2025 (6) TMI 2044 - AT - Income Tax

Validity of reopening of assessment against NRI assessee - as argued notice u/s 148 of the Act has been issued by the same AO Ward-34(3)(5) Mumbai and not by the International Taxation AO - Addition u/s 69 on unexplained investment - section 292BB applicability - HELD THAT - As in the order u/s 148A clause (d) of the Act dated 20.04.2022 in para No.4 the AO has acknowledged the response to the notice by the Assessee that he was NRI for the relevant year. Therefore it is not the case of the Revenue that the AO who has issued the impugned notice u/s 148 of the Act was not aware that the Assessee was NRI for the relevant year. Thus we are of the considered opinion that in the arguments of the Ld. D.R. wherein he has tried to invoke section 292BB of the Act because of the above discussion and the judicial precedent relied by the Ld. A.R. there is no merit found in the arguments from applicability of section 292BB of the Act in the case of the Assessee. Also in view of the findings of case of Nimir Kishore Mehta 2024 (4) TMI 202 - BOMBAY HIGH COURT AO who had issued the notice u/s 148 of the Act was not having jurisdiction on the case of the Assessee. Therefore the issuance of show cause notice u/s 148A(b) of the Act passing of the order u/s 148A(d) of the Act and subsequent issuance of notice u/s 148 of the Act by the AO in this case are held to be carried out without having jurisdiction over the issue and the said proceedings are bad in law and accordingly liable to be quashed. Accordingly ground Nos.1 2 are decided in favour of the Assessee.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal were:

• Whether the Assessing Officer (AO) who issued the notice under section 148 and passed the order under section 148A(d) of the Income Tax Act, 1961 (the Act) had jurisdiction to do so, given that the Assessee was a non-resident Indian (NRI) and the jurisdiction for such cases lies with the AO (International Taxation)?
• Whether the issuance of the notice under section 148 and the subsequent assessment proceedings were valid or rendered null and void due to lack of jurisdiction, especially in light of Section 151A and the e-Assessment Scheme, 2022?
• Whether the assessment order passed under section 143(3) read with section 144C(3) beyond the time limit prescribed under section 153 of the Act was valid (although this ground was not pressed)?
• Whether the addition of Rs. 36,12,173 under section 69 of the Act, representing the purchase price of immovable property in Kerala, was justified, considering the Assessee's claim that the payment was made in earlier years and from funds sourced outside India?

2. ISSUE-WISE DETAILED ANALYSIS

Jurisdiction of the Assessing Officer to issue notice under section 148 and pass order under section 148A(d)

Relevant legal framework and precedents: The jurisdiction of an AO to issue notices and conduct assessments is governed by the provisions of the Income Tax Act, particularly section 124 (territorial and subject matter jurisdiction), section 148 (reopening of assessment), and section 148A (show cause notice for reopening). The e-Assessment Scheme, 2022 and notifications issued under section 120 of the Act specify jurisdictional assignments, especially for NRIs whose cases typically fall under the AO (International Taxation). The principle that a notice issued by an AO without jurisdiction is invalid and void ab initio is well established in judicial precedents including the Hon'ble Bombay High Court ruling in Nimir Kishore Mehta and the Allahabad High Court decision in CIT v. M.I. Builders (P.) Ltd.

Court's interpretation and reasoning: The Tribunal noted that the Assessee had clearly informed the Revenue authorities about his non-resident status at the earliest opportunity, including in replies to notices under section 148A. Despite this, the notice under section 148 and order under section 148A(d) were issued by the AO Ward 34(3)(5), Mumbai, who was not the AO (International Taxation) vested with jurisdiction over NRIs. The Tribunal relied extensively on the judgment of the Hon'ble Bombay High Court in Nimir Kishore Mehta, which held that notices issued by an AO lacking jurisdiction are invalid. The Tribunal also examined the detailed reasoning in the Raipur Tribunal's decision in Mir Zardari Qureshi, which emphasized that jurisdictional objections relating to the authority of the AO are not subject to limitation under section 124(3) of the Act and that a notice issued by a non-jurisdictional AO is a nullity.

The Tribunal rejected the Revenue's reliance on section 292BB, which relates to service of notice and presumes validity if the Assessee participates in proceedings, clarifying that the issue here was not service but the issuance of notice by an unauthorized AO. The Tribunal held that section 292BB cannot cure the fundamental lack of jurisdiction.

Key evidence and findings: The Assessee's replies to notices, PAN and file records showed that the Assessee was a non-resident during the relevant year and that the AO issuing the notice was not the designated AO for NRIs. The AO was aware of the Assessee's status but did not transfer the case to the correct AO due to limitation concerns.

Application of law to facts: Applying the principle that jurisdiction is a sine qua non for valid proceedings, the Tribunal found that the AO lacked jurisdiction to issue the notice under section 148 and to pass the order under section 148A(d). The issuance of notices and continuation of proceedings by a non-jurisdictional AO were held to be without authority of law and thus void.

Treatment of competing arguments: The Revenue argued that the notice was a mere irregularity and that section 292BB validated the notice due to the Assessee's participation. The Tribunal distinguished this argument by emphasizing that jurisdictional defects cannot be cured by estoppel or participation. The Tribunal also rejected the Revenue's contention that the AO had jurisdiction due to transfer of PAN or file, as jurisdiction vests only by proper notification or order and cannot be assumed.

Conclusions: Grounds 1 and 2 were allowed in favour of the Assessee, with the Tribunal quashing the notice under section 148, the order under section 148A(d), and the subsequent assessment proceedings as without jurisdiction and void ab initio.

Validity of assessment order passed beyond time limit under section 153 (Ground 3)

This ground was not pressed by the Assessee and was kept open. The Tribunal did not adjudicate on this issue.

Addition of Rs. 36,12,173 under section 69 of the Act relating to investment in immovable property

Relevant legal framework and precedents: Section 69 of the Act permits the addition of unexplained investments to the total income if the Assessee fails to satisfactorily explain the source of investment. The burden lies on the Assessee to demonstrate the source and genuineness of the investment with adequate documentary evidence.

Court's interpretation and reasoning: The AO had made additions on the basis that the Assessee failed to explain the source of funds for purchase of immovable property valued at Rs. 39,62,714/-, out of which Rs. 36,12,173/- remained unexplained. The Assessee claimed that the funds were remitted from Dubai, where he was employed, and provided bank statements, remittance receipts, and other documents to substantiate the source. The Ld. DRP accepted the explanation for the fixed deposits but sustained the addition relating to the property investment due to lack of proper documentary evidence for a part of the amount.

Key evidence and findings: The Assessee submitted bank statements, remittance receipts, and agreements for the property purchase. However, the AO and DRP found that the Assessee failed to fully explain the source of Rs. 36,12,173/- invested in the property during the relevant year.

Application of law to facts: Since the Tribunal quashed the entire assessment proceedings for want of jurisdiction, the issue of addition under section 69 became academic and was not adjudicated upon. The Tribunal held that the decision on this ground (Ground 4) is rendered insignificant due to the invalidity of the proceedings themselves.

Treatment of competing arguments: The Assessee argued on merits that the investment was made from legitimate sources outside India and not during the relevant assessment year. The Revenue insisted on sustaining the addition. The Tribunal refrained from deciding this issue due to the jurisdictional infirmity.

Conclusions: Ground 4 was not adjudicated and held to be academic in view of the quashing of the proceedings on jurisdictional grounds.

3. SIGNIFICANT HOLDINGS

The Tribunal held unequivocally that:

"The issuance of show cause notice u/s 148A(b) of the Act, passing of the order u/s 148A(d) of the Act and subsequent issuance of notice u/s 148 of the Act by the AO in this case are held to be carried out without having jurisdiction over the issue and the said proceedings are bad in law and accordingly liable to be quashed."

The Tribunal reaffirmed the principle that jurisdictional defects in the issuance of notices under the Income Tax Act cannot be cured by participation or by invoking section 292BB of the Act.

It was established that the AO who issues a notice must be vested with jurisdiction either by notification or order under section 120 or related provisions, and failure to do so renders the notice and all subsequent proceedings null and void.

The Tribunal followed binding precedents from the Hon'ble Bombay High Court and coordinate benches of the Tribunal, as well as authoritative decisions such as CIT v. M.I. Builders (P.) Ltd., emphasizing that simultaneous jurisdiction of two AOs over the same Assessee is not permissible.

Finally, the Tribunal disposed of the appeal in favour of the Assessee by quashing the assessment proceedings initiated by the non-jurisdictional AO, thereby rendering all additions and penalty proceedings arising therefrom ineffective.