction and the need for procedural compliance.

Conclusions: Jurisdiction under Sections 120, 124, and 127 is administrative and procedural. Concurrent jurisdiction exists. Procedural lapses do not render assessments void but irregular. Proper procedure must be followed, and objections timely raised.

3. Effect of Failure to Follow Section 124 Procedure on Validity of Assessment Orders

Legal Framework and Precedents: Section 124(4) requires referral of jurisdictional disputes to Commissioners before assessment. Failure to do so is procedural. Precedents such as Kanji Mal & Sons, Gudhudhar Brothers, and Sitaram Rathore distinguish lack of jurisdiction from irregularity and hold that procedural irregularities can be cured by remand or setting aside assessments rather than annulment.

Court's Interpretation and Reasoning: The Court held that failure to follow Section 124 procedure does not render assessment orders nullities. Such failure is an irregularity that appellate authorities can cure by setting aside and remitting for fresh assessment. The Court emphasized the principle that inherent lack of jurisdiction strikes at the root and renders orders void, but procedural lapses do not. The Court relied on administrative law principles and Supreme Court precedents endorsing pragmatic remedial approaches.

Key Evidence and Findings: The CIT (Appeals) had set aside assessments for want of Section 124 compliance and remitted for fresh assessment. The Tribunal annulled assessments instead. The Court found the CIT (Appeals) approach legally sound and the Tribunal's annulment erroneous.

Application of Law to Facts: The assessments by AO, Delhi were irregular due to non-compliance with Section 124 but not void. The proper course was to set aside and remit for fresh assessment after following procedure, as directed by CIT (Appeals).

Treatment of Competing Arguments: The Revenue sought to uphold assessments; the respondent argued for annulment. The Court favored a balanced remedial approach preserving the validity of proceedings while ensuring procedural compliance.

Conclusions: Failure to follow Section 124 procedure results in irregularity, not nullity. Assessments should be set aside and remitted for fresh decision, not annulled.

4. Effect of Section 127 Transfer Order Dated 14th August, 1995

Legal Framework and Precedents: Section 127 allows transfer of cases between Assessing Officers with prescribed procedure. Transfer orders are administrative and require recording reasons and opportunity of hearing unless within same city. Precedents such as K.K. Loomba and Kerala High Court decisions recognize validity of such transfers and their effect on jurisdiction.

Court's Interpretation and Reasoning: The Court found that the 1995 transfer order from ITO, Dimapur to ITO, Delhi was valid, unchallenged by the respondent, and regularized jurisdiction thereafter. Appeals against assessments passed by ITO, Dimapur post-1993 were preferred before CIT (Appeals), Delhi, who remanded for fresh adjudication, accepted by both parties. Subsequent assessments by AO, Delhi were thus valid.

Key Evidence and Findings: The respondent did not challenge the 1995 transfer order. Appeals against Dimapur assessments were allowed with remand. CIT (Appeals) directed fresh assessment by AO, Delhi. No jurisdictional objection was raised thereafter.

Application of Law to Facts: The 1995 transfer order effectively transferred jurisdiction to AO, Delhi. Assessments passed thereafter were valid and within jurisdiction.

Treatment of Competing Arguments: The Revenue relied on the transfer order to uphold jurisdiction. The respondent did not contest the transfer. The Court accepted the Revenue's position.

Conclusions: The 1995 Section 127 transfer order was valid and effective. Jurisdiction was properly assumed by AO, Delhi thereafter.

5. Effect of Gauhati High Court's Order Quashing Letters Dated 15th March, 1990 and 20th September, 1990

Legal Framework and Precedents: The writ petition challenged transfer of records without following Section 127 procedure. The Gauhati High Court held the letters invalid for lack of proper transfer order. However, the Court did not decide on jurisdiction for AYs 1985-86 to 1987-88.

Court's Interpretation and Reasoning: The Court held that the Gauhati High Court's order quashing the letters did not operate as res judicata on jurisdictional issues for the relevant assessment years. The letters related to transfer of records, not jurisdiction per se. The Court emphasized that jurisdictional questions must be decided on merits and proper procedure.

Key Evidence and Findings: The Gauhati High Court order was limited to procedural irregularity in transfer of records. No findings on jurisdiction for the relevant years were made.

Application of Law to Facts: The Gauhati High Court's order did not preclude the AO, Delhi from assuming jurisdiction after proper transfer under Section 127 in 1995.

Treatment of Competing Arguments: The respondent argued that the Gauhati order barred jurisdiction of AO, Delhi. The Court rejected this, clarifying the limited scope of that order.

Conclusions: The Gauhati High Court's order did not decide or bar jurisdiction of AO, Delhi for AYs 1985-86 to 1987-88.

6. Concurrent Jurisdiction and Multiple Assessments

Legal Framework and Precedents: Sections 120 and 124 recognize concurrent jurisdiction of multiple Assessing Officers based on territorial area, residence, business location, class of income, or cases. Precedents such as K.K. Loomba and Hindustan Transport Co. clarify that concurrent jurisdiction is permissible but multiple assessments for the same year by different officers are not.

Court's Interpretation and Reasoning: The Court held that AO, Delhi and ITO, Dimapur had concurrent jurisdiction over the respondent for the assessment years in question. However, the Act does not envisage two assessments for the same year by different officers. The procedural provisions prevent conflict and duplication. The Court noted that both AO, Delhi and ITO, Dimapur had issued notices and passed assessments, but the procedural lapses and transfer orders regulated the exercise of jurisdiction.

Key Evidence and Findings: Notices under Section 148 were issued by both AO, Delhi and ITO, Dimapur for AYs 1985-86 and 1986-87. The respondent filed returns at Dimapur but also had residence and property in Delhi. The 1995 transfer order clarified jurisdiction.

Application of Law to Facts: Concurrent jurisdiction existed but assessments had to be coordinated. The procedural irregularities caused confusion but did not invalidate jurisdiction.

Treatment of Competing Arguments: The Revenue argued for exclusive jurisdiction of AO, Delhi; the respondent emphasized prior filings at Dimapur. The Court balanced these views recognizing concurrent jurisdiction and need for procedural compliance.

Conclusions: Concurrent jurisdiction existed. Multiple assessments for same year by different officers are impermissible, but procedural corrections and transfers regulate jurisdiction.

7. Jurisdiction of Wealth Tax Officer Under Wealth Tax Act, 1957

Legal Framework and Precedents: Section 11 of the Wealth Tax Act (before amendment effective 1.4.1988) required authorities to perform functions per Commissioner's orders. Post-amendment, provisions of Sections 124 and 127 of Income Tax Act apply mutatis mutandis. Precedents establish that jurisdiction under Wealth Tax Act aligns with Income Tax Act jurisdiction.

Court's Interpretation and Reasoning: The Court observed that the respondent did not object to jurisdiction of the Wealth Tax Officer at Delhi at any stage. The assessments and appeals under Wealth Tax Act proceeded without jurisdictional challenge. The Tribunal's quashing of Wealth Tax assessments based on Income Tax jurisdictional orders was incorrect. The Court held that waiver of objection and acceptance of jurisdiction by the respondent preclude challenge.

Key Evidence and Findings: The respondent filed Wealth Tax returns at Delhi, did not raise jurisdictional objections, and accepted assessments and appeals. Commissioner (Appeals) remanded assessments for re-examination on merits, not jurisdiction.

Application of Law to Facts: The respondent's conduct amounted to waiver of jurisdictional objections. The Wealth Tax Officer had valid jurisdiction.

Treatment of Competing Arguments: The Revenue contended jurisdiction was valid; the respondent did not contest jurisdiction. The Court upheld Revenue's position.

Conclusions: The Wealth Tax Officer had jurisdiction. The respondent waived objection. The Tribunal erred in quashing assessments on jurisdictional grounds.

Significant Holdings

"The provisions of Sections 120, 124 and 127 of the Income Tax Act are procedural and administrative in nature and do not confer substantive jurisdiction. Failure to comply with procedural requirements under Section 124 does not render an assessment order null and void but results in irregularity which can be cured by setting aside and remitting the assessment for fresh adjudication."

"Concurrent jurisdiction of income tax authorities over an assessee is permissible based on territorial area, residence, place of business, class of persons or income. However, multiple assessments for the same assessment year by different authorities are impermissible."

"An order passed by an officer without inherent jurisdiction over the subject matter is void ab initio and a nullity. However, an irregular exercise or assumption of jurisdiction by an officer having overall jurisdiction is not a nullity and can be corrected by appellate or supervisory authorities."

"The transfer of cases under Section 127 of the Income Tax Act is an administrative function requiring recording of reasons and opportunity of hearing, except for intra-city transfers. Such transfer orders regularize jurisdiction and are binding if not challenged."

"The objection to jurisdiction must be raised within the time limits prescribed under Section 124(3) of the Act or it is deemed waived. The appellate authorities have jurisdiction and duty to correct procedural irregularities by remitting the matter for fresh assessment."

"The Gauhati High Court's order quashing letters transferring assessment records without following Section 127