No Section 127 Transfer, No Jurisdiction: ITAT Quashes Delhi Assessment and TP Adjustment

Xavient Information Systems (India) Pvt. Ltd Vs DCIT (ITAT Delhi)

No Section 127 Transfer, No Jurisdiction: ITAT Quashes Delhi Assessment and TP Adjustment

The Delhi ITAT allowed the appeal of Xavient Information Systems (India) Pvt. Ltd., holding that the assessment order passed by the Delhi Assessing Officer was without jurisdiction since the assessee’s case continued to fall under the jurisdiction of the Mumbai Assessing Officer and no valid transfer order under section 127 had ever been passed.

The assessee had filed its return for AY 2010-11 declaring income of about ₹51.58 lakh. During scrutiny, the Delhi AO assumed jurisdiction and made a transfer pricing adjustment of ₹53.60 lakh in respect of international transactions with associated enterprises. The assessee consistently objected that its registered office was in Mumbai during the relevant year, its return had been processed by the Mumbai jurisdictional authorities, and assessments for both the preceding and succeeding years had also been completed by Mumbai officers.

Before the Tribunal, the assessee demonstrated that assessments for AYs 2009-10 and 2011-12 were completed by Mumbai authorities and that there was no order under section 127 transferring jurisdiction from Mumbai to Delhi. The Revenue argued that the assessee had not raised the jurisdictional objection within the time prescribed under section 124(3).

Rejecting the Revenue’s contention, the Tribunal drew a distinction between a dispute relating to territorial jurisdiction and a case involving inherent lack of jurisdiction. Relying on recent decisions including Baljit Singh v. ITO, Jindal Power Ltd., and the Supreme Court ruling in Kanwar Singh Saini, the Tribunal held that an officer who inherently lacks jurisdiction cannot acquire it merely because the assessee participated in proceedings or failed to object within time. Jurisdiction cannot be conferred by consent, acquiescence or waiver.

Since the Delhi AO lacked legal authority to assume jurisdiction over the assessee’s case and no statutory transfer of jurisdiction had taken place, the entire assessment was held to be void ab initio. Having quashed the assessment on this jurisdictional ground, the Tribunal did not examine the merits of the transfer pricing adjustment and left those issues open.

FULL TEXT OF THE ORDER OF ITAT DELHI

The appeal filed by the assessee is against the order dated 26.10.2016 of Ld. Commissioner of Income Tax (Appeals)-38, Delhi (Hereinafter referred to as ‘the CIT(A)’) u/s 250(6) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) arising out of 30.03.2013 passed by the Ld. Assessing Officer/DCIT, Circle 18(4), Delhi (hereinafter referred to as ‘the AO’) u/s 143(3) of the Act for Assessment Year (‘AY’) 201011.

2. Brief facts of the case are that the appellant/ assessee, filed return of income on 27.09.2010 declaring total income of Rs. 51,58,328/- after set off of unabsorbed depreciation of Rs. 3,10,184/- for A.Y. 2001-02. Audit report dated 23.09.2010 in Form 3-CEB was filed on 23.09.2010. For the purpose of MAT u/s 115-JB of the Act book profit was returned at Rs. 37,53,675/-. The case was selected for scrutiny.

2.1 Notice u/s 142(1) dated 11.06.2012 was issued. Notice u/s 274 r.w.s. 271(1)(b) of the Act dated 27.08.2012 was issued. Notice u/s. 143(2) dated 03.01.2013 and notices u/s 142(1) dated 05.02.2013 and 19.03.2013 were issued. Shri Indra Dev Narayan, CA filed details objection regarding jurisdiction was raised for the first time in letter dated 18.03.2013.

2.2 As per provisions of Section 124(3)(a) of the Act and the assessee can raise the issue or objection with regard to jurisdiction of Assessing Officer within one month of receipt of the notices which in the instant case expires on 01.10.2011.

2.3 Objections regarding jurisdiction were not raised in letters dated 05.09.2012 and 07.03.2013, therefore, objection with regard to jurisdiction being invalid was not resorted to within the permissible time.

3. On merits, the assessee contended that its jurisdiction lies with DCIT, Circle 8(3), Mumbai is not sustainable due to the fact of shifting of assessee’s company registered office out of Mumbai and voluntary filing of audit report in Form 3-CEB in the Office of ITO, Ward 18(4), Delhi on 30.10.2010, therefore, the objection with regard to jurisdiction was rejected.

3.1 As per auditor’s report in Form-3CEB, the assessee’s international transactions with its Associated Enterprises amounting to Rs. 4,19,66,360/- was stated to be at Arm’s Length as per TNMM (Transactional Net Margin Method). No TP Study report was filed.

3.2 As per questionnaire dated 15.03.2013 issued along with notice u/s 142(1) dated 19.03.2013 it was proposed to benchmark assessee’s international transaction with following comparables i.e. OP/TC Related Services with data of FY 2009-10:

3.3 On completion of proceedings, Ld. AO vide order dated 30.03.2013 made addition of Rs. 53,60,362/- on account of TP adjustment.

4. Against order dated 30.03.2013, assessee filed appeal before Ld. CIT(A) which was dismissed vide order dated 26.10.2016.

5. Being aggrieved, the appellant/assessee preferred present appeal on following grounds:

“ Lack of Jurisdiction of Ld. AO passing the Assessment Order for AY 2010-11

1. That on the facts and circumstances of the case and in law, the Ld. CIT (A) has failed to appreciate that the Deputy Commissioner of Income-tax, New Delhi (Ld. AO) was in grave error in assuming jurisdiction over appellant and in passing the impugned assessment order for assessment year (AY) 2010-11 u/s 143(3) of the Act.

2. That on the facts and circumstances of the case and in law, the Ld. CIT (A) has failed to appreciate that assessment order passed by the Ld. AO, for AY 2010-11 is without jurisdiction; void ab initio, nullity and non est in law and deserves to be annulled.

3. That on the facts and circumstances of the case and in law, for AY 2010-11, the appellant having its registered office in Mumbai falls under the jurisdiction of DC/ACIT Circle 8(3), Mumbai and e-filed its return of income for AY 2010-11 electronically which was processed u/s 143(1) by DC/ACIT, Mumbai. The appellant has been regularly assessed for earlier years by the jurisdictional AO l.e. AC/DCIT Mumbai. These facts were clearly available in the Department records, online on income-tax website, online PAN record available with Department and were also specifically informed to the Ld. AO repeatedly, and hence the impugned assessment order passed by the Ld. AO completely lacks jurisdiction and perverse and is vitiated in law.

4. That on the facts and circumstances of the case and in law, the Ld. CIT (A) has failed to appreciate that the action of the Ld. AO in rejecting the objections of appellant to his wrongful assumption of jurisdiction, on irrelevant, self-contradictory grounds is perverse and against the provisions of Section 120 laying down the jurisdiction and the provisions of Section 127 which only authorizes chief commissioner/ commissioner to pass the order for change in jurisdiction and the order passed with lack of jurisdiction is not sustainable in law.

5. That on the facts and circumstances of the case and in law, the CIT (A) has failed to appreciate that that appellant’s authorized representative in the personal hearing and also in letters has specifically informed the ITO/DCIT, New Delhi that the appellant’s registered office was at Mumbai which was transferred to Noida in August 2011 and all the assessments were carried out by the DCIT, Mumbai and therefore by no stretch of imagination DCIT, New Delhi could have jurisdiction over the appellant. The shifting of registered office from Mumbai to Noida in August 2011 can be no ground for DCIT, New Delhi to assume jurisdiction for AY 2010-11 and also even for subsequent assessment years the jurisdiction can only be transferred to AO, Noida by specific order u/s 127 of the Act for transfer of case from DCIT, Mumbai to the AO, Noida.

Transfer Pricing Adjustment

6. Without prejudice to the above grounds of appeal no. 1 to 5, that on the facts and circumstances of the case and in law the CIT (A) has erred in upholding the assessment order making addition of Rs.5,360,362 as Transfer Pricing adjustment.

7. That on the facts and circumstances of the case and in law the CIT (A) has failed to appreciate that the DCIT, New Delhi has erred in making an addition of Rs. 5,360,362 to the returned income as transfer pricing adjustment based on the provisions of Section 92(1) of the Act.

8. That on the facts and circumstances of the case and in law, the DCIT, New Delhi had erred in selection of companies which are either not comparable or are having controlled transactions.

9. That on the facts and circumstances of the case and in law the DCIT, New Delhi erred in disregarding the comparability factors specified 10B(2) and 10B(3) of Income-tax Rules, 1962 which specifically provides that an adjustment should be made to account for differences between transactions that may materially affect the price of such transactions. That DCIT, New Delhi erred in failing to take cognizance of the differences in risk profile of the appellant (being a captive service provider to its AE) and the alleged comparable companies selected by him by not allowing the risk adjustment made by the appellant.

10. That on the facts and circumstances of the case and in law DCIT, New Delhi erred in not allowing an adjustment on account of difference in working capital position of the appellant and the alleged comparable companies.

11. That on the facts and circumstances of the case and in law that DCIT, New Delhi has erred in computing the margin of the alleged comparable companies and the margin of the appellant company and consequently the computation of amount added to income and transfer price adjustment in the ALP is wrong and erroneous.

12. That on the facts and circumstances of the case and in law that DCIT, New Delhi erred in rejecting the multiyear data of the alleged comparable companies.

13. That on the facts and circumstances of the case and in law that DCIT, New Delhi has erred in not providing the benefit of the variation or reduction of 5 percent from the arithmetic mean as provided in proviso to Section 92C(2) of the Act while determining the ALP and making the consequence adjustment.

14. That on the facts and circumstances of the case and in law that the charge of interest u/s 234B, 234C and 234D of the Act is wrong and bad in law.

15. That the above grounds of appeal are without prejudice to each other.

16. That the appellant craves leave to add, amend, delete, rectify, substitute and modify any of the aforesaid grounds of appeal or add a new ground of appeal at any time before or at the time of hearing of appeal.”

6. Ld. Authorized Representative for appellant/assessee regarding Ground of Appeal No. 1 to 5 relating to illegal assumption of jurisdiction by Ld. AO at Delhi whereas the jurisdiction was with AO at Mumbai submitted that no order u/s 127 of the Act transferring jurisdiction from Mumbai to Delhi was passed. The assessment for preceding year i.e. A.Y. 2009-10 and A.Y. 2011-12 were with Ld. AO at Mumbai. The copy of assessment order dated 18.01.2011 for A.Y. 2009-10 by AO at Mumbai is at page No. 55-57 of paper book. The copy of Assessment order dated 26.03.2014 for A.Y. 2011-12 by AO at Mumbai is at page No. 58-60 of paper book. Screen-shot of the portal showing the jurisdiction details of the assessee at Mumbai is at page no. 51 of paper book. The Letter dated 21.03.2013 from Addl. CIT, Delhi for proceeding further in the case of assessee for transfer pricing purposes at page No. 54 of paper book. Assessee’s letter dated 25.03.2013 to Addl. CIT submitting that Jurisdictional over the case of assessee lies with AO at Mumbai is at page No. 52 – 53 of paper book. Assessee’s letter dated 18.03.2023 submitting that jurisdictions over this case was with AO at Mumbai and even processing of return for A.Y. 2010-11, u/s 143(1) of the Act was done at Mumbai is at page No. 48 of the paper book. The asessee’s letter dated 22.03.2013 submitting once again that the A.O. at Mumbai that jurisdiction over the appellant’s case is at page No. 49-50 of paper book. Notice u/s 143(2) of the Act for A.Y. 2011-12 issued by AO at Delhi is at page No. 43 of paper book. The assessee’s letter dated 05.09.2012 and 07.03.2013 intimating that registered office of assessee’s is at Noida, implying that Delhi cannot be the jurisdiction by that standard at page No. 44, 45 to 47 of paper book. Reliance was placed on order dated 19.02.2025 of ITAT, New Delhi in ITA No. 1849/Del/2022 tiled as Baljit Singh vs. ITO.

7. Departmental Representative submitted that the assessee did not file objections regarding jurisdiction despite several adjournments before Ld. CIT(A). The assessee failed to give any assistance regarding TP issues.

8. Reliance was placed on order dated 01.06.2018 in writ petition Civil No. 11844/2016 titled as Abhishek Jain vs. ITO of Hon’ble High Court of Delhi.

9. From examination of record in the light of aforesaid rival contention, it is crystal clear that Ld. CIT(A) vide order dated 26.10.2016 confirmed the assessment order dated 30.03.2013 of ld. AO/DCIT, Circle 18(1), New Delhi.

9.1 The assessment order dated 18.01.2011 for A.Y. 2009-10 and dated 26.03.2014 for A.Y. 2011-12 issued by Ld. AO at Mumbai are at page No. 55 to 57 and 58 to 60 of paper book respectively.

9.2 No order u/s 127 of the Act transferring jurisdiction of assessee from Mumbai to Delhi was passed for A.Y. 2010-11.

9.3 A co-ordinate Bench in ITA No. 1849/Del/2022 titled as Baljit Singh vs. ITO order dated 19.02.2025 in para No. 12 to 14 held as under:

“12. We are of the considered view that in the present facts and circumstances, provisions of section 124(3) of the Act cannot help the Revenue as after the order u/s 120 of the Act dated 18.9.2020 of the Additional Commissioner of Income Tax Hisar, there could not have been three Assessing Officer having pecuniary jurisdiction, one DCIT Bhiwani, then the ITO Ward-1, Bhiwani and lastly ITO Ward-1, Jind. To apply provisions of section 124(3), the Revenue should establish that there is jurisdiction rightly vested under law and exercised u/s 124(1) of the Act. No particular notification of jurisdiction with DCIT Bhiwani, or the ITO Ward-1, Bhiwani, is cited. However, when the jurisdiction is exercised beyond the pecuniary competence, specifically spelt out by the Board under Instruction No. 1/2011 (supra) or by senior tax authorities u/s 120 of the Act in that case Revenue cannot take shelter of section 124(3) of the Act and protect the invalidity in assumption of jurisdiction which has crept by issuance of notice u/s 143(2) of the Act by an assessing officer, who had no jurisdiction. Had the notice u/s.143(2) of the Act been issued by the jurisdictional AO, who was having pecuniary jurisdiction over the assessee, there would have been no case for the assessee to raise the issue of wrong assumption of jurisdiction.

13. The judgement which is relied by the learned AO, ITO, Ward-1, Bhiwani, in the report filed before us by the ld. DR, in the case of Abhishek Jain v. ITO [WP(Civil) No.11844 of 2016, order dated 1.6.2018] is distinguishable as it is not a case of concurrent jurisdiction which vest with multiple tax authorities. Thus assumption of jurisdiction in passing the initial assessment order dated 15.12.2017 u/s 143(3) of the Act and subsequent order dated 29.09.2021  u/s 263/143(3) of the Act on the basis of notice u/s 143(2) issued by ITO Ward-1, Bhiwani are both vitiated. Ld. CIT has failed to appreciate the facts in correct perspective and has merely try to validate the impugned assessment on basis of provision of section 124(3) of the Act, which is not some panacea for all jurisdictional errors. This view of our is supported by a co-ordinate bench decision in case of Jindal Power Ltd. V JCIT, Bilaspur ITA no. 201 & 202 /RPR/2017 order dated 25/06/2024 and the relevant conclusion of the co-ordinate bench are reproduced below;

“29. Having given a thoughtful consideration to the aforesaid claim of the ld. DR we are unable to persuade ourselves to subscribe to the same. On a careful perusal of  Section 124 of the Act, it transpires that the same deals with the issue of “territorial jurisdiction” of an Assessing Officer. Ostensibly, sub- section (1) of  Section 124 contemplates vesting with the A.O jurisdiction over a specified area by virtue of any direction or order issued under sub-section (1) and sub-section (2) of  Section 120 of the Act. On the other hand sub-section (2) of  Section  124 contemplates the manner in which any controversy as regards the territorial jurisdiction of an A.O is to be resolved. Apropos, sub-section (3) of  Section 124 of the Act, the same places an embargo upon an assessee to call in question the jurisdiction of the A.O where he had initially not raised such objection within a period of one month from the date on which he was served with a notice under sub-section (1) of  Section 142 or sub-section (2) of Section 143. In sum and substance, the obligation cast upon an assessee to call in question the jurisdiction of the A.O as per the mandate of sub-section (3) of  Section 124 is confined to a case where the assessee objects to the assumption of territorial jurisdiction by the A.O, and not otherwise. Our aforesaid view is fortified by the judgment of the Hon’ble High Court of Bombay in the case of Peter Vaz Vs. CIT, Tax Appeal Nos. 19 to 30 of 2017, dated 05.04.2021 and that of the Hon’ble High Court of Gujarat in the case of  CIT Vs. Ramesh D Patel (2014) 362 ITR492 (Guj.). In the aforesaid cases the Hon’ble High Courts have held that as Section 124 of the Act pertains to territorial jurisdiction vested with an AO under sub-section (1) or sub- section (2) of Section  120, therefore, the provisions of sub-section (3) of  Section 124 which places an embargo on an assessee to raise an objection as regards the validity of the jurisdiction of an A.O would get triggered only in a case where the dispute of the assessee is with respect to the territorial jurisdiction and would have no relevance in so far his inherent jurisdiction for framing the assessment is concerned. Also, support is drawn from a recent judgment of the Hon’ble High Court of Calcutta in the case of Principal Commissioner of Income-tax Vs. Jindal Power Limited Vs. Jt. CIT, Range-1, Bilaspur ITA Nos.201 & 202/RPR/2017 Nopany & Sons (2022) 136 taxmann.com 414 (Cal). In the case before the Hon’ble High Court the case of the assessee was transferred from ITO, Ward-3 to ITO, Ward-4 and the impugned order was passed by the ITO, Ward-4 without issuing notice u/s 143(2), i.e. only in pursuance to the notice that was issued by the ITO, Ward-3, who had no jurisdiction over the assessee at the relevant time. The Hon’ble High Court considering the fact that as the assessment was framed on the basis of the notice issued under Sec.  143(2) by the assessing officer who had no jurisdiction to issue the same at the relevant point of time quashed the assessment. Apart from that, the aforesaid view is also supported by the order of the ITAT, Kolkata ‘B’ Bench in the case of OSL Developers (p) Ltd. Vs. ITO, (2021) 211 TTJ (Kol) 621 and that of ITA T, Gauhati Bench in the case of  Balaji Enterprise Vs. ACIT (2021) 187 ITD 111 (Gau.). Accordingly, on the basis of our aforesaid observations, we are of the view that as the assessee’s objection to the validity of the jurisdiction assumed by the Jt. CIT, Range-1, Bilaspur is not an objection to his territorial jurisdiction, but in fact an objection to the assumption of inherent jurisdiction by him in absence of an order u/s.120(4)(b) of the Act, therefore, the provisions of sub-section (3) of  Section 124 would not assist the case of the revenue.

30. In fact, we find that the Hon’ble High Court of Bombay in the case ofBansilal B.  Raisoni & Sons Vs. ACIT, Central Circle-1, Nashik & Anr, WP No.13391 of 2018 had, inter alia observed that the time limit for raising objection to the jurisdiction of the Assessing Officer prescribed under sub section (3) of Section Jindal Power Limited Vs. Jt. CIT, Range-1, Bilaspur ITA Nos.201 & 202/RPR/2017 124 has a relation to the Assessing Officer’s territorial jurisdiction. It was further observed that the time limit prescribed would not apply to a case where the assessee contends that the action of the Assessing Officer is without authority of law and, therefore, wholly without jurisdiction. Also, we find that the Hon’ble High Court of Bombay in the case of  CIT-1, Nagpur Vs. Lalitkumar Bardia, (2017) 84 taxmann.com 213 (Bom) had addressed the contention of the department that where the assessee had not objected to the jurisdiction within the time prescribed under sub-section (3) of  Section 124 of the Act, then, having waived its said right, it was barred from raising the issue of jurisdiction after having participated in the assessment proceedings. The Hon’ble High Court had observed that the waiver can only be of one’s right/privilege but non-exercise of the same will not bestow jurisdiction on a person who inherently lacks jurisdiction. Therefore, the principle of waiver cannot be invoked so as to confer jurisdiction on an Officer who is acting under the Act when he does not have jurisdiction. The Hon’ble High Court while concluding as hereinabove had relied on the judgment of the Hon’ble Supreme Court in the case of  Kanwar Singh Saini Vs. High Court of Delhi, 2012 (4) SCC 307. The Hon’ble Apex Court in its aforesaid judgment had held that it is the settled legal proposition that conferment of jurisdiction is a legislative function and it can neither be conferred with the consent of the parties nor by a superior court. The Hon’ble Apex Court further observed that if the court passes order/decree having no jurisdiction over the matter, it would amount to a nullity as the matter goes to the roots of the cause. Also, the Hon’ble Apex Court clarified that an issue can be Jindal Power Limited Vs. Jt. CIT, Range-1, Bilaspur ITA Nos.201 & 202/RPR/2017 raised at any belated stage of the proceedings including in appeal or execution. Elaborating further, it was observed by the Hon’ble Apex Court that the finding of a court or tribunal becomes irrelevant and unenforceable/inexecutable once the forum is found to have no jurisdiction. It was further observed by the Hon’ble Apex Court that acquiescence of a party equally should not be permitted to defeat the legislative animation and the court cannot derive jurisdiction apart from the statute. For the sake of clarity, the observations of the Hon’ble Apex Court in the case of  Kanwar Singh Saini Vs. High Court of Delhi (supra) are culled out as under:

“22. There can be no dispute regarding the settled legal proposition that conferment of jurisdiction is a legislative function and it can neither be conferred with the consent of the parties nor by a superior court, and if the court passes order/decree having no jurisdiction over the matter, it would amount to a nullity as the matter goes to the roots of the cause. Such an issue can be raised at any belated stage of the proceedings including in appeal or execution. The finding of a court or tribunal becomes irrelevant and unenforceable/inexecutable once the forum is found to have no jurisdiction. Acquiescence of a party equally should not be permitted to defeat the legislative animation. The court cannot derive jurisdiction apart from the statute. (Vide United Commercial Bank Ltd v. Workmen, Nai Bahu v. Lala  Ramnarayan, Natraj Studios (P) Ltd. v. Navrang Studios, Sardar Hasan Siddiqui v. STAT, A.R. Antulay v. R.S. Nayak, Union of India v. Deoki Nandan Aggarwal, Karnal Improvement Trust v. Parkash Wanti, U.P.  Rajkiya Nirman Nigam Ltd. v. Indure (P) Ltd., State of Gujarat v. Rajesh  Kumar Chimanlal Barot, Kesar Singh v. Sadhu, Kondiba Dagadu Kadam v.  Savitribai Sopan Gujar and CCE v. Flock (India) (P) Ltd.)”

14. Consequently we sustain the grounds no. 1 and 2. The assessee company’s appeal is sustained and consequently the appeal filed by the Director also deserves to be allowed.”

9.4 In view of above material facts by respectfully following the jurisdictional precedent, the grounds of Appeal Nos. 1 to 5 relating to illegal assumption of jurisdiction by AO at Delhi whereas the jurisdiction was with AO at Mumbai are sustained. Grounds of appeal Nos. 1 to 5 are accepted. The impugned orders are set aside.

10. The Grounds of Appeal Nos. 6 to 16 being rendered as academic are left open.

11. In the result, the appeal filed by the assessee is allowed.

Order pronounced in the open court on 03.06.2026