BHAGWAN SAHAI,JAIPUR vs. ITO, JAIPUR

This appeal by the assessee is directed against the order dated 26.10.2016 of ld. CIT (A)-3, Jaipur for the assessment year 2006-07. The assessee has raised the following grounds :-

“ 1. On the facts and in the circumstances of the case, the ld. CIT (A) has grossly erred in upholding the impugned reassessment order of ld. AO by ignoring the fact that the said order has been passed without jurisdiction and therefore is prima facie bad in law and deserves to be quashed.

1.1. That, the ld. CIT (A) has further erred in failing to appreciate the fact that the jurisdiction over the case of assessee lies with Income Tax Officer, Ward-1, Hanumangarh, and not with the Income Tax Officer, Ward 7(2), who has passed the impugned reassessment order. Thus, the order of ld. AO deserves to be quashed.

1.2. That, the ld. CIT (A) has further erred in rejecting the aforesaid objection of assessee merely on the ground that this ground was not raised before AO and that the assessee has participated in the assessment proceedings, by completely ignoring the well established law that the question of jurisdiction can be raised at any stage and that the defect of lack of jurisdiction is a material one and not one which can be cured u/s 292 of the Income Tax Act, 1961.

2. On the facts and in the circumstances of the case, the ld. CIT (A) has further erred in upholding the addition of Rs. 74,796/- made by ld. AO by way of disallowance of brokerage expenses paid by assessee on the sale/purchase of land undertaken by assessee. Thus, the addition of Rs. 74,796/- deserves to be deleted.

2.1. That, the ld. CIT (A) has further erred in ignoring the evidences submitted by assessee in support of the fact of payment of brokerage in the shape of confirmation and ID of the broker, however, the ld. CIT (A) has upheld the impugned addition merely on the ground that the broker was not produced before the ld. AO, by completely ignoring the fact that request was made before the ld. AO to summon the broker u/s 131 / 133(6) and examine, since his confirmation and ID proof was submitted before ld. AO.

3. On the facts and in the circumstances of the case, the ld. CIT (A) has further erred in upholding the disallowance of assessee’s claim of deduction u/s 54F of the Act, by wrongly observing that the construction of residential property has not been completed by the stipulated date. Thus, the action of ld. CIT(A) deserves to be held bad in law and the addition of Rs. 27,41,000/- made by way of such disallowance deserves to be deleted.

3.1. That, the ld. CIT (A) has further erred in brushing aside the Valuation Report of the registered valuer wherein, the construction of residential property has clearly been shown to have completed in the month of March, 2006. Thus, in the presence of reliable evidence to this effect, the ld. CIT (A) could not have upheld the impugned disallowance.

4. On the facts and in the circumstances of the case, the ld. CIT (A) has further erred in confirming the addition of Rs. 22,50,161/- made by ld. AO u/s 68 by holding the deposits made by assessee in his bank account as his undisclosed income without any basis. Thus, the addition of Rs. 22,50,161/- so sustained by the ld. CIT (A) deserves to be deleted.

4.1. That, the ld. CIT (A) has further erred in ignoring the evidences and explanations furnished by the assessee in support of the source of deposits made by assessee. Thus, the addition of Rs. 22,50,161/- deserves to be deleted.

5. That the appellant craves the right to add, delete, amend or abandon any of the grounds of appeal either before or at the time of hearing of appeal.

Ground Nos. 1 to 1.2 are regarding validity of reassessment order passed by the AO for want of jurisdiction.

The assessee filed his original return of income under section 139 on 14.08.2007 with ITO Hanumangarh declaring total income at Rs.1,16,960/-. The return of income was processed under section 143(1) on 20th March, 2008 by the ITO Ward-1, Hanumangarh. Subsequently, the ITO Ward 7(2), Jaipur issued a notice under section 148 on 26th March, 2013 to assess the long term capital gain arising from the sale of land. The reassessment proceedings were completed under section 144 read with section 147 of the IT Act at a total income of Rs. 44,75,323/- on 10th February, 2014 whereby the AO made addition on account of long term capital gain, deposits in the bank account and interest income from bank. The assessee challenged the action of the AO before the ld. CIT (A) and raised the objection against the validity of reassessment order passed by the AO for want of jurisdiction. However, the ld. CIT (A) rejected the said objection of the assessee against the jurisdiction of the AO to pass the reassessment order.

Therefore, the reassessment order passed by the AO is invalid and liable to be quashed. In the absence of any order passed under section 127/124 of the IT Act to transfer the jurisdiction from ITO Ward-1, Hanumangarh to ITO Ward 7(2), Jaipur, the proceedings initiated under section 147/148 are bad in law and liable to be quashed. In support of his contention, he has relied upon the decision of Hon’ble Bombay High Court in case of CIT vs. Income Tax Settlement Commission & Others, 365 ITR 87 (Bom) as well as the judgment dated 17th April, 2015 in case of M/s.

Mavany Brothers vs. CIT in Tax Appeal No. 8/2007 (62 taxman.com 50)(Bom). The ld. Counsel has submitted that merely because the assessee appeared before the AO in the reassessment proceedings would not by itself bestow jurisdiction to the AO.

Thus the ld. Counsel has pleaded that the impugned reassessment order is illegal and liable to be quashed.

“ 4.3. I have carefully considered the facts of the case, findings of the AO and submission of the appellant. The assessee challenged the jurisdiction of AO. It is seen from records/remand report that no such jurisdiction was made during the course of assessment proceedings. Moreover assessee participated in the assessment proceedings which is fortified by fact that assessee filed computation of income in response to notice u/s 148 and explanations regarding the deposits made therefore I find no merit in the objection raised by the assessee regarding the objection to jurisdiction of AO.”

Thus the ld. CIT (A) has considered the filing of computation of income in response to notice under section 148 as submitting to the jurisdiction of the AO Ward 7(2)

Jaipur ignoring the fact that the AO himself has stated that the assessee has not filed any return of income in response to notice under section 148 of the IT Act.

Therefore, the mere appearance before the AO in response to the notice under section 148 or 142(1) would not amount to bestowing the jurisdiction upon the AO who was otherwise not having the jurisdiction over the assessee. The Hon’ble Bombay High Court in case of CIT vs. Income Tax Settlement Commission & Others (supra) has held in para 11 and 12 as under :-

“ 11. We have considered the rival submissions. The applicants have strongly contended before us that in view of the petitioner-Revenue having participated in the proceedings before the Commission post the impugned order dated April 8, 2013, it amounts to waiver of her rights to the question the jurisdiction of the Commission. We find, in view of section 245C(1) of the Act, the Commission can exercise jurisdiction under Chapter XIX-A of the Act only when there has been a true and full disclosure of income and also the manner in which the income has been derived, by the applicants. This is a condition precedent for the purpose of an applicant invoking the jurisdiction of the Commission and also for the Commission to act further on the application for settlement. It is the case of the petitioner that the aforesaid jurisdictional requirement of true and fair disclosure by the applicants has not been considered in the impugned order dated April 8, 2013, under section 245D(2C) of the Act but the Commission has merely postponed its decision on the same.

Once it is held that the issue of true and full disclosure in the application for settlement is a jurisdictional issue and in the absence of its satis faction jurisdiction cannot be exercised by the Commission, it follows that mere participation in the proceeding by the parties cannot by itself bestow the jurisdiction on the Commission. The exercise of jurisdiction by an authority when not so vested in it is open to challenge and participation in the proceeding will not confer any jurisdiction as held by the apex court in Carona Ltd. v. Parvathy Swaminathan and Sons [2007] 8 SCC 559 and Kanwar Singh Sainy v. High Court of Delhi [2012] 4 SCC 360.

months in filing this petition after the passing of the impugned order disentitled the petitioner from being granted any relief. A delay of about four months in filing the petition after the impugned order dated April 8, 2013, is certainly not fatal to entertaining the petition which is based on a jurisdictional challenge. This is particularly so as no rights have been acquired in the meantime by any third party. However, the submission of the applicants is that the delay on the part of the petitioner was not bona fide but only done to obtain the confidential folders/annexures filed along with the application for settlement by leading all to believe that the impugned order is accepted. By delaying the challenge in this court and obtaining information/documentary evidence in the settlement proceedings on the basis that the impugned order is accepted is only with a view to obtain the confidential folders/annexures to the application and use them in assessment proceedings by now challenging the impugned order dated April 8, 2013. This information contained in the confidential folders would never have been made available to the petitioner in case the applicants' applications for settlement is held invalid under section 245D(2C) of the Act. Thus, the adjudication proceeding for assessment before the Assessing Officer and authorities under the Act would have been without the evidence contained in the confidential folders of the applicants. The conduct of the petitioner-Revenue is unfair and the delay in filing the petition was only to obtain information which it would not have been entitled to had it not accepted the impugned order.”

In the subsequent decision of Hon’ble Bombay High Court in case of M/s. Mavany Brothers vs. CIT (supra) has considered this issue in para 13 as under :-

9 Shri Bhagwan Sahai, Jaipur. “13. We have considered the rival contentions. The jurisdiction under Section 147/148 of the Act is an extra ordinary jurisdiction and can only be exercised when condition precedent as provided in Sections 147/148 of the Act are satisfied. It is the appellant's case that the aforesaid conditions are not satisfied inasmuch as in the absence of the Assessing Officer having the original return of income available it would not be possible for him to have a reasonable belief that income chargeable to tax has escaped assessment. This issue of jurisdiction according to the respondent - Revenue could only have been raised before the Assessing Officer and not having been raised before him, the appellant had waived its rights to raise the same. The appellant having submitted to the jurisdiction of the Assessing Officer cannot now challenge the same. This is not entirely correct. It is well settled that mere acquiescence will not give jurisdiction to an authority who has no jurisdiction. In fact this Court in CIT (Central) v. ITSC [2014] 365 ITR 68/[2013] 35 taxmann.com 443 has held that mere participation by a party in proceedings without jurisdiction will not vest/confer jurisdiction on the authority. Reason to believe that income chargeable to tax has escaped assessment is a jurisdictional fact and only on its satisfaction does the Assessing Officer acquire jurisdiction to issue notice. Thus this lack of satisfaction of jurisdictional fact can never confer jurisdiction and an objection to it can be raised at any time even in appeal proceedings. The mere fact that no objection is taken before the Assessing Officer would not by itself bestow jurisdiction as the Assessing Officer. Such an objection can be taken in appeal also. Moreover, the Apex Court in its recent decision in Kanwar Singh Saini v. High Court of Delhi [2012] 4 SCC 307 has held that it is settled position that conferment of jurisdiction is a legislative function and cannot be conferred by consent of petitioner. An issue of jurisdiction can be raised at any time even in appeal or execution. Reliance in this regard could usefully be made to Indian Bank v. Manilal Govindji Khona [2015] 3 SCC 712. Paras 22 of the said judgment read as under : "22. In Sushil Kumar Mehta case [Sushil Kumar Mehta v. Gobind Ram Bohra, [1990] 1 SCC 193] this Court has elaborately considered the relevant factual and legal aspect of the case and has laid down the law at para 10, after referring to its earlier decision of a four-Judge Bench of this Court speaking through Venkatarama Ayyar, J. in Kiran Singh v. Chaman Paswan [AIR 1954 SC 340 : [1955] 1 SCR 117] , which would be worthwhile to be extracted as under: (Sushil Kumar Mehta case [Sushil Kumar Mehta v. Gobind Ram Bohra, [1990] 1 SCC 193] , SCC p. 199) 6. "10. ... '6. .... It is a fundamental principle well established that a decree passed by a court without jurisdiction is a nullity and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes at the very authority of the court to pass any decree, and such a defect cannot be cured even by consent of parties. If the question now under consideration fell to be determined only on the application of general principles governing the matter, there can be no doubt that the District Court of Monghyr was coram non judice, and that its judgment and decree would be nullities.' (Kiran Singh case [AIR 1954 SC 340 : [1955] 1 SCR 117] , AIR p. 342, para 6)" Thus, it is open to the petitioner to raise the issue of jurisdiction before the appellate authorities.”

Thus the Hon’ble High Court has held that mere participation by the party in the proceedings without jurisdiction will not bestow/confer jurisdiction on the authority.

In the case in hand, it is clear that the ITO Ward 7(2) Jaipur was not having jurisdiction over the assessee when the return was already filed and processed by the ITO Ward -1 Hanumangarh. Accordingly, the initiation of proceedings under section 147/148 as well as passing the reassessment order by the ITO Ward 7(2)

Jaipur is bad in law for want of jurisdiction and thus the impugned order is quashed.