RUPAL KASHYAP MEHTA,MUMBAI vs. ITO, WARD 21 (3)(1), MUMBAI

It has been stated that the reasons for reopening were provided by another jurisdiction ITO ward 21(3)(1) Mumbai on 21/09.2017. The assessee filed objections to the same before the ITO Ward 21(3)(1) Mumbai on 24//10/2017. The said AO disposed off the said objections by an order dated 25/10/2017.

It has also been brought on record that the assessee vide letter dated 01/12/2017 duly acknowledged on 07/12/2017 informed the said ITO about an income-tax search having taken place on her and the premises of group on 06/10/2017. However, still assessment order has been passed u/s 143(3) r.w.s. 147 of the Act by the said ITO Ward 21(3)(1) Mumbai on 28/12/2017.

At the outset, the learned AR on behalf of the assessee, Shri Vinod Bindal raised the issue of validity of the assessment order passed by the ITO Ward 21(3)(1) Mumbai and initiation of proceedings u/s 147 of the Act on the ground that the correct jurisdiction in this case was to assess the same u/s 153A of the Act. He stated that since this is the jurisdictional issue and goes to the root of the validity of the assessment order, it can be raised at any stage and must be first decided by the ITAT.

The Ld. AR submitted that a search action u/s 132 of the Act was carried out on 06/10/2017 on the assessee who is a part of Sunshine Group at their offices, branches and residences of main persons including the assessee. He also submitted that despite due notice of a search having undertaken by the revenue on 06/10/2017 on the assessee, given to the AO vide letter acknowledged by the AO on 07/12/2017, the AO still proceeded to pass an assessment order u/s 147 of the Act on 28/12/2017, though admittedly the reassessment proceedings for this assessment year were pending as on the date of search.

The AR also submitted that, for this assessment year (i.e., A.Y. 2011-12) as the reassessment proceedings were initiated on 31/03/2017, which was pending as on the date of search on the assessee on 06/10/2017, therefore, same got abated in view of the Second Proviso u/s 153A(1) of the Act because the AY 2011-12 fell within the scope ‘relevant assessment years’ (4 earlier assessment years over and above the six assessment years prior to the date of search) as defined u/s 153A of the Act w.e.f. 01/04/2017. The AO, therefore, was duty bound to invoke and proceed under the appropriate provision u/s 153A of the Act. After the amendments made by the Finance Act, 2017, w.e.f. 01/04/2017, the assessment years covered by the section 153A are not just confined to only six assessment years before the date of search, but also covered under the 4 „relevant assessment years‟ which term is defined in the Explanation 1 to the Fourth Proviso u/s 153A of the Act. Further, the Explanation 2 to the Fourth Proviso u/s 153A of the Act defines „asset‟ which also includes deposits in bank accounts. The AR also submitted that as per the information undisputedly available with the AO, it was the requisite evidence which was revealing that the income, represented in the form of an asset as per the definition of the same in the section 153A of the Act, which had escaped assessment amounted to more than fifty lakhs rupees in the relevant assessment year as approximately Rs 7 crores was the alleged escaped income received through cheques and deposited in the bank accounts and finally so assessed as an escaped income u/s 147 of the Act on the basis of the very evidence by the AO. Had the same been not relevant evidence, the impugned proceedings at the threshold would have been void ab initio. Further, since, the impugned reassessment proceedings u/s 147 of the Act for escapement of income for the relevant year were already going on and the income-tax search on the assessee took place after 01/04/2017 on 06/10/2017, both the Fourth and the Second Provisos in the said section were fully applicable.

The AR further averred that in such an undisputable situation on facts read with the mandatory jurisdictional provision to make a reassessment of income for the relevant period after the search, the AO could proceed only u/s 153A of the Act, since the impugned AY 2011-12 fell within the period covered under the relevant assessment year (4 assessment years) and could not have passed the assessment order u/s 147 of the Act without jurisdiction which was specified u/s 153A of the Act by the Legislature. Thus, patently, the impugned reassessment order is bad in law and void ab initio, being against the implicit provisions of the Act on jurisdiction, as the section 153A of the Act open with the words „notwithstanding anything…147‟ and therefore, the only applicable section to assume the jurisdiction to make a reassessment of income on these facts was the section 153A of the Act. The AR relied on the judgment of the Hon’ble Apex Court in Kanwar Singh Saini vs. High Court of Delhi (2012) 4 SCC 307 to support the above contention where in para 13 the following was upheld:

The AR also relied on a latest judgment dated 22/03/2022 of the Hon‟ble Delhi High Court in PCIT vs. S S Con Build Pvt. Ltd 2022-TIOL-656-HC-DEL-IT where the following the above judgment of the Hon‟ble Apex Court and of the jurisdictional Bombay High Court in Mavany Brothers vs CIT 2015 SCC Online Bombay 1686/(2015) 62 taxmann.com 50 (Bom), an identical view as above has been held. Thus, in view of this specific direction / order of the Hon‟ble Apex Court and the High Courts, the impugned reassessment proceedings are meaningless due to an invalid and illegal jurisdiction assumed by the AO incomplete violation of the specific law for the purpose.

In reply to the above submissions the Ld. DR, first of all on the said legal aspect submitted that the same was not pleaded before the lower authorities, therefore same should not be admitted. She further submitted that there was tangible material and information on the basis the case was reopened u/s 147 and there is no limitation on the power of the AO to initiate any proceeding if same is permissible under the act. If AO has taken recourse to an action provided under the Act then assessee cannot say that same should have been done under different provision. There is no bar in taking action u/s 147, especially in this case as reopening was done before the date of search and at the time of issuing notice u/s 148 the AO had the jurisdiction on the basis of information and tangible material on record.

After considering the aforesaid submissions and the legal issue raised, we find the Hon‟ble Apex Court in Kanwar Singh Saini (supra), has upheld that a jurisdictional issue can be raised at any stage. Further, it is otherwise a settled law that a legal ground can be taken at any appellate stage, particularly when the same goes to the root of the jurisdictional aspect of the assessment proceedings. Thus, the objections of the DR are not accepted and this ground of appeal is admitted and adjudicated.

The Ld. AR further also challenged the assessment order passed without jurisdiction by the AO Ward 21(3)(1) Mumbai as bad in law and void ab initio as the said assessing officer did not have any valid jurisdiction to pass the said assessment order as no mandatory assessment jurisdiction transfer order u/s 127(2) of the Act was passed by the PCIT 27 Mumbai to transfer the same from the earlier Assessing Officer ITO Ward 27(3)(2) Mumbai to the ITO Ward ITO 21(3)(1) Mumbai who passed the assessment order in appeal, which here is evident from the reply dated 21/03/2022 received by the assessee under the Rights to Information Act, 2005. Thus, the AR prayed that the assessment order in this appeal must be cancelled as void ab initio having been passed by a non- competent / no jurisdictional assessing authority by relying on Kanwar Singh Saini(supra).

The Ld. AR in this regard submitted that the assessee was not at all served with a copy of any order passed u/s 127(2) of the Act to transfer her assessment jurisdiction from the earlier ITO Ward 27(3)(2) Mumbai under the charge of the PCIT 27 Mumbai to the ITO Ward 21(3)(1) Mumbai under the charge of another PCIT 21 Mumbai who passed the assessment order under this appeal despite her requests to the AO to give her a copy of such assessment jurisdiction transfer order. However, ultimately in response to an application filed by the assessee on 02/03/2022 under the Rights to Information Act 2005, the assessee received a response dated 21/03/2022 from the office of the PCIT 27 Mumbai where the revenue categorically admitted that no assessment jurisdiction transfer order u/s 127(2) of the Act was passed for the purpose but the PAN of the appellant was just migrated / changed through system on 14/09/2017 looking at her latest address therein and by not passing any mandatory assessment jurisdiction transfer order u/s 127(2) of the Act which is totally illegal, because the assessment jurisdiction from the existing AO can only be transferred to another AO under the charge of another PCIT by passing a speaking and reasoned order u/s 127(2) of the Act by the PCIT of the existing charge as per the said section. The AR also drew our attention to the provisions of the section 127(2)(a) of the Act where it is necessary that both the PCITs, i.e., transferring the assessment jurisdiction and where it is being transferred should be in agreement for the same and obviously the same must be in writing by both of them before passing an order to the effect, that too after recording reasons in writing for the same by the PCIT transferring the same.

The AR further contended that the alleged assessment jurisdiction transfer was made from Navi Mumbai (PCIT 27) to Mumbai (PCIT 21) which are not the same city, locality or place. Both the places are governed by different set of administration. Neither, the local body, nor the police, nor the local judicial authorities of both the places are the same. Navi Mumbai is altogether a different city, may be territorially adjacent to Mumbai.

Thus, he stressed that it was mandatory to follow the provisions of the law as above by the 2 PCITs even, if the assessee had shifted to a Mumbai territory jurisdiction and had intimated to the income-tax authorities to record his new address. In such a situation, it became incumbent on the income-tax authorities to make reasonable enquiries about the new address by giving the assessee a reasonable opportunity of hearing and by directing the assessee to adduce proof of her residence at the new address to the satisfaction of the authorities and then pass a speaking order by serving a copy of the same to the assessee. This exercise becomes mandatory because the revenue authorities must satisfy themselves about the claim of the assessee of falling within the new territorial jurisdiction, as per the order of the CBDT u/s 120 of the Act. Therefore, the AR stated that the AO who passed the assessment order in this appeal never had any jurisdiction to pass the same in the case of the assessee.

The Ld. AR also relied on a latest judgment of the Hon’ble Delhi High Court passed on 22/05/2022 in LOUIS DREYFUS COMPANY ASIA PTE. LTD. vs CIT (INTL. TAX) (2022) 114 CCH 0132 Del HC, wherein the Hon‟ble Delhi High Court has categorically held that without a proper and legal order u/s 127 of the Act, no jurisdiction can be transferred even if NOCs have been issued by the respective AOs. The jurisdiction can only be assumed as has been decided by the Legislature and not even by the Courts.

On the other hand, Ld. DR submitted that PAN of the appellant was migrated through system on 14/09/2017 looking at her latest address therein and thus, when assessee itself has migrated to the jurisdiction of the present AO and her PAN address was also shifted, then the correct jurisdiction lied with the current AO and no separate order is required. Thus, AO had valid jurisdiction. DECISION

We have heard the rival submissions and perused the relevant record available before us, on the issue of jurisdiction of the AO on both the counts as raised by assessee before us as discussed above and the relevant law on these points. First of all, in order to appreciate the issue raised by assessee in the aforesaid submissions, the provisions of the section 153A of the Act as were applicable during the relevant period need to be appreciated which was as below: Assessment in case of search or requisition. 153A. (1) Notwithstanding anything contained in section 139, section 147, section 148, section 149, section 151 and section 153, in the case of a person where a search is initiated under section 132 or books of account, other documents or any assets are requisitioned under section 132A after the 31st day of May, 2003 [but on or before the 31st day of March, 2021], the Assessing Officer shall—

Thus, on perusal of the above, it is clear from the language in the Second Proviso to the Section 153A(1) of the Act w.e.f. 01/04/2017 which envisages, “Provided further that assessment or reassessment, if any, relating to any assessment year falling within the period of six assessment years and for the relevant assessment year or years referred to in this sub-section pending on the date of initiation of the search under section 132 or making of requisition under section 132A, as the case may be, shall abate”. Ergo, on the search has taken place and AO was in possession of any documents, information or evidence which reveal that the income has escaped assessment amounts to or is likely to amount to Rs. 50 lakhs or more in the relevant assessment year or in aggregate in relevant assessment years, if falls within 10 assessment years from the end of assessment year in which search has been conducted, then the AO can on resort to frame the assessment u/s 153A.

It is an undisputed fact that the reassessment proceedings initiated by notice u/s 148 of the Act issued on 31/03/2017 were pending on the date of the search, i.e., 06/10/2017 and the impugned assessment order was passed later on 28/12/2017. Once search u/s 132(1) or requisition u/s 132A has taken place, then the provisions of section 153A gets triggered and AO has to mandatorily pass assessment order for the period prescribed therein. Second proviso clearly provides that, all the pending assessment on the date of search gets abated. Here in this case assessment proceedings initiated u/s148 was pending on the date of search. Thus, the AO should have treated the pending assessment proceedings initiated u/s 148 of the Act for this AY 2011-12 as abated, because it fell in the extended period of 4 relevant assessment years as per the provision brought from 1.04.2017. It is neither, the assessee‟s acquiescence nor the AO‟s discretion in this matter, because it is purely a matter of jurisdiction which needs to be acquired in accordance with the statute. It was incumbent upon the AO to pass order u/s 153A, as after the amendment if the AO is in possession of any document or other evidence which reveal that the income which has escaped assessment is more than Rs. 50 lakhs, which here in this Rs. 6.93 crores. The AO here in this case did not act upon in accordance with the law though specifically brought to his notice by the assessee in writing before completing the reassessment on 28/12/2017. The additional time of 4 years were specifically brought within the scope of relevant assessment years inserted by the Finance Act, 2017, w.e.f. 01/04/2017, if the income escaped assessment is more than Rs. 50 lakhs in terms of 4th Proviso. It is noteworthy that prior to the enactment of the Finance Act 2017, the period covered by the sections 153A/153C and 148 of the Act was limited to the six years only. It is trite law that if there is a special provisions for assuming jurisdiction to pass order, it will always prevail over the general provisions which cannot at all be resorted to make a thing or act apparently permissible which is otherwise impermissible under the special provisions.

It is clear as per scheme of the Act, the provisions of the section 148 of the Act were not at all available for a period of the ten years including for the relevant assessment year in this case. The rule of construction which is relevant to the present issue is expressed in the maxim "generaliaspecialibus non derogant", meaning where there is a conflict between a general or special provision, the latter shall prevail. This proposition has been upheld in Forbes Campbell & Co. Ltd. v. CIT (1994) 206 ITR 495 (Bom). The Hon‟ble Supreme Court in in CTO vs. Binani Cement Ltd. & Anr on 19 February, 2014- CIVIL APPEAL NO.336 OF 2003, after considering Union of India & Anr. vs. Indian Fisheries (P) Ltd. (1965) 57 ITR 331,334 (SC); CIT vs. Indian Molasses Co. (P) Ltd. (1989) 176 ITR 473 (Cal), ITO vs. Shrilekha Business Consultancy (P.) Ltd. approved the said law.

Thus, in view of the aforesaid position of law as above, we hold that the AO could have only pass reassessment order u/s 153A of the Act for the A.Y.2011-12 instead of the section 147 of the Act, because after the search, the only option to the AO was to undertake the period of 10 years for the purpose of assessment and reassessment u/s 153A of the Act and the AY 2011-12 falls within the ambit of relevant assessment years of 10 years from the date of search, as income escaped assessment was more than Rs. 50 Lakhs. AO even though might have reopened the assessment u/s 147 on the basis of information or evidence on record, but once search u/s 132(1) has taken place, then the reassessment proceedings initiated by notice u/s 148 has to be reckoned as pending in terms of 2nd proviso to section 153A, therefore, such an assessment for the AY 2011-12 which was sought to be reopened gets abated. Once the assessment is abated, the entire assessment is open and AO should have frame the assessment /re-assessment taking into consideration all the material on record coming in his possession only u/s 153A, which here in this case, AO has failed to comply with the mandatory requirement of law as brought in the statute and the Finance Act 2017 w.e.f. 01.04.2017. Because here in this case, search has taken place after the amendment, therefore the amended provisions was likely to be applicable. We, therefore, hold that the assessment order u/s 147/143(3) is void ab initio being passed without assuming a valid and legal jurisdiction u/s 153A of the Act and instead he has resorted to section 147 of the Act which he could not have and is hereby quashed.

Now coming to other legal ground raised by the assessee, that assessment order has been passed by the AO who did not had jurisdiction. The provisions of the section 127 of the Act are as below:

The reply given by the income-tax department on 21/03/2022 to the application filed by the assessee under the Rights to Information Act 2005 seeking information about the assessment jurisdiction transfer order in her case has been scanned below:

Thus, on perusal of the above provisions of the law, it is clear that the PCIT 27 Mumbai was under a legal obligation to pass a written speaking reasoned assessment jurisdiction transfer order u/s 127(2) of the Act after seeking consent from the PCIT 21 Mumbai in writing before the same could be transferred from the ITO 27(3)(2) Mumbai to ITO Ward 21(3)(1) Mumbai. Since, this legal requirement to assume jurisdiction by the AO who passed the assessment order in this appeal is completely missing, we are in agreement with the contentions of the assessee as above which were also not controverted on facts by the DR at the time of hearing and thus, we hold that the AO ward 21(3)(1) Mumbai who passed the assessment order in this appeal never held any assessment jurisdiction on the assessee and this order is held void ab initio passed by an AO without a valid and legal jurisdiction.

Thus, it is manifest that the AO passing the impugned assessment order did not possess any valid and legal jurisdiction and following the judgment of the Hon‟ble Apex Court in Kanwar Singh Saini (supra), the same must be quashed as void ab initio.

In nutshell, both the above contentions of the assessee are accepted and the assessment order in this appeal is quashed on both grounds even considering those independent of each other. The Hon‟ble Bombay High Court in Mavany Brothers vs CIT (2015) 62 taxmann.com 50 (Bom) has held in para 16 that in case the Tribunal after examining all the facts comes to the conclusion that the notice was without jurisdiction then the other issues as formulated herein will not arise for consideration. This is so as the foundation of proceedings on the other issues is the validity of the reopening notices. Since, the assessment order has been quashed as above on the jurisdiction, following the above jurisdictional High Court judgment, the other grounds of appeal on merits become academic and have not been adjudicated.

In the result, the appeal filed by the assessee is allowed.