2024 (12) TMI 1580 - AT - Income Tax

Reopening of assessment u/s 147 - ITO-1(1) Bhilai i.e. the officer who had issued notice u/s.148 to ACIT-1(1) Bhilai i.e. the officer who had framed the assessment - HELD THAT - Admittedly it is a matter of fact borne from the report filed by the A.O. i.e. ITO-1(3) Bhilai dated 27.11.2024 (copy placed on record) that no order of transfer u/s. 127 of the Act transferring the case of the assessee from ITO-1(1) Bhilai to ACIT-1(1) Bhilai is found available on record. I find that the issue involved in the present appeal i.e. as to whether or not the assessment order passed by the A.O de-hors any order of transfer u/s. 127 of the Act had been looked into in the case of Sarita Jain Vs. ITO 2024 (7) TMI 1209 - ITAT RAIPUR . Assessee appeal allowed.

Summary

The core legal questions considered by the Tribunal in this appeal are as follows:

1. Whether the Assessing Officer (A.O) validly assumed jurisdiction to initiate reassessment proceedings under Sections 147/148 of the Income-tax Act, 1961 (the Act) in the absence of a valid transfer order under Section 127 of the ActRs.

2. Whether the assessment order passed by the A.O without a valid transfer order under Section 127 of the Act is bad in law and without jurisdictionRs.

3. Whether the addition of Rs. 12,10,200/- representing sale proceeds of immovable property sold by the assessee's spouse, treated as unexplained investment under Section 69A of the Act, was justifiedRs.

4. Ancillary issues concerning the validity of the reassessment proceedings initiated under Sections 147/148 read with Sections 149, 151, and 151A of the Act, and the overall legality of the impugned order.

Issue-wise Detailed Analysis:

1. Validity of Assumption of Jurisdiction and Transfer of Case under Section 127 of the Act

Legal Framework and Precedents: Section 127 of the Income-tax Act mandates that the Principal Director General, Director General, Principal Chief Commissioner, Chief Commissioner, Principal Commissioner, or Commissioner may transfer any case from one Assessing Officer (A.O) to another subordinate officer after giving the assessee a reasonable opportunity of being heard (wherever possible) and after recording reasons for such transfer. Subsection (3) of Section 127 provides that where the transfer is between officers situated in the same city, locality, or place, the requirement to give an opportunity of hearing is dispensed with, but the recording of reasons remains mandatory.

Judicial precedents, including the judgments of the Hon'ble Supreme Court and High Courts, notably the Calcutta High Court in Kusum Goyal v. ITO, have established that:

• An A.O cannot unilaterally transfer a case to another officer without a valid order under Section 127.
• The transfer order must be recorded in writing with reasons, and non-compliance renders subsequent proceedings invalid.
• The absence of a transfer order cannot be cured by the mere existence of reasons on file or by the fact that the offices are located in the same city.

The Hon'ble Supreme Court in Ajanta Industries v. CBDT emphasized the mandatory nature of recording reasons under Section 127(1), and that failure to communicate such reasons violates principles of natural justice.

Court's Interpretation and Reasoning: The Tribunal found on record that no order of transfer under Section 127 was issued transferring the case from the Income-tax Officer (ITO)-1(1), Bhilai (who issued the notice under Section 148) to the Assistant Commissioner of Income Tax (ACIT)-1(1), Bhilai (who framed the reassessment). The A.O himself admitted the absence of such transfer order in a report filed during proceedings. The Tribunal held that the absence of a valid transfer order amounted to invalid assumption of jurisdiction by the A.O who framed the assessment.

The Tribunal relied heavily on the judgment in Sarita Jain v. ITO, ITAT Raipur, which dealt with an identical issue and held that transfer of a case without compliance with Section 127 is illegal and vitiates the assessment. The Tribunal also cited the Calcutta High Court's judgment in Kusum Goyal and the Supreme Court's ruling in Ajanta Industries to reinforce that the mandatory statutory requirements under Section 127 cannot be bypassed.

The Tribunal rejected the Revenue's contention that concurrent jurisdiction or intra-city location obviated the need for a transfer order, clarifying that while an opportunity of hearing may be dispensed with under Section 127(3) for intra-city transfers, the recording of reasons and issuance of a transfer order remain mandatory.

Key Evidence and Findings: The A.O's report dated 28.11.2024 explicitly stated that no transfer order under Section 127 was found on record. The Revenue failed to produce any document to rebut this fact. The Tribunal also noted that the case was transferred merely by a letter between officers without statutory sanction.

Application of Law to Facts: Applying the statutory provisions and judicial precedents, the Tribunal concluded that the assessment framed by the ACIT-1(1), Bhilai was without jurisdiction and hence void.

Treatment of Competing Arguments: The Revenue's argument that the A.O had concurrent jurisdiction and thus the assessment was valid was rejected as contrary to law. The Tribunal emphasized the statutory mandate for transfer orders and reason recording, which cannot be dispensed with by administrative convenience or internal arrangements.

Conclusion: The reassessment order framed without a valid transfer order under Section 127 of the Act is quashed for want of valid jurisdiction.

2. Legality of the Reassessment Proceedings Initiated under Sections 147/148

Legal Framework: Sections 147 and 148 of the Act govern the initiation of reassessment proceedings on the basis of "reason to believe" that income has escaped assessment. The procedural safeguards include issuance of notice under Section 148 and framing of assessment within prescribed time limits.

Court's Reasoning: Since the reassessment was initiated and framed by an officer who had no valid jurisdiction due to absence of transfer order under Section 127, the entire reassessment proceeding was held to be invalid. The Tribunal did not delve into the merits of the reassessment but quashed it on jurisdictional grounds.

Conclusion: The reassessment proceedings and the consequent assessment order are invalid and quashed.

3. Addition under Section 69A of the Act on Account of Unexplained Cash Deposits

Legal Framework and Precedents: Section 69A of the Income-tax Act deals with unexplained money, bullion, jewellery, or other valuables found in possession of the assessee, which are not recorded in books of account and for which the assessee fails to offer a satisfactory explanation regarding the nature and source. Such money or value is deemed to be the income of the assessee for the relevant financial year.

Judicial precedents including Smt. Srilekha Banerjee v. CIT (1964 AIR 697) and Chuharmal v. CIT (172 ITR 250) have upheld the Revenue's right to treat unexplained cash deposits as income from undisclosed sources where the assessee fails to satisfactorily explain the source.

Court's Interpretation and Reasoning: The CIT(Appeals) had upheld the addition of Rs. 12,10,200/- representing sale proceeds of immovable property sold by the spouse of the assessee, treated as unexplained investment under Section 69A. The assessee failed to provide any satisfactory explanation for the cash deposits made in the bank accounts. The Tribunal noted that all three limbs of Section 69A were satisfied:

• The assessee was found to be the owner of the money;
• The money was not recorded in the books of account;
• The nature and source of the money was not identifiable or satisfactorily explained.

The Tribunal noted that the assessee did not respond to notices issued under Section 142(1) and failed to explain the nature and source of cash deposits. Therefore, the addition was justified and taxable under Section 115BBE at the specified rate.

Key Evidence: Bank account statements showing cash credits, absence of books recording such transactions, and failure to respond to statutory notices.

Treatment of Competing Arguments: The assessee contended that the cash deposits related to sale proceeds of immovable property sold by the spouse and were not unexplained. However, since the deposits were in the assessee's bank account and no satisfactory explanation was provided, the Tribunal upheld the addition.

Conclusion: The addition of Rs. 12,10,200/- under Section 69A is justified and upheld.

4. Other Ancillary Grounds and General Objections

Grounds concerning the legality and validity of the assessment order, general objections, and the right to amend grounds were dismissed or left open in view of the quashing of the assessment on jurisdictional grounds.

Significant Holdings:

"The requirement of recording reasons under section 127(1) is a mandatory direction under the law and non-communication thereof is not saved by showing that the reasons exist in the file although not communicated to the assessee."

"An Assessing Officer cannot on his own transfer an income tax file to another officer in absence of the aforesaid order under section 127 of the Act."

"Though sub-section (3) of Section 127 dispenses with the requirement of affording a reasonable opportunity of being heard to the assessee in intra-city transfers, it does not dispense with the statutory requirement of recording reasons for transfer."

"Where the assessee is found to be the owner of unexplained money not recorded in books of account and fails to offer satisfactory explanation regarding the nature and source, the amount is deemed to be income under Section 69A of the Act."

"In absence of valid assumption of jurisdiction, the reassessment order framed under Sections 147/148 read with Section 144 is liable to be quashed."

Final determinations:

• The reassessment framed by the ACIT-1(1), Bhilai under Sections 144/147 of the Act dated 26.11.2018 is quashed for want of valid assumption of jurisdiction due to absence of transfer order under Section 127.
• The reassessment framed by ITO-4(2), Raipur under Section 143(3) dated 27.12.2017 is also quashed for the same reason.
• The addition of Rs. 12,10,200/- under Section 69A of the Act is upheld by the CIT(Appeals), but since the assessment itself is quashed, the Tribunal refrains from adjudicating on this ground.
• Other grounds of appeal are left open or dismissed as not pressed.