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2025 (5) TMI 282 - AT - Income TaxValidity of the assessment proceedings u/s 143(3) as no valid issue of notice u/s 143(2) - notice was issued by the AO Ward 33(1) Delhi the authority having no jurisdiction over the appellant - HELD THAT - It is crystal clear that notice by non-jurisdictional ITO Ward 33(1) Delhi was issued. The impugned order was completed by the Ld. AO Ward 33(1) Delhi having jurisdiction without issuing any notice. ITRs for the assessment years 2015-16 2016-17 and 2017-18 jurisdiction of the appellant/assessee was with AO Ward 26(1) Delhi. As such assessment under appeal is the outcome of a jurisdictional notice issued by non-jurisdictional Ld. AO. Therefore assessment needs to be quashed. As per the ratio of judgment of Lalitkumar Bardia 2017 (7) TMI 695 - BOMBAY HIGH COURT it is well settled law the assessment order has to be passed by the only authority having jurisdiction over an assessee. It is held that mere participation in proceedings or acquiescence would not confer jurisdiction upon the AO who otherwise was not the Ld.AO of the assessee. Validity of transfer of jurisdiction from one authority to another within the same State/City as per section 127 requires recording of reasons and affording a reasonable opportunity of being heard. As decided in Ajanta Industries 1975 (12) TMI 1 - SUPREME COURT observed that requirement of recording of reasons u/s 127(1) is a mandatory direction under the Law. Addition u/s 69A - The source cash deposit being sale of property on 30.01.2015 in cash. Copy of Registered Sale Deed is available. AO did not dispute receipt of sales consideration in cash as is evident from the acceptance of fact that cash deposit of Rs. 8, 00, 000/- on 01.10.2015 was not deposited and the cash of Rs. 5, 00, 000/- on 12.08.2016 from the source was accepted. Ld. AO had no apparent reason for not accepting same source of deposit of Rs. 15, 47, 000/- made during the demonetization. Thus addition is not sustainable.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal in this appeal are:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Validity of Assessment Order in Light of Jurisdictional Notice Legal Framework and Precedents: The Income Tax Act mandates that assessment proceedings must be initiated and completed by the AO having jurisdiction over the assessee. Section 143(2) notice triggers the assessment process under Section 143(3). The jurisdictional AO is determined based on the territorial jurisdiction assigned. Section 127 of the Act governs the transfer of cases from one AO to another and requires recording of reasons and affording the assessee an opportunity of being heard. The Supreme Court and various High Courts have held that jurisdiction is a legislative function and cannot be conferred by consent or acquiescence (Kanwar Singh Saini vs Delhi High Court). Mere participation or acquiescence does not confer jurisdiction (CIT vs. Lalitkumar Bardia). Failure to issue valid jurisdictional notice vitiates the assessment. Court's Interpretation and Reasoning: The Tribunal observed that the notice under Section 143(2) was issued by AO Ward 33(1), Delhi, who did not have jurisdiction over the assessee, whereas the assessment order was passed by AO Ward 26(1), Delhi, the correct jurisdictional authority. The transfer of the case from Ward 33(1) to Ward 26(1) was not supported by any order under Section 127 of the Act, which is mandatory. The Tribunal relied on the assessee's Income Tax Returns for AYs 2015-16, 2016-17, and 2017-18, which clearly indicated AO Ward 26(1) as the jurisdictional AO. The Tribunal cited several decisions supporting the principle that assessment orders passed without jurisdictional notice are invalid and must be quashed. Key Evidence and Findings: The assessee's ITRs, the Memo of resolution of grievance from the AO, and the absence of any Section 127 order were critical. The Tribunal noted that the AO Ward 33(1) never had jurisdiction and no notice was issued by AO Ward 26(1). Application of Law to Facts: The Tribunal held that since the jurisdictional AO did not issue the notice, and the non-jurisdictional AO issued the notice without authority, the assessment was invalid. The mandatory procedural safeguards under Section 127 were not complied with, rendering the assessment order void. Treatment of Competing Arguments: The Revenue argued that the assessee did not raise jurisdictional objections during assessment and hence cannot do so at appeal stage, citing Sections 124(3)(a) and 292B of the Act. The Tribunal rejected this contention, emphasizing the fundamental nature of jurisdiction and the settled law that jurisdictional defects can be raised at any stage. Conclusion: The Tribunal concluded that the assessment order was invalid due to lack of jurisdictional notice and improper transfer of case without compliance with Section 127, and therefore the assessment order was quashed. Issue 2: Validity of Transfer of Jurisdiction Without Section 127 Order Legal Framework and Precedents: Section 127 of the Income Tax Act requires that any transfer of cases from one AO to another must be preceded by a recorded order stating reasons and providing the assessee an opportunity of being heard. The Supreme Court in Ajanta Industries Vs. Central Board of Direct Tax emphasized the mandatory nature of this requirement. Court's Interpretation and Reasoning: The Tribunal found that the case was transferred from AO Ward 33(1) to AO Ward 26(1) without any order under Section 127. This failure to comply with statutory procedure rendered the transfer invalid. Application of Law to Facts: Since no Section 127 order was passed, the transfer was not legally effective, and the AO Ward 26(1) could not assume jurisdiction. Conclusion: The transfer of jurisdiction was invalid and contributed to the invalidity of the assessment. Issue 3: Merits of Addition Under Section 69A and 115BBE for Cash Deposits During Demonetization Legal Framework and Precedents: Section 69A deals with unexplained cash credits and additions where the assessee fails to satisfactorily explain the source of cash deposits. Section 115BBE imposes higher tax rates on undisclosed income. The "Theory of Human Probability" is often applied to assess the credibility of explanations given for cash deposits. Court's Interpretation and Reasoning: The AO made an addition of Rs. 15,47,000/- representing cash deposited during the demonetization period, treating it as undisclosed income. The assessee explained that the cash deposits were sourced from the sale of a property for Rs. 33,90,000/- in cash on 30.01.2015. The sale deed was furnished, and the AO accepted earlier cash deposits from the same source (Rs. 8,00,000/- on 01.10.2015 and Rs. 5,00,000/- on 12.08.2016). However, the AO rejected the explanation for the Rs. 15,47,000/- deposit without apparent reason. The Tribunal noted that the assessee maintained cash books and financial records, and the cash deposit trend was consistent with prior years. Key Evidence and Findings: Registered sale deed, cash book, replies to questionnaires, and consistency of cash deposits were key evidentiary materials. The AO's failure to provide reasons for rejecting the explanation was significant. Application of Law to Facts: The Tribunal applied the legal principle that where the assessee provides credible evidence and explanation for cash deposits, the addition under Section 69A cannot be sustained. The Tribunal also noted that the CIT(A) erred in not considering the cash book and the explanation on merits. Treatment of Competing Arguments: The Revenue contended that the addition was justified due to the demonetization context and possible concealment. The Tribunal rejected this, emphasizing the acceptance of prior cash deposits from the same source and the lack of any contradictory evidence. Conclusion: The addition of Rs. 15,47,000/- was held to be unsustainable and was deleted. Issue 4: Applicability of Sections 69A and 115BBE Legal Framework: Section 69A applies when cash credits are unexplained or inadequately explained, and Section 115BBE imposes a special tax rate on undisclosed income. Both require that the income be unexplained or concealed. Court's Reasoning: Since the assessee satisfactorily explained the source of cash deposits through documentary evidence, the provisions were not applicable. The Tribunal observed that the CIT(A) erred in upholding the addition under these sections. Conclusion: Sections 69A and 115BBE were not applicable in the facts of the case. Issue 5: Raising Jurisdictional Objection at Appellate Stage Legal Framework: Sections 124(3)(a) and 292B of the Act restrict raising certain grounds not raised before the AO. However, jurisdictional issues are fundamental and can be raised at any stage. Court's Reasoning: The Tribunal held that jurisdictional defects go to the root of the matter and can be raised even at the appellate stage. The Revenue's objection to the jurisdictional ground being raised was rejected. Conclusion: The assessee was entitled to raise jurisdictional objections at the appellate stage. 3. SIGNIFICANT HOLDINGS "It is a settled law the assessment order has to be passed by the only authority having jurisdiction over an assessee. Mere participation in proceedings or acquiescence would not confer jurisdiction upon the Assessing Officer who otherwise was not the Assessing Officer of the assessee." "The requirement of recording of reasons under Section 127(1) of the Act is a mandatory direction under the Law." "Since the assessee has satisfactorily explained the source of cash deposits by producing the registered sale deed and consistent cash book entries, addition under Section 69A read with Section 115BBE is unsustainable." "Jurisdictional objections can be raised at any stage of proceedings, including appellate stage, as jurisdiction is a fundamental condition precedent to the validity of assessment." The Tribunal's final determinations were:
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