ITAT Quashes Assessment on Revenue’s failure to provide jurisdictional order

Facts:

• Karan Motors Pvt. Ltd., engaged in the manufacture of spare parts, cylinder heads, and engine blocks catering to automobile, tractor, commercial vehicle, generator, and marine applications. The company filed its return of income for AY 2014-15 on 29.11.2014 declaring a loss of ₹5.66 crores. The return was initially processed under section 143(1).
• Subsequently, the case was taken up for examination. The assessment order dated 19.12.2016 was passed u/s 143(3) by the ACIT (Special Range-5), New Delhi. In the order, it was mentioned that jurisdiction was conferred by an order u/s 127 dated 04.08.2016 issued by Principal CIT-5, Delhi. The assessment resulted in disallowances and additions aggregating to approximately ₹20 crores.
• The assessee questioned the very jurisdiction of the ACIT to act as Assessing Officer (AO). According to section 2(7A) read with section 120(4)(b), an ACIT can function as AO only if specifically authorized by a written order of the Board or competent authority.
• The assessee persistently sought copies of the order u/s 127 (04.08.2016) and any order passed u/s 120(2)/120(4)(b) authorizing the ACIT to act as AO. Despite repeated requests, the department did not furnish the documents. The assessee even approached authorities under the RTI Act, 2005. The RTI applications were transferred between various offices but no copy of the requisite jurisdictional order was provided. In fact, the ACIT, (Central Circle-27), categorically admitted in writing (letter dated 07.05.2025) that records of AY 2014–15 assessment were “not available” in his office. Multiple appeals under the RTI Act were filed, including before the Central Information Commission (CIC), but the assessee never got access to the documents.
• The CIT(A) dismissed the assessee’s jurisdictional challenge.
• Before the ITAT, the assessee raised an additional legal ground under Rule 11, relying on NTPC Ltd. v. CIT and Varas International (P) Ltd., which permit raising pure legal issues at any stage.

Issues:

• Whether the assessment framed by the ACIT, (Special Range-5), New Delhi, is valid when no order u/s 120(4)(b) was produced to show that the ACIT was empowered to act as AO.
• Whether mere mention of transfer order u/s 127 or assumption of jurisdiction in the assessment order is sufficient in law, in the absence of an explicit statutory order under section 120(4)(b).
• Whether in light of Nasir Ali v. Addl. CIT (ITAT, Delhi), affirmed by Delhi High Court on 20.03.2024, the assessment deserves to be quashed as void ab initio.

Observations:

• The Tribunal emphasized that despite repeated opportunities, the Revenue failed to produce any authorization u/s 120(4)(b) empowering the ACIT to exercise AO functions. This consistent failure warranted drawing a presumption that no such order existed.
• ITAT took note of the chronology where the assessee was compelled to run from pillar to post for basic documents, even invoking RTI. This demonstrated lack of transparency and procedural fairness by the Revenue.
• Referring to Nasir Ali v. Addl. CIT , the Tribunal reiterated that ACIT can function as AO only when specifically empowered by written authorization under section 120(4)(b). In absence of such an order, the assessment framed is without jurisdiction and void.
• The Tribunal noted that the decision in Nasir Ali had been upheld by the Delhi High Court. The High Court clarified that section 124(3) applies only when jurisdiction is validly conferred. In absence of a proper authorization, section 124(3) has no application.
• The ITAT stressed that jurisdictional provisions under sections 2(7A) and 120(4)(b) are mandatory. Mere administrative transfer u/s 127 does not substitute authorization required under section 120(4)(b).
• The Hon’ble Tribunal held that the assessment order dated 12.2016 is void ab initio, illegal, and invalid for want of jurisdiction. Consequently, the entire assessment stands quashed.