Order passed without jurisdiction is invalid

Himalaya Drug Company Vs DCIT (Karnataka High Court)

Facts-

The main issue taken up by the appellant is that the notice issued under section 153C by the Deputy Commissioner of Income Tax (DCIT), Central Circle, Bengaluru are without jurisdiction and hence invalid thereby rendering all the subsequent proceedings void ab initio.

Conclusion-

Notice under section 153C was issued by DCIT, Central Circle, Bengaluru on 11.05.2009. However, the date of transfer of files from ACIT is 19.08.2009. Thus, it is ex-facie apparent that the notices under section 153C were issued prior to transfer of case and jurisdiction conferred on the DCIT. It is well settled that any order passed without jurisdiction is invalid.

It is well established that the notice issued by the DCIT Circle 1(1), Bangalore, is without jurisdiction and as such, all further proceedings would render void. The arguments of the learned counsel for the revenue with respect to Sections 292B and 292BB do not merit any consideration.

As held by the Hon’ble Apex Court in the case of Maruti Suzuki India Ltd., supra, the notice issued without jurisdiction is a substantive illegality and not a procedural violation of the nature adverted to in Sections 292B and 292BB which deals with mistake/defect or service of notice.

FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT

ITA No.441/2014 is filed by the assessee under Section 260A of the Income Tax Act, 1961 (‘Act’ for short) assailing the order dated 13.06.2014 passed in ITA Nos.1634-1639/Bang/2012 by the Income Tax Appellate Tribunal, Bengaluru, ‘C’ Bench, Bengaluru (‘Tribunal’ for short) relating to the Assessment Years 2003-04 to 2008-09.

2. ITA No.441/2014 was admitted by this Court on 15.06.2015 to consider the following substantial questions of law:

A. Whether on the facts and in the circumstances of the case, the Honourable ITAT was right in law in holding that the directions of Hon’ble DRP are not barred by limitation?

B. Whether on the facts and in the circumstances of the case, the Honourable ITAT was right in law in upholding action under section 153C by holding that handing over of assets is not required for assuming jurisdiction under section 153C?

C. Whether on the facts and in the circumstances of the case, the Honourable ITAT was right in law in upholding the invocation of section 153C though there is no recording of satisfaction within the meaning of section 153C?

D. Whether on the facts and in the circumstances of the case, the Honourable ITAT was right in law in upholding the invocation of section 153C of IT Act though the notice under section 153C has been issued without proper application of mind?

I. Whether on the facts and in the circumstances of the case, the Honourable ITAT was right in law in upholding the action of TPO of reviewing her own order passed under section 92CA(3) and the correctness of the remand by the DRP to TPO?

E. Whether on the facts and circumstances of the case, the Honourable ITAT was right in law in upholding the directions issued by the Hon’ble DRP in respect of AMP expenditure though it did not form part of the Order of TPO u/s 92CA(3) of the Act or the draft assessment order passed by the JCIT u/s 144C(1) of the Act?

F. Whether on the facts and in the circumstances of the case, the Honourable ITAT was right in law in upholding the initiation of proceedings under section 153C though the requisition proceedings are invalid?

G. Whether on the facts and in the circumstances of the case, the Honourable ITAT was right in law in upholding the validity of reference to TPO even though no incriminating material was found during requisition proceedings in respect of assessment years for which the assessment proceedings abated?

3. I. A.No.1/2020 was filed by the assessee in ITA No.441/2014 for framing additional substantial question of law.

4. This Court vide order dated 02.12.2020 was pleased to pass an order on the said I.A., relevant portion of which is extracted hereunder:

“The following additional substantial question of law shall also be considered at the time of final hearing of the appeal.

“H. Whether on the facts and in the circumstances of the case, the notices issued under Section 153C by the Deputy Commissioner of Income Tax, Central Circle, Bengaluru on 11.05.2009 for the Assessment Years 2003-04 to 2008-09 are without jurisdiction and hence invalid thereby rendering all the subsequent proceedings void ab initio?”

5. We have heard the learned counsel for the parties. The substantial question of law ‘H’ is admitted.

6. ITA Nos.509/2014, 510/2014, 512/2014, 513/2014, 514/2014 and 515/2014 are filed by the revenue challenging the very same order of the Tribunal and the appeals were admitted to consider the substantial questions of law framed in ITA No.441/2014.

7. Given the circumstances, it would be apt to first address the substantial question of law ‘H’ as the other substantial questions of law would depend upon the result of this substantial question of law. Hence, first we proceed to consider the substantial question of law ‘H’.

8. Assesse is a partnership firm engaged in the business of manufacture and sale of herbal pharmaceutical products (ayurvedic, medicaments and preparations), consumer/personal care products and animal health care products. The assessee filed its return of income which was selected for scrutiny and the order under Section 143(3) of the Act was passed disallowing certain expenses and making certain additions. Assessee preferred appeals before the Commissioner of Income Tax [Appeals] which came to be allowed in part. Being aggrieved by the same, the revenue filed appeals before the Tribunal and assessee filed cross-objections. The Tribunal allowed the cross-objections of the assessee in part dismissing the revenue’s appeal s for the assessment years 2003-04 and 2004-05. Relating to the assessment year 2005-06, the appeal filed by the assessee was pending before the CIT (A). Relating to the assessment years 2006-07 and 2007-08, the assessee filed its return of income declaring total income of Rs.Nil. No assessment has been made prior to requisition proceedings. Relating to the assessment year 2008-09, return was filed by the assessee declaring the income of Rs. Nil. Notice under Section 143(2) was issued.

9. It transpires that Bangalore City Police has seized the cash of Rs.9.85 crore on 04.08.2008 from the residence of the searched person, Mr. Hisham Syed Tamiz. A warrant of authorisation under Section 132A was executed by the Director of Income Tax to requisite the seized cash from Inspector of Police, J.C. Nagar Police Station. The said Inspector was directed to handover the seized cash to Assistant Director of Income Tax (Investigations), Bangalore, who was authorized to carry out further investigation. Pursuant to which, enquiry under Section 131 was conducted and statements of Mr. Meraj Manal, Mr. Shabir Sharif, partner of the assessee – company and Mrs.Jayashree Ullal, CFO of the assessee – company were recorded. It was explained by them that the seized cash relates to part of proceeds of sale of 7 industrial sheds, out of which 6 sheds were owned by the Himalaya Drug Company Private Limited and 1 shed was owned by the assessee – company.

10. Based on these statements, notice under Section 153C of the Act was served on the assessee on 11.05.2009. In response to the said notice, the assessee filed return of income on 01.06.2009 for the assessment years 2003-04 to 2008-09, which has reached upto the Tribunal. The Tribunal passed consolidated order dated 13.06.2014 by partly allowing the appeal. Being aggrieved by the extent of the order which is prejudicial to the assessee, these appeals are filed.

11. Learned counsel for the assessee would submit that conferring of the jurisdiction on the officer has come to the notice of the assessee only on noticing the date mentioned in the assessment order of Mr. Hisham Syed Tamiz and further got confirmed on the information secured by the assessee to the application made under the provisions of the Right to Information Act, 2005 as per the letter dated 25.09.2013 issued by the Assistant Commissioner of Income Tax, Central Circle-I, Bengaluru. Hence, this ground though not raised before the authorities, the proceedings initiated by the Deputy Commissioner of Income Tax being without jurisdiction, the same renders the further proceedings void ab initio as it goes to the root of the matter. In this regard, catena of judgments are cited by the learned counsel. It was further argued that Sections 292B and 292BB are not applicable to the instant case as Section 292B applies only in case of mistake/defect or omission, whereas Section 292BB deals with service of notice and not issue of notice. It was further submitted that the bar provided under Section 124(3)(c) of the Act is prospective in nature and the same is not applicable to the facts of the present case. Moreover, the amendment to Section 124 is not procedural but substantive amendment.

12. Learned counsel for the revenue though made an endeavor to justify the impugned orders but could not succeed as the reply given by the competent authority under the provisions of the Right to Information Act and the order of transfer could not be disputed. However, the learned counsel made an attempt to support the impugned orders referring to Sections 292B and 292BB of the Act.

13. We have carefully considered the arguments of the learned counsel appearing for the parties and perused the material on record.

14. As discussed above, an order under Section 127(2) of the Act was issued on 20.07.2009 by the Commissioner of Income Tax, Bengaluru, in exercise of the powers conferred under sub-section (2) and sub­section (3) of Section 127 transferring the case of the assessee from the Assessing Officer – DCIT, Circle 6(1) to DCIT, Central Circle 1(1) , Bangalore. The said order specifies that the said Notification will come into effect from 20.07.2009. Notices under Section 153C were issued by the Deputy Commissioner of Income Tax, Central Circle 1(1), Bangalore on 11.05.2009, much earlier to conferring jurisdiction on the said officer. In the assessment order of the search party – Mr. Hisham Syed Tamiz, it was reflected that consequent to the search under Section 132, the said case was centralized to the Circle – Deputy Commissioner of Income Tax, Central Circle-1(1), Bangalore, from ITO Ward 8(2) Bangalore vide order of Commissioner of Income Tax, Bangalore-IV in F.No.6A/Centralization/CIT,IV/2009-10 dated 20.10.2010. Based on the said information found in the said assessment order, the entire process was begun to find out the transfer of the file and conferring the jurisdiction on the officer, DCIT, Circle – 1(1), Bangalore.

15. Thus, the undisputed facts are that the assessee’s case was transferred from ACIT, Circle – 6(1), Bengaluru to DCIT, Central Circle, Bengaluru on 20.07.2009, as per the order passed under Section 127(2) dated 20.07.2009; notices under Section 153C for the assessment years under consideration were issued by the DCIT, Central Circle, Bengaluru on 11.05.2009; date of transfer of files from ACIT is 19.08.2009. Thus, it is ex-facie apparent that the notices under Section 153C were issued prior to transfer of case and jurisdiction conferred on the DCIT. It is well settled by now that any order passed without jurisdiction is invalid.

16. At this juncture, it is apt to refer to the judgment of the Hon’ble Apex Court in the case of Principal Commissioner of Income Tax vs. Maruti Suzuki India Ltd., reported in (2019) 416 ITR 613 (SC) wherein, it has been held that the assessment order passed against the non-existent company is a substantive illegality and not a procedural violation of the nature adverted to Section 292B.

17. In the case of Principal Commissioner of Income-tax vs. Silver Line reported in (2016) 383 ITR 455 (Delhi), the Hon’ble High Court of Delhi considering the objections raised by the revenue inasmuch as ITAT permitting the assessee to raise the point concerning non-issuance of notice under Section 143(2) of the Act for the first time in the appeal before the ITAT, held that it is settled law that the requirement of issuance of such notice is a jurisdictional one, it does go to the root of the matter as far as the validity of the reassessment proceedings under Section 147/148 of the Act is concerned. The issue being purely one of law, the Income Tax Appellate Tribunal was not in error in permitting the assessee to raise such a point before it.

18. The Hon’ble High Court of Bombay in the case of Commissioner of Income tax-1, Nagpur vs. Lalitkumar Bardia reported in (2018) 404 ITR 63 (Bombay), while considering the jurisdiction of the Assessing Authority in issuing the notice under Section 158BC of the Act has observed that it is the assessing officer alone who has to serve notice upon the assessee calling upon him to furnish a return in terms of Section 158BC of the Act. Such notice was not issued by the Assessing Officer having jurisdiction. As a consequence, the notice being without jurisdiction, all the proceedings subsequent thereto are without authority of law. The relevant factual aspects are discussed in para 13 of the said judgment, which is quoted hereunder for ready reference:-

“13. It is undisputed position that the respondent/assessee was being assessed at Rajnandgaon (M.P.). It was as a consequence of search upon the Motwani group at Nagpur that a search was carried on upon the Respondent/Assessee. In view of the above, the Commissioner of Income Tax, Raipur for facilitating detailed and coordinated investigation, passed an order on 6.7.1999, under Section 127 of the Act transferring the respondent/ assessee’s case from Rajnangaon to Nagpur. However, the Order dated 6.7.1999 of the Commissioner of Income Tax, Nagpur was quashed and set aside on 17.9.1999 by the Hon’ble M.P. High Court. The notice u/s.158BC of the Act was issued on 22.9.1999 i.e., after the order of transfer dated 6.7.1999, u/s.127 of the Act was quashed and set aside. Thus, it ceased to exist. Consequently, on 22.9.1999, when the Deputy Commissioner of Income Tax, Nagpur ceased to have jurisdiction to assess the Respondent/Assessee as there was no order of transfer of the respondent/ assessee’s case to Nagpur. In terms of Section 2(7A) of the Act, the Assessing Officer means ‘an Officer of the Income Tax vested with jurisdiction either by virtue of Section 120 or any other provision of the Act’. Admittedly, the Deputy Commissioner of Income Tax, Nagpur does not have jurisdiction over the respondent/ assessee by virtue of Section 120 of the Act. However, the claim of jurisdiction as a Assessing Officer over respondent/ assessee is the Order dated 6.7.1999 which has been passed u/s.127 of the Act, while issuing notice on 22.9.1999, under Section 158BC of the Act. But, as the Order dt.6.7.1999 under Section 127 of the Act by the Commissioner of Income Tax, Raipur was set aside before issuing of notice, the Deputy Commissioner of Income Tax, Nagpur ceased to be the Respondent/Assessee’s Assessing Officer. In the result, the notice dated 22.9.1999 issued u/s.158BC of the Act was issued by the Deputy Commissioner of Income Tax, who was not the Assessing Officer of the respondent/assessee. It is the Assessing Officer alone who has to serve notice upon the assessee calling upon him to furnish a return in terms of Section 158BC of the Act. This notice the Deputy Commissioner of Income Tax could not issue as, on 22.9.1999, he was not the Assessing Officer. As a consequence, the notice being without jurisdiction, all the proceedings subsequent thereto are without authority of law.”

This judgment was challenged by the revenue before the Hon’ble Apex Court which came to be dismissed. We find no reason to take a different view.

19. Thus, it is well established that the notice issued by the DCIT Circle 1(1), Bangalore, is without jurisdiction and as such, all further proceedings would render void ab initio. The arguments of the learned counsel for the revenue with respect to Sections 292B and 292BB do not merit any consideration.

20. As held by the Hon’ble Apex Court in the case of Maruti Suzuki India Ltd., supra, the notice issued without jurisdiction is a substantive illegality and not a procedural violation of the nature adverted to in Sections 292B and 292BB which deals with mistake/defect or service of notice.

21. Section 124(3)(c) was inserted by the Finance Act 2016 with effect from 01.06.2016 which reads thus:

“124(3)(c) No person shall be entitled to call in question the jurisdiction of an Assessing Officer.-

(a) xxxxx

(b) xxxxx

(c) where an action has been taken under section 132 or section 132A, after the expiry of one month from the date on which he was served with a notice under sub-section (1) of section 153A or sub-section (2) of section 153C or after the completion of the assessment, whichever is earlier.”

22. It is trite that the language employed in the Amendment Act is self – explanatory that the said amendment has come into effect prospectively from the 1st Day of June, 2016. The intention of the legislature was made explicit to give effect to the amendment from 1st Day of June, 2016. This proviso cannot be treated as declaratory/statutory or curative in nature, the same being conscious decision of the legislature. This view is fortified by the judgment of the Hon’ble Apex Court in the case if CIT vs. Vatika Townshipt (P.) Ltd., reported in (2014) 367 ITR 466 (SC).

23. For the foregoing reasons, substantial question of law ‘H’ is answered in favour of the assessee and against revenue.

24. In view of the substantial question of law ‘H’ having been answered in favour of the assessee, the other substantial questions of law raised by the assessee as well as the revenue would render academic. Hence, keeping open the said substantial questions of law, we allow the appeal filed by the assessee, dismissing the appeals filed by the revenue.

25. Hence, we pass the following

ORDER

i) ITA No.441/2014 filed by the assessee is allowed.

ii) The substantial question of law ‘H’ is answered in favour of the assessee and against the revenue.

iii) In view of the substantial question of law ‘H’ having been answered in favour of the assessee, the other substantial questions of law raised by the assessee as well as the revenue would render academic.

iv) ITA Nos.509/2014, 510/2014, 512/2014, 513/2014, 514/2014 and 515/2014 filed by the revenue are dismissed.