2025 (5) TMI 1322 - AT - Income Tax

Reopening of assessment u/s 147 - correct jurisdiction to issue notice - addition u/s 68 - assessee contends that no share capital or loan was received during the year and the order passed by DCIT Circle-1(1) Kolkata was without jurisdiction HELD THAT - Since the case of the assessee had been transferred u/s 127 of the Act to Ahmedabad where the Assessing Officer had made the assessment prior to finalization of the assessment proceeding by the Assessing Officer of Kolkata; therefore the order passed by the Assessing Officer Kolkata being without jurisdiction was invalid and the same is hereby quashed. Appeal filed by the assessee is allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

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

(a) Whether the notice issued under section 148 of the Income Tax Act, 1961 (hereinafter 'the Act') by the Assessing Officer (AO) was valid and legally sustainable, particularly with respect to jurisdiction, correctness of PAN and address, and timeliness.

(b) Whether the reassessment proceedings initiated under section 147 r.w.s. 144 of the Act were valid, especially considering the jurisdictional transfer of the case under section 127 of the Act.

(c) Whether the Assessing Officer was justified in treating the amount of Rs. 1,18,25,000/- as unexplained cash credit under section 68 of the Act and making additions to the income of the assessee.

(d) Whether the principles of natural justice were violated in the reassessment process, including the issuance of show cause notices, opportunity for cross-examination, provision of reasons for reopening, and proper service of notices and orders.

(e) Whether the addition made by the AO related to share capital and share premium was rightly made for the assessment year 2009-10, or whether it pertained to earlier years and was already explained and accepted.

(f) Whether the reassessment order passed by the AO was valid in light of the procedural and jurisdictional objections raised by the assessee.

2. ISSUE-WISE DETAILED ANALYSIS

(a) Validity of Notice under Section 148 and Jurisdictional Competence

Legal Framework and Precedents: Section 148 of the Act empowers the AO to issue a notice for reassessment if he has reason to believe that income has escaped assessment. The notice must be validly issued by the jurisdictional AO within the prescribed time limit. Section 127 of the Act allows transfer of cases between AOs, and jurisdiction must be respected accordingly.

Court's Interpretation and Reasoning: The Tribunal examined the issuance of the notice dated 31.03.2016 by DCIT, Circle-1(1), Kolkata, which mentioned an incorrect PAN (AABCI0542E/1381) instead of the operative PAN (AABCI0354H) as per the assessee's earlier communication dated 12.12.2006. The notice was also alleged to be time-barred as it was served on 04.04.2016, after the limitation date of 31.03.2016.

Further, the Tribunal noted that the jurisdiction over the assessee's case had been transferred under section 127 of the Act to the ITO, Ward-2(1)(3), Ahmedabad, who had issued a notice under section 148 on 30.03.2016 and completed assessment under section 143(3) on 31.08.2016, prior to the Kolkata AO's order dated 31.12.2016.

Key Evidence and Findings: The Tribunal referred to the assessee's letter requesting use of PAN AABCI0354H only, the India Post tracking records of notice service, and the sequence of assessment orders from Ahmedabad and Kolkata AOs.

Application of Law to Facts: The issuance of the notice by the Kolkata AO with incorrect PAN and after the jurisdiction had been transferred was held to be invalid. The reassessment order passed by the Kolkata AO was thus without jurisdiction.

Treatment of Competing Arguments: While the Department contended that the notices and reassessment were valid, the Tribunal accepted the assessee's contention on jurisdictional grounds and PAN correctness.

Conclusion: The notice under section 148 issued by the Kolkata AO was invalid due to jurisdictional defect and incorrect PAN, rendering the reassessment order passed by the Kolkata AO void.

(b) Validity of Reassessment Proceedings and Principles of Natural Justice

Legal Framework and Precedents: Reassessment proceedings must comply with procedural safeguards under the Act, including issuance of reasons for reopening, opportunity to respond, issuance of show cause notices, and adherence to principles of natural justice.

Court's Interpretation and Reasoning: The assessee contended that the reassessment was completed ex-parte without providing reasons for reopening, without issuing proper show cause notices under sections 142(1) and 143(2), and without providing copies of statements or material relied upon. Further, the assessee claimed denial of opportunity for cross-examination of persons making statements leading to reassessment.

Key Evidence and Findings: The record showed that despite issuance of notices and questionnaires, the assessee did not respond or produce evidence. However, the reassessment order was passed without providing the reasons for reopening or opportunity for cross-examination.

Application of Law to Facts: The Tribunal observed that since the reassessment order itself was void due to jurisdictional defect, the procedural lapses became immaterial. However, the principles of natural justice require adherence in reassessment proceedings.

Treatment of Competing Arguments: The Department relied on the order of the CIT(A) which had upheld the reassessment, but the Tribunal found the jurisdictional issue decisive.

Conclusion: The reassessment proceedings were flawed in procedure, but the primary ground for quashing was jurisdictional invalidity of the notice and order.

(c) Addition under Section 68 as Unexplained Cash Credit

Legal Framework and Precedents: Section 68 of the Act deals with unexplained cash credits. If the assessee fails to satisfactorily explain the nature and source of money credited, the AO may treat it as income.

Court's Interpretation and Reasoning: The AO treated Rs. 1,18,25,000/- received as share premium from M/s. Bhoomidev Credit Corporation Ltd. as unexplained cash credit, adding it to income. The assessee contended that this amount was share capital carried forward from earlier years and not received during the year under appeal.

Key Evidence and Findings: The assessee's claim that the amount pertained to AY 2007-08 and was accepted by the AO in the assessment order dated 11.09.2009 was noted. No fresh share capital or loans were received in AY 2009-10.

Application of Law to Facts: The CIT(A) upheld the AO's addition on the ground that the assessee failed to explain or substantiate the share capital and share premium in books for AY 2009-10. The Tribunal, however, did not adjudicate on this point as the reassessment order was quashed on jurisdictional grounds.

Treatment of Competing Arguments: The assessee argued that the addition was unjustified and related to earlier years; the Department maintained the addition was valid due to lack of explanation.

Conclusion: The addition under section 68 was contested but not decided upon by the Tribunal due to quashing of reassessment on jurisdictional grounds.

(d) Jurisdictional Transfer under Section 127 and Its Effect

Legal Framework and Precedents: Section 127 of the Act allows transfer of cases between AOs for proper assessment. Once transferred, the jurisdiction vests with the transferee AO.

Court's Interpretation and Reasoning: The Tribunal found that the case was transferred to the Ahmedabad AO who had jurisdiction and had completed assessment before the Kolkata AO initiated reassessment. The Kolkata AO's action was therefore without jurisdiction.

Key Evidence and Findings: The transfer order under section 127, assessment orders from Ahmedabad AO, and timelines of notices and assessments were examined.

Application of Law to Facts: The jurisdictional transfer was effective and binding, barring the Kolkata AO from reopening or reassessing the case.

Conclusion: The reassessment by the Kolkata AO was invalid due to lack of jurisdiction post transfer under section 127.

3. SIGNIFICANT HOLDINGS

"Since the case of the assessee had been transferred u/s 127 of the Act to Ahmedabad where the Assessing Officer had made the assessment prior to finalization of the assessment proceeding by the Assessing Officer of Kolkata; therefore, the order passed by the Assessing Officer, Kolkata being without jurisdiction was invalid and the same is hereby quashed."

The Tribunal established the core principle that once jurisdiction over an assessment year is transferred under section 127 of the Income Tax Act, any subsequent reassessment or proceedings by the earlier AO are without jurisdiction and hence void.

Further, the Tribunal emphasized the requirement of correct PAN usage and timely issuance of notices under section 148, holding that issuance of notice with incorrect PAN and beyond the prescribed time limit invalidates the reassessment proceedings.

The Tribunal did not uphold the additions under section 68 on merits due to the overriding jurisdictional defect but acknowledged the assessee's contention that the additions related to earlier years and had been accepted previously.

On procedural grounds, the Tribunal noted the importance of adherence to principles of natural justice in reassessment proceedings, including issuance of reasons for reopening, opportunity to respond, and proper service of notices and orders.

Final determination: The appeal was allowed by quashing the reassessment order dated 31.12.2016 passed by the Kolkata AO on grounds of lack of jurisdiction and invalid notice issuance, thereby setting aside the additions made therein.