Section 147 Reassessment Quashed for Lack of Jurisdiction: ITAT Kolkata

DCIT Vs Boast Traders Pvt. Ltd (ITAT Kolkata)

Section 147 Reassessment Quashed for Lack of Jurisdiction and Invalid Section 143(2) Notice: ITAT Kolkata

The Revenue filed an appeal before the Income Tax Appellate Tribunal, Kolkata Bench, against the order of the Commissioner of Income Tax (Appeals)-7, Kolkata for Assessment Year 2010-11. The assessee also filed a cross-objection supporting the order of the CIT(A).

Material Facts and Procedural Background

A notice under Section 148 of the Income-tax Act, 1961 was issued on 22.03.2015 by the ITO, Ward-2(2), Kolkata after recording reasons for reopening the assessment. The assessee filed its return on 16.04.2015 declaring nil income and subsequently sought the recorded reasons for reopening. Thereafter, the ITO, Ward-2(2) issued notice under Section 143(2). Subsequently, the case was transferred to ITO, Ward-4(3), Kolkata, who issued notices under Sections 143(2) and 142(1) on 22.12.2015. The assessee objected to the validity of the notice under Section 148, contending that ITO, Ward-2(2) lacked jurisdiction in view of the transfer of jurisdiction based on PIN code. The ITO, Ward-4(3) completed the assessment under Sections 144(1)/147 on 28.03.2016 determining total income at ₹3,66,02,690.

The CIT(A) allowed the assessee’s appeal, holding that the reassessment order under Section 147 was without jurisdiction and that the reopening itself was bad in law. The CIT(A) also held on merits that no material had been brought on record to establish that the derivative loss claimed by the assessee was not genuine. The Revenue challenged this order before the Tribunal.

Key Legal Issues

The principal issues before the Tribunal were:

• Whether the notice issued under Section 148 by an Assessing Officer lacking jurisdiction was valid.
• Whether the reassessment under Section 147 could survive where jurisdictional requirements were not satisfied.
• Whether the assessee’s objection regarding jurisdiction under Section 124(3) had been raised within the prescribed time.

Relevant Statutory Provisions

The Tribunal considered the provisions of:

• Sections 120 and 124 relating to jurisdiction of Income-tax Authorities;
• Section 124(3) concerning objections to jurisdiction;
• Sections 142(1), 143(2), 144(1), 147 and 148 of the Income-tax Act, 1961.

Revenue’s Submissions

The Revenue contended that:

• The assessment had ultimately been completed by the jurisdictional Assessing Officer and was therefore valid.
• The findings of the CIT(A) were incorrect.
• Reliance was placed on decisions including Elite Pharmaceuticals, Abhishek Jain, CIT v. S.S. Ahluwalia, Bal Chand Jain & Sons, and Karandhai Tamil Sangam.

Assessee’s Submissions

The assessee supported the order of the CIT(A) and relied upon various judicial precedents. It maintained that objections under Section 124(3) had been raised within one month of receipt of the notice and that the Assessing Officer who issued the notice under Section 148 had himself accepted that he lacked jurisdiction before transferring the case to the jurisdictional officer.

Tribunal’s Findings

The Tribunal held that the decisions relied upon by the Revenue were distinguishable. It observed that in Elite Pharmaceuticals and Abhishek Jain, objections under Section 124(3) had not been raised within the prescribed period. In S.S. Ahluwalia, the Assessing Officer possessed jurisdiction based on the place of residence or business, making the absence of a reference under Section 124 merely an irregularity. Those circumstances did not exist in the present case.

The Tribunal found that in the present case:

• the assessee had raised objections under Section 124(3) within one month of receipt of the notice;
• the officer issuing the notice under Section 148 accepted that he lacked jurisdiction; and
• the case was thereafter transferred to the jurisdictional Assessing Officer.

Referring to its earlier decision in K.A. Wires Ltd., the Tribunal discussed Sections 120 and 124 and observed that jurisdiction of Income-tax Authorities is conferred by the CBDT through notifications. It held that only an Assessing Officer vested with jurisdiction under Sections 120(1) and 120(2) can exercise powers as the Assessing Officer. Concurrent jurisdiction can exist only where specifically conferred under Sections 120(4) and 120(5).

The Tribunal further observed that jurisdiction cannot arise merely because the Department’s electronic system transfers a case to an officer lacking jurisdiction. Jurisdiction can be conferred only through the statutory mechanism under Sections 120(1) and 120(2). It also held that where an officer never possessed jurisdiction, a subsequent transfer of the case does not validate actions already taken.

The Tribunal rejected the Revenue’s contention that failure to object under Section 124(3) would cure the defect, observing that such an argument would apply only where the officer originally possessed jurisdiction. Where the authority itself lacks jurisdiction, acts performed by such authority are void. It also noted the absence of any notification or order conferring concurrent jurisdiction.

The Tribunal applied the legal principles discussed in its earlier decisions and concluded that the reassessment could not survive. Since it upheld the order of the CIT(A) on the jurisdictional issue, it did not consider the merits, observing that doing so would be merely academic. It also dismissed the assessee’s cross-objection as infructuous because it only supported the order of the CIT(A).

Final Ruling

The Tribunal upheld the order of the CIT(A), dismissed the Revenue’s appeal, and dismissed the assessee’s cross-objection as infructuous. It held that the reassessment was bad in law on the jurisdictional issue and did not examine the merits of the additions.

Cases Discussed

• DCIT vs. JSW Limited, ITA Nos. 6264/Mum/2018 & 6103/Mum/2018 (Mumbai ITAT)
• ACIT vs. Hotel Blue Moon (321 ITR 362) (SC)
• K.A. Wires Ltd. vs. ITO, ITA No. 1149/Kol/2019
• Rungta Irrigation Ltd., ITA No. 1224/Kol/2019
• Mahalchand Motilal Kothari & Co., ITA Nos. 1851/1852/Kol/2002
• Smriti Kedia (339 ITR 37) (Calcutta High Court)
• Indorama Software Solutions Ltd., ITA Nos. 5211 & 5290 (Mum)/2011
• Elite Pharmaceuticals vs. ITO [2016] 73 taxmann.com 69 (Calcutta)
• Abhishek Jain vs. ITO [2018] 94 taxmann.com 355 (Delhi)
• CIT vs. S.S. Ahluwalia [2014] 46 taxmann.com 169 (Delhi)
• Bal Chand Jain & Sons vs. DCIT [2014] 41 taxmann.com 524 (Allahabad)
• Karandhai Tamil Sangam vs. Joint/Additional Commissioner of Income Tax [2018] 97 taxmann.com 50 (Chennai Tribunal)