2025 (6) TMI 946 - AT - Income Tax

Validity of reassessment order - change in jurisdiction of the A.O without the approval of competent authority in terms with Section 127 - as submitted by the Ld. Counsel that in this case for initiating reassessment proceedings notice u/s.148 was issued by the ITO-1(4) Raipur but however the final reassessment order was passed by the ITO-3(4) Raipur u/s.147 r.w.s. 144 of the Act dated 08.12.2017 and that there was no order of transfer u/s.127 - HELD THAT - The entire spectrum as per the grounds taken in the cross objection of the assessee is depending upon the order u/s.127 of the Act and its availability if any. Therefore in the interest of justice we setaside the order of the Ld. CIT(Appeals)/NFAC and remand the matter back to its file for denovo adjudication as per law after verifying the order u/s.127 of the Act while complying with the principles of natural justice. Therefore the cross objection of the assessee is allowed for statistical purposes. No discussion regarding any factual enquiry conducted by the CIT(Appeals)/NFAC and his order is bereft of findings and not in terms with Section 250(4) (6) - There is no evidence of any verification done by the Ld. CIT(Appeals)/NFAC and therefore on merits also the appeal requires denovo adjudication at the level of the Ld. CIT(Appeals)/NFAC. Since the cross objection is already remanded to CIT(Appeals)/NFAC therefore for the sake of completeness required for adjudication both the appeal of the department and cross objection by the assessee are remanded back to the file of CIT(Appeals)/NFAC. Accordingly the appeal of the revenue is partly allowed for statistical purposes.

Summary

The core legal questions considered by the Tribunal in this appeal and cross-objection involve:

1. Whether the deletion of addition of Rs. 2,51,24,882/- made under Section 69A of the Income Tax Act by the Assessing Officer (AO) was justified by the Commissioner of Income Tax (Appeals) [CIT(A)].

2. Whether the CIT(A) erred in accepting the assessee's submissions and additional evidence without conducting an independent inquiry or remand to the AO, thus rendering the decision perverse or contrary to evidence.

3. Whether the CIT(A), having concurrent powers under Section 250(4) of the Act, was justified in deleting the addition without enquiry on additional submissions made during appellate proceedings.

4. Whether the reassessment proceedings initiated under Section 147 and notice issued under Section 148 of the Act were valid, including the formation of belief regarding escapement of income.

5. Whether principles of natural justice were violated during reassessment proceedings, including denial of proper opportunity of hearing.

6. Whether the reassessment order was illegal due to non-provision of reasons for reopening and non-availability of relevant documents.

7. Whether the reassessment order was invalid due to jurisdictional issues, specifically the absence of an order under Section 127 of the Act authorizing transfer of proceedings between Assessing Officers.

8. Whether the assessee was precluded from challenging jurisdiction under Section 124(3)(a) of the Act due to failure to raise objection within prescribed time.

Issue-Wise Detailed Analysis

1. Deletion of Addition under Section 69A

The addition of Rs. 2,51,24,882/- was made by the AO on the basis of alleged undisclosed cash payments. The CIT(A) deleted this addition relying on discrepancies found in the ledger accounts of the parties involved, namely M/s. Reena Electronics (assessee) and M/s. Malhotra Electronics Pvt. Ltd. At para 6.5.5 of the CIT(A) order, it was noted that the copies of accounts provided by Malhotra Electronics to the Department at different times were significantly different, indicating manipulation of information to avoid inconvenience or cover up faults.

The CIT(A) concluded that the documents on which the addition was based were unreliable and no addition could be made without further enquiry, which was not conducted by the AO. Hence, the addition was deleted.

The Revenue challenged this deletion, contending that the CIT(A) admitted additional evidence not permissible under Rule 46A(3) of the Income Tax Rules, 1962, and failed to conduct an independent inquiry or remand the matter to the AO.

The Tribunal examined the nature of the evidence and found that the submissions and documents were part of the original assessment proceedings under Section 133(6) notice and thus could not be termed as additional evidence at the appellate stage. Consequently, the Tribunal rejected the Revenue's contention and upheld the CIT(A)'s deletion on this ground.

2. Acceptance of Assessee's Submissions Without Independent Inquiry

The Revenue argued that the CIT(A)'s order was cryptic and arbitrary, lacking independent verification of the assessee's submissions and additional evidence. The Tribunal observed that the CIT(A) had relied on the discrepancies in the ledger accounts to conclude that the documents were unreliable, which negated the basis of the addition. Since the AO had not conducted further enquiry despite these discrepancies being apparent, the CIT(A)'s approach was justified.

However, the Tribunal noted that the CIT(A)'s order was somewhat bereft of detailed findings as required under Sections 250(4) and (6) of the Act, which prescribe the powers and duties of the appellate authority. This lacuna was significant for the purposes of appellate scrutiny.

3. Jurisdictional Issue Regarding Transfer of Assessment Proceedings

The assessee, through cross-objection, challenged the validity of the reassessment on the ground that the notice under Section 148 was issued by ITO-1(4), Raipur, while the reassessment order was passed by ITO-3(4), Raipur, without any formal order under Section 127 of the Act transferring jurisdiction from the former to the latter. The assessee contended that without such transfer, the reassessment order was without jurisdiction and hence void ab initio.

The AO responded by stating that no order under Section 127 was available on record, but jurisdiction did lie with ITO-3(4), Raipur, at the relevant time. The Tribunal recognized that the absence of the transfer order created uncertainty and that such order might be procured upon proper search.

The Revenue argued that the assessee failed to raise jurisdictional objection within the prescribed time under Section 124(3)(a) of the Act, which bars challenge to jurisdiction if not raised within one month of service of notice under Sections 142(1) or 143(2). The Revenue relied on the Supreme Court ruling in DCIT (Exemption) & Ors. Vs. Kalinga Institute of Industrial Technology, which upheld this principle.

The Tribunal held that since the existence of the Section 127 order was crucial and its absence on record could be due to incomplete record-keeping, the matter required fresh adjudication after proper verification of the transfer order. The Tribunal remanded the matter to the CIT(A) for de novo consideration, ensuring compliance with natural justice and verification of jurisdictional facts.

4. Validity of Reassessment Proceedings and Formation of Belief

The assessee contended that the reassessment proceedings were invalid due to lack of formation of belief as required under Section 147 and that no escapement of income was established. The Tribunal did not directly decide this issue but noted that since the matter was remanded for jurisdictional verification, all related issues including validity of reassessment would be open for fresh adjudication.

5. Violation of Principles of Natural Justice

The assessee alleged denial of proper opportunity of hearing and non-provision of reasons for reopening. The Tribunal did not explicitly rule on this issue but implicitly recognized the importance of these principles in ordering remand for fresh adjudication.

6. Treatment of Additional Evidence

The Revenue's objection to admission of additional evidence by the CIT(A) was rejected by the Tribunal on the ground that the evidence was part of the original assessment record under Section 133(6) notice and not newly adduced material at the appellate stage, thus permissible.

7. Application of Law to Facts and Treatment of Competing Arguments

The Tribunal balanced the Revenue's concern about procedural propriety and jurisdiction with the assessee's right to fair adjudication. It recognized the need for proper jurisdictional foundation before proceeding with reassessment and the necessity of detailed findings by the appellate authority as mandated by law. The Tribunal also accorded due weight to the discrepancies in the ledger accounts undermining the basis of addition.

Significant Holdings

"The above discrepancies shows that the copy of account provided by the party itself to the Department at two different points of time is different significantly and there is a remarkable difference between the two accounts. The above discrepancies make it clearly evident that the information supplied was manipulated intentionally by the provider. It appears that the party Malhotra Electronics Private Limited manipulated the information provided by them to the Department as per its own convenience and to avoid any inconvenience at its end. It also appears that probably the party must have manipulated its books to cover up their own faults. It clearly comes out that on the basis of such glaring discrepancies, no addition could have been made without making further enquiry, which has not been done." (Para 6.5.5)

"In view of the above discrepancies it is clear that copy of account provided by Malhotra Electronics Private Limited is not reliable and no addition should have been made on the basis of unreliable documents. Thus addition made of Rs. 2,51,24,882/- for the AY 2011-12 is deleted and Ground 5 of the appellant is allowed." (Para 6.5.6)

The Tribunal also held that the absence of a formal transfer order under Section 127 of the Act raises a jurisdictional defect that cannot be ignored and must be examined afresh.

Further, the Tribunal emphasized that the assessee's failure to raise jurisdictional objection within one month under Section 124(3)(a) may bar challenge, but since the transfer order was not on record, the matter required remand for verification.

Finally, the Tribunal concluded that the appeal of the Revenue and the cross-objection of the assessee both require remand to the CIT(A) for de novo adjudication after proper verification of jurisdiction and compliance with natural justice, thereby partly allowing both for statistical purposes.