Prithvi Raj Singh Vs I.T.O. (ITAT Jaipur)
We found that the assessee had declared capital gain income in return which clearly shows that there is non-application of mind on the part of the A.O. while recording the reasons as he did not consider the return furnished by the assessee wherein capital gain income has been shown. Thus, nonexisting facts/basis does not lead to formation of belief U/s 147 of the Act which is a condition precedent U/s 147 of the Act as there is no rational nexus of material/information available with formation of belief. Thus, according to us, no valid belief can be formed on the basis of incorrect/non-existing facts U/s 147 of the Act otherwise it would be then difficult to interpret what weighed with the mind of the A.O. while recording reasons as the reasons recorded cannot be modified or supplemented by further explanation. While reaching to the said conclusion, we find strength from the principle laid down by the various courts in different cases such as in the case of Commissioner of Income-tax, Jalandhar v. Smt. Paramjit Kaur [2008] 168 Taxman 39, Narain Dutt Sharma Vs ITO (2018) 91 taxmann.com 463 (JP Trib) PCIT Vs Shodiman Investments (P) Ltd. (2018) 93 taxmann.com 153 (Bom) & ors, Ingram Micro (India) Exports (P) Ltd. Vs DCIT (IT) (2017) 78 taxmann.com 140 (Bom), Hintustan Level Ltd. Vs R.B. Wadkar, Asstt. CIT (2004) 268 ITR 332, PCIT Vs RMG Polyvinyl (I) Ltd,. (2017) 83 taxmann.com 348 (Delhi).
Therefore, the findings recorded by the ld. CIT(A) supporting the reasons on the ground of sufficiency of reasons, according to us, are misconceived and cannot be sustained.
We have also considered the decisions relied upon by the ld DR but the same are distinguishable on the facts and even rendered in different context while dealing with the relevant facts and legal issues under consideration of courts/Tribunal, therefore, the same are of no help to the department as far as the facts of the present case are concerned. Therefore, according to us, the assumption of jurisdiction U/s 147 of the Act by the A.O. is not tenable on the basis of our above reasoning. Hence, we quash the proceedings initiated U/s 147 of the Act.
FULL TEXT OF THE ITAT JUDGEMENT
The present appeal has been filed by the assessee against the order of the ld. CIT(A)-1, Jaipur dated 01/11/2019 for the A.Y. 2010-11. Following grounds have been taken by the assessee:
“1. Under the facts and the circumstances of the case and in law, the order dated 01.11.2019 passed by the Ld. CIT(A) u/s 250 of the Income Tax Act, 1961 is perverse, nonspeaking, arbitrary and bad in law.
2. Under the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in upholding impugned Order dated 26.12.2017 passed by Ld. AO which is perverse, arbitrary, without jurisdiction and bad in law.
3. Under the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in
a. upholding the impugned proceedings u/s 147 of the Act,
b. upholding the issuance of notice u/s 148 of the Act by assessing officer having no jurisdiction upon assessee.
c. upholding the impugned reasons recorded by the non-jurisdictional AO u/s 147 of the Act.
4. Under the facts and the circumstances of the case and in law, the Ld. CIT(A) is not justified in upholding the impugned addition of Rs. 3,28,35,754/- u/s 50C of the Income-tax Act, 1961.
5. Under the facts and the circumstances of the case and in law, the Ld. CIT(A) has erred:
a. in taking cognizance of the report of the DVO and in considering the computation/valuation made by the ld. DVO in its report,
b. in not considering the objections of the Appellant against Ld. DVO report.
c. in not providing adequate opportunity of being heard to the Appellant.
6. Under the facts and the circumstances of the case and in law, the Ld. CIT(A) has erred in levying interest u/s 234A, 234B and 234C of the Act.
7. The appellant company craves leave to add, amend and modify all or any ground of appeal on or before the date of hearing.”
2. The hearing of the appeal was concluded through video conference in view of the prevailing situation of Covid-19 Pandemic.
3. Facts in brief are that the assessee is a senior citizen resident, individual aged about 70 years. He is residing at 93, Duleshwar Garden, C-Scheme, Jaipur. According to assessee, as per the residential address of the assessee, the jurisdiction falls upon ITO Ward 2(2), Jaipur. For the year under consideration the assessee filed its return of income u/s 139 of the Income Tax Act (“the Act”, in short) on 31.03.2012 in which total income of Rs. 30,88,250/- was declared including capital gain income. Assessee made agreement to transfer two ancestral properties, being land situated at village Kunhadi, Kota (hereinafter referred as ‘immovable properties’) in FY 2004-05 through agreement for sale for total consideration of Rs. 2,28,65,500/- (sales consideration of one property was Rs. 64,28,000 and of other was Rs. 1,64,37,500/-) which is more than the stamp value of the immovable properties in FY 2004-05. Part consideration as advance in terms of agreement to sales was received FY 2004-05 and thereafter from time to time. However, on account of some dispute relating to title of property and other disputes at various forums, sale deeds were executed in FY 2009-10, though agreement to sale the immovable properties were executed in FY 2004-05.
4. Return of income filed was duly processed u/s 143(1) of the Act. Thereafter, ITO Ward 2(3), Jaipur based on some AIR/CIB information, A.O. recorded reasons and issued notice u/s 148 of the Act after lapse of almost 6 years. In the impugned reasons, it is alleged that the assessee has not shown the capital gains in his return of income. According to assessee, during the course of assessment proceedings, reasons recorded were not provided and the same were provided during the appellate proceedings. During assessment proceedings, assessee did not response to notice u/s 148(1) of the Act, issued by ITO Ward 2(3), Jaipur. The A.O. transferred files on 06.06.2017 to assessing officer (ITO Ward 2(2), Jaipur), who made addition u/s 50C in respect of deemed consideration and he also denied benefit of cost of acquisition and improvement while assessing the assessee. The AO while passing assessment order referred the matter to DVO for valuation of properties after passing the assessment order dated 26.12.2017 and stated in his impugned assessment order that the assessment order would be modified as per the report of DVO after receipt of the same.
5. Being aggrieved by the order of the A.O., the assessee carried the matter before the ld. CIT(A), who after considering the submissions as well as material placed on record given part relief to assessee on merit and dismissed the grounds of proceedings being without jurisdiction and upholding the impugned addition made u/s 50C of the Act on the basis of report of Ld. DVO. Against the impugned order of the ld. CIT(A), the assessee has preferred the present appeal before the ITAT by taking the grounds mentioned above.
6. Grounds No. 1 and 2 of the appeal are interlinked and interrelated and relates to challenging the order of the ld. CIT(A) in upholding the assessment order without jurisdiction, therefore, we have decided to adjudicate these grounds by this consolidated order. The ld AR appearing on behalf of the assessee reiterated the same arguments as were raised before the ld. CIT(A) and also relied on the written submissions filed before the ld. CIT(A) as well as before the ITAT. The submissions of the assessee according to the written submissions are reproduced as under:
1. The permanent account number of the Appellant falls in the jurisdiction of the ITO ward 2(2), Jaipur. However, notice u/s 148 of the Act was issued by ITO Ward 2(3) of the Act after recording impugned reasons to believe. The said notice has been issued by authority having no jurisdiction upon the Appellant; therefore, the impugned proceedings u/s 147 of the Income Tax Act, 1961 (“Act” in short) are invalid and void ab-initio.
2. The said fact is also supported by the action of transfer of case records by the department during the assessment proceedings itself.
3. The Ld. CIT(A) rejected the contention of the Appellant by taking resort to Section 124(3)(a) of the Act, however, it is humbly submitted that protection u/s 124(3)(a) is not available in case of proceedings u/s 148 of the Act. Further, provision of Section 124(3) are in applicable in the instance case, as at the time of issuance of notice u/s 148(1) as well as originally at the time of filing of return of income, jurisdiction u/s 124(1) was no conferred to ITO Ward 2(3), Jaipur as per directions or orders of the CBDT, which is evident from jurisdiction chart as well as portal details available in paper book at page no. 122-123, and 120.
4. Assessee has no choice under the law to choose his/her assessing officer. The jurisdiction under the Act is to be conferred upon in accordance with the law and no in accordance with the wishes or choice of Assessee neither jurisdiction is conferred as per details of AO Code mentioned in ITR by assessee on account of misconception or for bonafide mistake.
5. As per the jurisdictional chart notified by CBDT, the residential area of the Appellant falls within the jurisdiction of the ITO Ward 2(2), Jaipur only.
6. The consent or waiver of the parties does not give the jurisdiction. [(1) Principal Commissioner of Income Tax II Lucknow vs. Mohd. Rizwan Prop. M/S M.R. Garments Moulviganj Tax appeal No. 100 of 2015 (2) K.A. Wires Ltd vs. Income Tax Officer, ward – 8(3), Kolkata ITA No. 1149/Kol/2019 dated 22.01.2020 (3) S.N. Bhargava v. Income-tax Officer, 3(4), Mathura 147 ITD 306 (Agra – Trib.)]
7. Lack or absence of jurisdiction can be challenged at any stages. (Principal Commissioner of Income Tax II Lucknow vs. Mohd. Rizwan Prop. M/S M.R. Garments Moulviganj Tax appeal No. 100 of 2015).
8. Without prejudice to above, impugned reasons were recorded on the basis of information from sub-registrar or AIR/CIB data which was available with department well before the processing of return u/s 143(1) as well as at the time while notice u/s 143(2) of the Act for verifying return could have been issued. Thus, said information per se is not tangible material for formation of belief to assume jurisdiction u/s 147 of the Act.
9. Proceedings were initiated on factually erroneous and non-existing facts that Appellant filed the return but did not show capital gain income as alleged in impugned reasons. In the ITR, capital gain income has been declared. Mentioning of the erroneous and wrong fact that Appellant did not declare capital gain income in his return of income, also establishes that there had not been any examination of material available on record, including the return of income by AO recording reasons. Impugned reasons based on non-existing facts shows non-application of mind of authority recording reasons.
10. The impugned reasons are based on non-existing facts, which are not sufficient to invoke jurisdiction u/s 147 of the Act. Reliance was placed on judgment of Hon’ble Bench in case of Narayan Dutt Sharma available in case compilation.
11. The ITO Ward 2(2), Jaipur did not record the reasons u/s 147 of the Act. Further he did not issue notice u/s 148 of the Act. Thus, he simply acted upon the borrowed satisfaction of ITO Ward 2(2), Jaipur, who did not have jurisdiction. Reliance is placed on following decisions:
(Principal Commissioner of Income-tax-5 vs. Shodiman Investments (P.) Ltd. [2018] 93 taxmann.com 153 (Bombay))
Commissioner of Income-tax, Jalandhar v. Smt. Paramjit Kaur [2008] 168 Taxman 39 (Punjab & Haryana)
S.N. Bhargava v. Income-tax Officer, 3(4), Mathura 147 ITD 306 (Agra – Trib.)]
12. The Ld. PCIT has given mechanical approval in the instance case u/s 151 of the Act which is evident from bare perusal of reasons recorded, there is no application of mind or examination of records by Ld. PCIT, while granting approval u/s 151 of the Act as primary condition of whether jurisdictional assessing officer is recording the reasons was not checked.
13. It is a settled position of law that for a valid assumption of jurisdiction, to reassess, the Assessing Officer must have definite & specific information or material which should lead to formation of belief that any income chargeable to tax has escaped assessment whereas it is evident that the Ld. AO has initiated the re-assessment merely on the basis of AIR/CIB information, and nexus of the said information with escaped income was not established as reasons proceeded on factually erroneous facts/non-existing facts only.
Rebuttal against the arguments of Ld. DR on issue of Section 147 proceedings:
14. During the hearing, the Ld. DR relying upon the order of CIT(A) has argued that the reasons were not asked by the Appellant during the proceedings which is alleged violation of the judgment of GKN Driveshaft India Ltd. Vs. ITO [2003] 259 ITR 19.
15. In this regard it is humbly submitted that expression “if he so desires” as used by Hon’ble Apex Court in the said judgment cannot be interpreted in the way that reasons can only be provided to the Appellant when it was asked for as assessing authority are quasi-judicial authority and principle of natural justice and fair play demand, AO should himself provide the reasons and guide the Assessee. To complete the assessment proceedings in fair way, it is necessary to provide the reasons recorded with the Appellant. Reliance in this regard is placed on judgment in case of Mithlesh Kumar Tripathi vs. Commissioner of Income-tax reported at 280 ITR 16 and CBDT circular bearing no. 14 (XL-35) dated 11.04.1955, which requires the assessing authority to be best advisor and guide to Assessee. Therefore, even if reasons were not asked by Assessee, this does not authorize AO to not provide the same to Assessee during assessment proceedings. Even otherwise, AO is not authorized proceed to make assessment on non-est and void proceedings as very notice u/s 148 was issued by ITO ward 2(3), having no jurisdiction.
16. In addition to the above, when the reasons recorded were provided during the appellate proceedings, then on the bare perusal of the reasons it is evident that reasons are not inconsonance with the law, erroneous and bad in law on the following counts:
1. The said reasons were recorded by incompetent officer having no jurisdiction upon Assessee
2. The information available in AIR/CIB data was already available with the department at the time of original proceedings, however, no proceedings were taken u/s 143(2).
3. Reasons are based on non-existing facts and does not establishes failure to disclose full and truly the information in the return of income furnished by Assessee.
4. Reasonable nexus between the information available with material available as well as formation of belief is missing as same is based on erroneous belief.
5. Reasons shows non-application of mind
6. Approval granted u/s 151 of the Act by Ld. PCIT is mechanical and improper. It does not record satisfaction of Ld. PCIT at all.
7. On the other hand, the ld DR has relied on the orders of the authorities below and also relied on the following judicial pronouncements:
(i) CIT Vs British India corporation 337 ITR 64 (All)
(ii) Abhishek Jain Vs ITO 405 ITR 1 (Del)
(iii) Hanon Automotive Systems India P Ltd. Vs. DCIT 413 ITR 431.
8. We have heard the ld. Counsels of both the parties and have perused the material placed on record. We have also deliberated upon the decisions cited in the orders passed by the authorities below as well as cited before us and we have also gone through the orders passed by the revenue authorities. From the record, we noticed that the assessee had challenged the notice U/s 148 of the Act issued by the ITO, Ward 2(3), Jaipur, while the case of the assessee falls under ITO Ward 2(2), Jaipur and therefore, on this ground, it was submitted by the ld AR that notice U/s 148 of the Act was issued by the jurisdictional officer, therefore, the proceedings U/s 147 of the Act by other A.O. are not valid. However, after going through the records, we are in concurrence with the findings recorded by the ld. CIT(A) as we also noticed that the assessee himself had filed original return of income under ITO Ward-2(3), Jaipur which is apparent from the acknowledgement of return of income filed by the assessee. Therefore, the assessee himself submitted their jurisdiction to ITO Ward-2(3), Jaipur by admitting that ITO Ward-2(3), Jaipur was having jurisdiction over the assessee. We also noticed that ITO Ward-2(3), Jaipur had subsequently transferred the case to ITO Ward-2(2), Jaipur who completed the scrutiny assessment U/s 147/143(3) of the Act and even during the assessment proceedings, the assessee had never challenged the jurisdiction of the A.O. and rather participated in the proceedings.
9. As per the provisions of Section 124(3) of the Act, it has categorically been mentioned that no person shall be entitled to call in question the jurisdiction of an A.O., where he had made a return under Sub-Section (1) of Section 139, after expiry of one month from the date on which he was served with a notice under sub-Section (2) of Section 142 or after completion of assessment whichever is earlier. In this regard, we also draw strength from the decision relied upon by the ld DR in the case of CIT Vs British India corporation 337 ITR 64 (All) wherein it was held as under:
“Section 124 of the Income-tax Act, 1961-Assessing officer- Jurisdiction of- Assessment year 1974-75- Where Income-tax Officer, had jurisdiction when assessment proceedings commenced and a draft assessment order was submitted to IAC, subsequent change in jurisdiction, if any, unless brought to notice of authority concerned, would not in any manner vitiate assessment order passed by such ITO in absence of any objection with regard to lack of jurisdiction by assessee [In favour of revenue].
The Hon’ble Delhi High Court in the case of Abhishek Jain Vs ITO (2018) 94 taxmann.com 355 (Delhi) has held as under:
“Section 124, read with sections 68 and 120, of the Income-tax Act, 1961 – Assessing Officer Jurisdiction of (Objections) – Assessment year 2009-10 – Based on ‘Annual Information Return’ filed by a bank, located in Noida, information was forwarded to Income-tax Officer, Noida regarding cash deposits of certain amount in account of assessee in said bank – On basis of said information, Income-tax Officer, Noida issued notice under section 148 against assessee – After three months, assessee raised an objection stating that assessee was regularly filing returns with Income-tax Officer, Delhi and, accordingly, notice under section 148 issued by Income-tax Officer, Noida was illegal and without territorial jurisdiction Whether in terms of section 124(3)(b) assessee could not call in question jurisdiction of an Assessing Officer after expiry of one month from date of a service of reassessment notice upon him – Held, yes – Whether, thus, Income Tax Officer, Noida would not per se lack jurisdiction and reopening notice issued by him against assessee was justified – Held, yes [Paras 19, 20 and 23] [In favour of revenue]
The Hon’ble Madras High Court in the case of Hanon Automotive Systgems India (P) Ltd. Vs DCIT (2019) 104 taxmann.com 246 (Madras) has held as under:
“Section 37(1), read with section 147, of the Income-tax Act, 1961 – Business expenditure – Allowability of (Writ jurisdiction) – Assessment year 2011-12 – Assessee-company claimed development and testing charges as revenue expenditure which was allowed in assessment – Later on, assessing authority passed reassessment order adding back said charges as capital expenditure – Whether, since impugned expenditure were, in opinion of assessee, a revenue expenditure but, in opinion of Assessing Authority, same were capital expenditure, issue deserved to be decided on basis of facts by higher Appellate Forums and such difference of revenues opinion cannot become ground to straightaway invoke writ jurisdiction under Article 226 of Constitution of India – Held, yes [Paras 8, 9, 10 and 11] [In favour of revenue]”
10. Even as per the provisions of Section 124(3) of the Act, the issue of jurisdiction cannot be challenged after completion of assessment and as per the facts of the present case, the assessee himself had filed return of income with ITO Ward -2(3), Jaipur who had recorded the reasons for reopening, therefore, it cannot be held that reasons were recorded by wrong jurisdictional officer. The assessee is estoped from challenging the jurisdiction of the A.O. when assessee himself submitted to the jurisdiction of ITO Ward 2(3), Jaipur. The ld. CIT(A) has thus passed a well reasoned speaking order after evaluating all the facts and legal proposition on this ground, therefore, we find no reason to interfere into or deviate from the findings so recorded by the ld. CIT(A). Hence, we uphold the same. Both these grounds of assessee stand dismissed.
11. Ground No. 3(a) to 3(c) of the appeal raised by the assessee relates to challenging the order of the ld. CIT(A) in upholding the proceedings U/s 147 of the Act. The ld AR appearing on behalf of the assessee has submitted that the ld. CIT(A) has erred in upholding the proceedings U/s 147 of the Act, as the reasons recorded in the present case was by non-jurisdictional A.O., therefore, the said A.O. had no jurisdiction upon the assessee. The ld AR has also relied upon the written submissions submitted before the ld. CIT(A), which is as under:
1. At the outset, it is submitted that the Ld. AO has mechanically invoked the provision of the Section 148/147 of the Act and therefore the very assumption of jurisdiction is bad in law. For initiation of the reassessment proceedings under Section 147 of the Act, the Assessing Officer should have “reason to believe” that income chargeable to tax has escaped assessment for the assessment year under consideration. The word ‘reason to believe’ means belief which prompts the Assessing Officer to invoke Section 147 of the Act and the belief should be based on relevant and tangible material and not arbitrary or irrational. The belief must be held in good faith and cannot be merely pretense. The Appellant humbly submits that the reassessment proceedings initiated vide said notice u/s 148 of the Act are illegal and untenable on account of the following reasons:
