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Income Tax Appellate Tribunal, INDORE BENCH, INDORE
Before: SHRI B.M. BIYANI & SHRI DINESH MOHAN SINHA
आदेश/ O R D E R
Per B.M. Biyani, A.M.:
Feeling aggrieved by order of first appeal dated 05.02.2021 passed by Commissioner of Income-tax (Appeal)-3, Bhopal [“CIT(A)”] which in turn arises out of assessment-order dated 18.12.2018 passed by DCIT, Central-I, Bhopal [“AO”] u/s 148 r.w.s. 143(3) of the Income-tax Act,
Page 1 of 52 1961 [“the Act”] for assessment-year [“AY”] 2011-12, the revenue has filed captioned appeal and the assessee has filed captioned cross-objection.
The background facts leading to these matters as culled out from assessment-order passed by AO are such that the assessee-company is engaged in the business of land developers. For AY 2011-12, the assessee filed original return u/s 139 on 19.01.2013 declaring total income of Rs. Nil which was assessed u/s 143(1). Subsequently, the case of assessee was re- opened u/s 147 through notice dated 28.03.2018 u/s 148 after recording reason that the assessee-company had introduced capital of Rs. 20,00,000/- and also raised loans of Rs. 4,77,62,500/-. Due to change in incumbency, notice u/s 129 was issued on 30.11.2018 giving a fresh opportunity to assessee. On the very same date of 30.11.2018, a copy of reasons recorded was also provided to assessee and a notice u/s 142(1) was also issued wherein the assessee was requested to file return and date of hearing was fixed on 07.12.2018. The assessee did not comply, hence the AO issued notice for best judgement u/s 144. However, the assessee filed objection on 11.12.2018 and also Shri Neelesh Sharma, director of assessee- company and Shri Manoj Goyal, CA appeared on 12.12.2018. The objection filed by assessee was disposed of vide order-sheet entry dated 12.12.2018.
Thereafter, vide letter dated 12.12.2018, the assessee requested the AO to treat its original return filed u/s 139 as a return in compliance to notice u/s
Then, the AO issued notices u/s 143(2)/142(1) but the assessee did not make compliances, only an adjournment request was filed. Ultimately,
Page 2 of 52 the AO observed non-compliances of various notices by assessee and concluded that despite ample opportunities given, the assessee did not offer any explanation justifying genuineness and veracity of the capital introduced and the unsecured loans received by it. Accordingly, the AO made a total addition of Rs. 4,97,62,500/- u/s 68 consisting of (i) unexplained share capital – Rs. 20,00,000/- and (ii) unexplained loans – Rs.
4,77,62,500/- and passed reassessment-order determining total income at Rs. 4,97,62,500/-. Aggrieved, the assessee carried matter in first-appeal before CIT(A).
Before CIT(A), the assessee challenged the order of AO on legality as well as merit. The CIT(A) rejected assessee’s legal claim but deleted additions on merit. This way, the CIT(A) partly allowed assessee’s first-appeal.
Now, both sides are aggrieved by the order of CIT(A). While the revenue has filed captioned appeal, the assessee has filed captioned co- objection. We first take up assessee’s cross-objection since it raises a legal claim.
Assessee’s Cross-Objection:
The assessee has raised following ground:
“On the facts and in the circumstances of the case and in law the order of the Ld. CIT(A) in confirming the action of the Assessing Officer u/s 147/148 of the Act and the action of the authorities u/s 127 of the Act culminating in the subject assessment is arbitrary, erroneous and illegal and must be quashed.”
Thus, by means of this cross-objection, the assessee has challenged the legality of assessment framed by AO raising two issues, namely (i) the action undertaken by AO u/s 147/148 was itself illegal and (ii) the AO i.e. DCIT, Central-I, Bhopal had no jurisdiction u/s 127 against assessee.
At first, Ld. AR for assessee drew us to Page 1 of impugned order of first-appeal to demonstrate that the assessee raised following Ground 2 in first-appeal before CIT(A):
“2(i) On the facts and circumstances of the case, the order passed by the DCIT, Central-I, Bhopal is without jurisdiction and hence liable to be quashed. (ii) Without prejudice to the above, the transfer of jurisdiction from Gwalior to Bhopal under section 127, without giving assessee an opportunity of being heard, is bad in law.” Then, Ld. AR drew us to the order passed by CIT(A) adjudicating this ground, reading as under:
“4.2 Ground No. 2: Through this ground of appeal the appellant has challenged that the AO has passed the order without jurisdiction. The AO has issued the notice u/s 148 and served upon the appellant on 28.03.2018. Subsequently notice u/s 142(1) was issued and served on 30.11.2018. The appellant filed the objection on 11.12.2018. Subsequently, Shri Neelesh Sharma, director of company and Shri Manoj Goyal, CA appeared on 12.12.2018. The objection filed by appellant has been disposed off vide order- sheet notice dated 12.12.2018 and the same has been communicated to the appellant. The appellant filed the letter dated 12.12.2018 stating that return of income filed u/s 139 may be treated as return of income in response to notice u/s 148 of the IT Act, 1961. 4.2.1 Once the assessee has participated in assessment proceedings before the A.O., the appellant assessee cannot claim that issue of notice u/s 148/142(1) is not in order. Once the assessee has been put to notice and has filed returns in response to the notices and has attended the assessment proceedings, it cannot be said that issue of notice u/s 148/142(1) is not in order. It is seen that the issue of notice u/s 148 by the AO for A.Y. 2011-12 is in order and issue of notice u/s 143(2) for A.Y. 2011-12 is within time.
4.2.2 In view of the above, the ground taken by the appellant that the issue of notices u/s 148/142(1) for A.Y. 2011-12 is not justified, has no merit and is therefore, rejected. Therefore, appeal on this ground is Dismissed.”
Ld. AR submitted that a careful reading of CIT(A)’s order clearly shows that the CIT(A) has dismissed assessee’s Ground No. 2 by assigning the reason simpliciter that the assessee had participated in the proceedings set up by AO through notices u/s 148 & 143(2) issued in time. Ld. AR contended that the reasoning assigned by CIT(A) is grossly bad as mere participation in illegal proceeding cannot make the proceeding legal. Further, the assessee has very much objected to the proceeding undertaken by AO (as would be discussed in subsequent paras with reference to the documents filed in Paper-Book) but the AO rejected assessee’s objection and continued with his proceeding, therefore the assessee had no option. That apart, Ld. AR contended very strongly, the CIT(A) has dismissed assessee’ ground No. 2 even without dealing the claim raised by assessee in sub- ground (ii) thereof wherein the assessee has categorically claimed that the transfer of jurisdiction from Gwalior to Bhopal u/s 127, without giving assessee an opportunity of being heard, was absolutely bad in law. The assessee also filed a vehement submission to CIT(A) qua this claim which is re-produced by CIT(A) himself at Pages 9-14 of impugned order but still the CIT(A) has not considered assessee’s claim. Therefore, the CIT(A)’s order dismissing the ground No. 2 raised by assessee before him, is grossly erroneous and must be reversed by this bench taking into account the detailed discussions in subsequent paras.
Having made his submissions qua the order passed by CIT(A), Ld. AR next proceeded to explain the twin issues raised by assessee in the ground of cross-objection, one by one, and the Ld. DR for revenue made his defensive submissions. We discuss below the rival submissions made by both sides and also our analysis and conclusion thereon.
Issue No. 1:
The first limb of the ground taken by assessee in cross-objection is such that the action undertaken by AO u/s 147/148 was itself illegal.
For this issue, Ld. AR carried us to the reasons recorded by AO u/s 148 for issuance of notice, placed at Page 24 of Paper-Book-I as under:
Page 7 of 52 Reading line by line in open court, Ld. AR narrated that the case of assessee was re-opened with the reasoning that an information was received from DIT (I&CT), Bhopal about the purchase of property for Rs. 4,77,20,000/- by a director of assessee-company and it is noted that the purchase was in fact by assessee-company and the consideration was paid by assessee-company; that the assessee-company received funds by way of (i) share capital of Rs.
20 lacs and (ii) unsecured loans of Rs. 4.77 crores from directors and shareholders which were unexplained and it is particularly mentioned that one Shri Ramswaroop Shivhare whose assessment was pending had not explained the source of loan and had not even accepted the unsecured loan given by him to assessee-company.
Ld. AR then carried us to the following documents obtained by assessee from Income-tax Department under RTI Act, placed in Paper-Book- III at Pages 1 to 11:
Page 8 of 52 Page 9 of 52 Page 10 of 52 Page 11 of 52 Page 12 of 52 Page 13 of 52 Page 14 of 52 Page 15 of 52 Page 16 of 52 Page 17 of 52 Page 18 of 52 Page 19 of 52
Ld. AR submitted that the above documents which have been obtained by assessee under RTI Act, reveal some alarming and vital facts for consideration of bench as under:
Page No. Nature of Facts revealed document 6 - 9 Letter dated At the end of this letter, the AO has reported to DDIT, 02.06.2017 sent by AO to DDIT, Gwalior thus – Gwalior “Nowhere in the report, the loan or source of investment has been stated as unaccounted. The only reason of centralisation of this case as mentioned in the report is the presumption that this case may be a group case of Shivhare Group. Apart from this report of ITO-I&CI, Gwalior, nowhere in the Appraisal Report any adverse finding with regard to M/s Shakshi Township (P) Ltd. has been mentioned. In the light of above facts, no action in the case of M/s Shakshi Township (P) Ltd. is warranted. Hence, it is requested to clearly specify as to what action is required to be taken in the case of assessee company.”
10 Reply given sent At the end of this letter, the DDIT, Gwalior replied to by DDIT, Gwalior AO: to AO vide letter “The major part of investment in this company by Sh. 17.07.2017 Ram Swaroop Shivhare. In this regard, proposal for centralisation of this case sent to concerning CIT through JDIT (Inv.), Bhopal. The ADIT has proposed the case for centralisation due to the reason that Shri Ramswaroop Shivhare is one of the directors in this company and holding 45% share in the aforesaid company and genuineness of the loan need to be verified. The clarification is being forwarded to you for necessary action at your end.”
Page 20 of 52 1 - 4 Letter dated At the end of this letter, the AO reported thus to Addl. 18.07.2017 sent CIT (Central), Bhopal: by AO to his higher authority “It is submitted that: being Addl. CIT(Central), Bhopal i The name of M/s Shakshi Township (P) Ltd. is not mentioned in any warrant. Hence, no proceedings u/s 153A of the Act can be initiated. ii. No seized material belongs to M/s Shakshi Township (P) Ltd. hence, no proceedings u/s 153C can be initiated. iii. No proceedings u/s 148 can be initiated as no proof of escapement of income is available. Merely for verification of certain transactions, proceedings u/s 148 cannot be initiated. iv. The DDIT(Inv.), Gwalior has not clarified as to when this loan was received by M/s Shakshi Township (P) Ltd. hence, the year receipt of loan is also not recognized. In the light of above facts and discussion, no action in the case of M/s Shakshi Township (P) Ltd. is warranted. This is for your kind perusal and further necessary action at your end.
The Ld. AR submitted that the AO has, in the letter dated 02.06.2017 sent to DDIT, Gwalior clearly reported that the only reason of centralisation of this case was the assumption that this case may be a group case of Shivhare Group; that there is no adverse finding against assessee; that no action was warranted against assessee (refer the underlined sentences).
Again, in subsequent letter dated 18.07.2017 sent to his own higher authority Addl. CIT(Central), Bhopal, the AO mentioned that no proceeding u/s 148 can be initiated as no proof of escapement is available and merely for verification of certain transactions, proceedings u/s 148 cannot be Page 21 of 52 initiated. The AO finally reported that no action in the case of assessee was warranted (refer the underlined sentences).
Thus, Ld. AR very strongly contended, the assessee has come to know from the documents obtained RTI Act that the AO reported her firm view to the authorities that (i) there was no adverse finding against assessee, (ii) that the only reason of centralisation of assessee’s case was the presumption that this case may be a group case of Shivhare Group, (iii) that no proceeding u/s 148 can be initiated as no proof of escapement was available, (iii) that no action was warranted against assessee. Ld. AR submitted that these categoricial reportings made by AO herself are more than enough to demonstrate that the AO was very much against the proceeding u/s 148 to be taken in this case.
With these submissions, Ld. AR contended that the subsequent recording of reasons and giving notice u/s 148 dated 28.03.2018, just 3 days before expiry of time for issuance of notice, is an absolutely wrong and illegal assumption of jurisdiction u/s 147 which is not sustainable and therefore the entire assessment framed by AO must be quashed.
Per contra, Ld. DR for revenue relied upon order of CIT(A) for this issue and submitted that the CIT(A) has concluded this issue against assessee. Secondly, he submitted that both of the above letters dated 02.06.2017 & 18.07.2017 which are being relied by assessee for insisting that the AO was against the proceeding u/s 147/148 were by sent by “Swati
Page 22 of 52 Agarwal, Dy. Commissioner of Income-tax-Central-I, Bhopal” whereas the subsequent recording of reasons at the time of issuing notice u/s 148 dated 28.03.2018 is by “Avaneesh Tiwari, Dy. Commissioner of Income-tax- Central-I, Bhopal”. Ld. AR submitted that there is a change in officer from “Swati Agarwal [“S”]” to “Avaneesh Tiwari [“A”]” and every officer can have his/her own wisdom. Therefore, the argument made by Ld. AR is devoid of merit and cannot be accepted.
We have considered rival submissions of both sides and carefully perused the documents to which our attention has been drawn. The issue here is whether the action undertaken by AO against assessee u/s 147/148 is legal, valid or not? Admittedly, the AO initiated proceeding by recording reasons and issuing notice dated 28.03.2018 u/s 148. The copy of reasons is already re-produced in earlier para of this order. The allegation made in the reasons is qua the funds received by assessee from its directors and shareholders by way of share capital of Rs. 20,00,000/- and unsecured loans of Rs. 4,77,62,500/-. The assessee has invoked the provisions of RTI Act and obtained further documents from Income-tax Department which are filed at Pages 1-11 in Paper-Book-III which have been scanned and re- produced by us in earlier para. From these documents, the assessee has come to know that the AO i.e. DCIT-Central-I, Bhopal raised serious objection firstly vide letter dated 02.06.2017 to DDIT, Gwalior and secondly vide letter dated 18.07.2017 to her own higher authority Addl. CIT (Central), Bhopal against initiation of proceeding u/s 147/148 against assessee. The Page 23 of 52 letters dated 02.06.2017 & 18.07.2017 clearly show that the AO has taken into account the details of transactions of share capital of Rs. 20,00,000/- and unsecured loans of Rs. 4,77,62,500/- and after analysis of records, made a strong submission to the authorities of department that “no proceeding u/s 148 can be initiated as no proof of escapement of income is available. Merely for verification of certain transactions, proceedings u/s 148 cannot be initiated.” Furthermore, the AO also objected against centralisation of case of assessee at Bhopal. However, it is seen that at the feg end of time-barring, the AO recorded reasons alleging the very same transactions of share capital and unsecured loans as unexplained and stating that he had reason to believe that income chargeable to tax referrable to those very transactions had escaped assessment. Thus, there is a serious contradiction in the approach of AO which the assessee is able to get to know only from the documents obtained under RTI Act. Ld. DR for revenue has no valid explanation for this contradictory approach of AO, he is trying to find the only way out that the person who was officiating the office of AO in the letter dated 02.06.2017 was “S” and at the time of recording reasons was “A”. His contention is that every person/officer has his own wisdom. We are afraid that we can accept such a plea taken by Ld. DR for the simple reason that it is the office of AO i.e. Dy. Commissioner of Income-tax-Central-I with which the law is concerned and it is irrelevant as to whether the officer officiating was “S” or “A”. In this case, the first office was “S” whose view was in favour of assessee
Page 24 of 52 that no action was warranted against assessee u/s 147/148 and the second officer was “A” who has recorded a view favourable to revenue and taken action assessee and it is in this situation that the Ld. DR is taking such an argument. But this argument of Ld. DR may be fatal in other cases for revenue itself where the situation may be just reverse. We need not illustrate such reverse situations, there can be hundred and one. Needless to mention that the stand taken by AO in letters dated 02.06.2017/18.07.2017 is more meritorious and stronger than what is mentioned in the reasons recorded because, as can be seen from those letters, the AO has given his critical observations to higher authorities that the appraisal report did not contain any adverse finding against assessee; that there is no seized material belonging to assessee; that there is no proof of escapement; that merely for verification of transactions the proceedings u/s 148 cannot be done; that the centralisation of assessee’s case was on the presumption, etc. On the other hand, the reasons recorded by AO simply on the basis of information received from DDIT. There are numerous decisions in which Hon’ble Courts have quashed the proceedings of section 147/148 where such proceedings have been initiated on borrowed satisfaction or at the dictates of higher authority or the reasons recorded do not demonstrate the independent application of mind by AO or the proceedings have been initiated for mere verification of transactions. Therefore, we are in complete agreement with Ld.
AR that there is a bad assumption of jurisdiction of section 147/148 in present case and hence the proceedings of section 147/148 made by AO are Page 25 of 52 not sustainable. Being so, we accept that the first issue of Ground raised by assessee that the action undertaken by AO u/s 147/148 was itself illegal.
Issue No. 2:
The second limb of the same ground taken by assessee in cross- objection is that the DCIT-Central-I, Bhopal [“AO”] had no jurisdiction u/s 127 against assessee.
For this issue, Ld. AR firstly submitted following chronology of assessment-proceedings with reference to supporting documents:
(i) A notice dated 28.03.2018 u/s 148 was issued by DCIT-Central-I, Bhopal addressed to “M/s Shakshi Township Pvt. Ltd., S-36, Sanjay Complex, Jayendraganj, Gwalior – 474001”, copy at Page 18 of Paper- Book-I as under:
Page 26 of 52 (ii) The assessee immediately filed a letter dated 08.05.2018, copy at Page 21 of Paper-Book-I as under: Page 27 of 52 Page 28 of 52
Thus, the assessee categorically replied that it had already filed ITR of AY 2011-12 on 19.01.2013. The assessee submitted acknowledgement of ITR also. Further, the assessee clearly mentioned that it was covered under jurisdiction of Gwalior.
(iii) Vide letter dated 30.11.2018, the AO supplied to assessee the reasons recorded for issuance of notice u/s 148, copy of AO’s letter is available at Pages 23-24 of Paper-Book-I. Immediately thereafter, vide letter dated 06.12.2018, the assessee filed objection to the AO, copy at Pages 29-30 of Paper-Book-I as under:
Page 29 of 52 Page 30 of 52 Page 31 of 52
Thus, in Point No. 1 of letter, the assessee categorically objected that its jurisdiction was Gwalior and that it has not received any intimation till date regarding change in jurisdiction from Gwalior to Central Circle, Bhopal. The assessee also mentioned that the change in jurisdiction without providing opportunity is not in accordance with section 127 and therefore the notice u/s 148 was void-ab-initio.
(iv) The objection of assessee was over-ruled by AO vide Point No. 1 of letter dated 12.12.2018, copy of AO’s letter at Page 33 of Paper-Book-I as under:
Ld. AR submitted that the AO only mentioned that the jurisdiction vested in the his office by virtue of transfer of PAN done by order of PCIT, Gwalior. However, neither the order of PCIT passed u/s 127 nor the notices issued, if any, before passing such order were supplied to assessee.
(v) Within a week thereafter, the AO passed assessment-order on 18.12.2018.
Having explained thus, Ld. AR went ahead to submit that since the AO passed assessment-order without supplying the order u/s 127 and the notices, if any, issued before passing such order, despite assessee’s serious objection before AO, the assessee immediately filed an application on 24.12.2018 to Central Public Information Officer of Income-tax Department, Gwalior (CPIO) under RTI Act. The CPIO passed order on 07.01.2019, copy at Pages 258-262 of Paper-Book-II as under:
Page 34 of 52 Page 35 of 52 Page 36 of 52 Page 37 of 52 Page 38 of 52 Page 39 of 52
Ld. AR submitted that from the above documents obtained under RTI Act, the assessee came to know about two notices claimed to have been issued by the office of PCIT, Gwalior to assessee for transfer/centralisation of case u/s 127 to AO i.e. DCIT-Central-I, Bhopal. The first notice is F.No.
Pr.CIT/GWL/Tech/127/Shivhare Group/2016-17/2508 dated 01.09.2016 which is claimed to have been issued to ‘M/s Shakshi Township (P) Ltd., Jayendra Ganj, Gwalior’. The second notice F.No. Pr.CIT/GWL/Tech/127/ Shivhare Group/2016-17/2509 which also bears the same date of 01.09.2016 is being claimed to have been issued to ‘M/s Shakshi Township (P) Ltd., C-63, Govindpuri, Gwalior’. Ld. AR very strongly opposed these two notices. He submitted that the first notice contains the address ‘Jayendra Ganj, Gwalior’ which is an incomplete address and the second notice contains the address ‘C-63, Govindpuri, Gwalior’ which is not of assessee at all. Therefore, according to him, none of these two notices was served upon assessee.
Ld. AR continuing his submission narrated that the assessee’s address had always been “S-36, Sanjay Complex, Jayendra Ganj, Lashkar, Gwalior (MP) - 474001” and this address has been consistenly mentioned (i) by assessee in the original return filed u/s 139 to ITO, Ward-1(1), Gwalior on 19.01.2013 vide acknowledgement No. 551747041190113 copy placed at Page 3 of Paper-Book-I, (ii) by the AO himself in the notice u/s 148 issued to assessee on 28.03.2018, copy re-produced in earlier para and (iii) by the AO himself in assessment-order dated 18.12.2018. Furthermore, this very
Page 40 of 52 address has also been mentioned in the order of first-appeal passed by CIT(A) and also the assessee/Respondent’s information given in Form No 36 of appeal filed by revenue/appellant.
Since it was a serious objection advanced by Ld. AR of assessee, the bench asked the Ld. DR for revenue to make explanation qua the service of notices upon assessee and also clarify as to how the address ‘C-63, Govindpuri, Gwalior’ as mentioned in second notice came to the knowledge of department. The hearing was then adjourned vide order-sheet dated 11.02.2025 as under:
“Both sides have made their arguments at length and we have heard them. Ld. DR for revenue wants to enquire from AO as to how the opportunity for transfer of jurisdiction u/s 127 was given to assessee. Therefore, Ld. DR seeks time to make submission for this limited purpose. Accordingly, the case is marked as Part-heard and adj. to 24.02.2025.”
On 24.02.2025, the hearing was again adjourned and ultimately, the Ld. DR filed following report dated 13.03.2025 issued by the office of ITO (Tech) on behalf of PCIT, Gwalior:
In the above report, the revenue is unable to file any record or clarification required for. Therefore, the bench directed the Ld. AR to file assessee’s affidavit explaining assessee’s connection with ‘C-63, Govindpuri, Gwalior’ mentioned in the second notice. In response, the following affidavit is filed from assessee’s side:
Page 43 of 52 Page 44 of 52 Page 45 of 52
In para 2 of the affidavit, it is clearly averred that the assessee- company is only situated at “S-36, Sanjay Complex, Jayendra Ganj, Lashkar, Gwalior (Madhya Pradesh)”. Thereafter, in Paras 3 / 5, it is averred that the assessee-company never operated from or maintained any office at “C-63, Govindpuri, Gwalior”. Further, in Paras 4 / 6, it is also averred that the “C-63, Govindpuri, Gwalior” is in an incorrect address and has no relation with assessee.
Thus, Ld. AR very strongly pleaded the claim of assessee that the two notices were never served upon assessee before passing order u/s 127.
Ld. AR then relied upon following paras of his Written-Synopsis wherein he has quoted certain judicial rulings holding that the service of notice for transfer of jurisdiction u/s 127 is a mandatory requirement and non-service would lead to quashing of proceeding:
“10.1 It is a fundamental principle of law that the transfer of jurisdiction can be validly effected only if the affected person is put to a proper, regular and adequate notice in this regard. In the subject case, no notice was ever served on the Assessee. The apex Court had considered the issue of transfer of jurisdiction without notice to the Assessee at least on two occasions, On both occasions it had struck down the transfer order passed without putting the Assessee to notice. 10.2 In the first case the Court in Pannalal Binjraj vs. Union of India (1957) 31 ITR 565 (SC) at page 589 observed as under:- "We may, however, before we leave this topic, observe that it would be prudent if the principles of natural justice are followed, where circumstances permit, before any order of transfer under section 5(7A) of the Act is made by the Commissioner of Income-fax or the Central Board of Revenue, as the case may be, and notice is given to the party affected and he is afforded a reasonable opportunity of representing his views on the question and the reasons of the order are reduced however briefly to writing. It is significant that when any question
Page 46 of 52 arises under section 64 as to the place of assessment and is determined by the Commissioner or Commissioners or by the Central Board of Revenue, as the case may be, the assessee is given an opportunity under section 64(3) of representing his views before any such question is determined. if an opportunity is given to the assessee in such case, it is all the more surprising to find that, when an order of transfer under section 5(7A) is made transferring the case of the assessee from one Income-tax Officer to another irrespective of the area or locality where he resides or carries on business, he should not be given such an opportunity, There is no presumption against the bonafides or the honesty of an assessee and normally the Income-tax authorities would not be justified in refusing to an assessee a reasonable opportunity of representing his views when any order to the prejudice of the normal procedure laid down in section 64(1) and (2) of the Act is sought to be made against him, be it a transfer from one Income-tax Officer to another within the State or from an income-tax Officer within the State to an Income-tax Officer without it, except of course where the very object of the transfer would be frustrated if notice was given to the party affected. If the reasons for making the order are reduced however briefly to writing, it will also help the assessee in appreciating the circumstances which make it necessary or desirable for the Commissioner of Income-tax or the Central Board of Revenue, as the case may be, to transfer his case under section 5(7A) of the Act and it will also help the court in determining the bona fides of the order as passed it and when the same is challenged in court as mala tide or discriminatory. It is to be hoped that the Income-tax authorities will observed the above procedure wherever feasible." 10.3 In the second case the apex Court, in Ajantha industries vs. Central Board of Direct Taxes (1976) 102 ITR 281, ruled as under- "The requirement of recording reasons under section 127(1) of the Income-tax Act. 1961, for the transfer of a case from one Income-tax Officer to another, is a mandatory direction under the law and non- communication thereof to the assessee is not saved by showing that the reasons exist in the file although not communicated to the assessee Recording of reasons and disclosure thereof are not a mere idle formality. When law requires reasons to be recorded in a particular order affecting prejudicially the interests of any person, who can challenge the order in court, it ceases to be a mere administrative order and the vice of violation of the principles of natural justice on account of omission to communicate the reasons is not expiated. Non-communication of the reasons in the order passed under section 127(1) was a serious infirmity and the order was invalid." (Head Notes) 10.4 Earlier to the second judgment of the apex Court, the Madhya Pradesh High Court, which is the jurisdictional High Court in this case, had an occasion
Page 47 of 52 to consider the issue of transfer of a case of an Assessee without the service of the mandatory show cause notice. That was in the case of Sagarmal Spinning and Weaving Mills Ltd. vs. CBDT (1972) 83 ITR 130 (MP) where the Court quashing that transfer order observed as under:- "For ordering the transfer of a case under section 127 of the income-tax Act. 1961, two things are absolutely necessary, namely, a reasonable opportunity of being heard in the matter wherever it is possible to do so, and, secondly, the recording of reasons for transferring the case. In the absence of these two requirements, it is not possible to support an order of transfer ......... The question whether the opportunity given is reasonable or not will be a matter for interpretation by the court and not by the authority itself. Similarly, the other aspect relating to the recording of reasons would clearly indicate that it has to be an order in the sense of a quasi-judicial nature and it cannot be an arbitrary order where no reasons need be disclosed. If there be no compliance with the two requirements mentioned by the section, the order will be justiciable. Facility of investigation would not be a sufficient reason for transfer of a case; and the mention of that reason in the show-cause notice proposing a transfer of the case would not be in compliance with the requirements of section 127. Nor would the giving of some reason in a return filed before the High Court in writ proceeding be in compliance with the section. The impugned order of transfer in the instant case, which did not give the reason for the transfer of the case in the order, was in contravention of the mandatory provision of section 127(1) of the Act and had to be quashed.” (Head Notes) 10.5 That once again on the issue of transfer of jurisdiction in a case without the service of the mandatory transfer notice to the Assessee, the Jurisdictional High Court in Shivaji Rao Angre vs. CIT (1986) 158 ITR 162 (MP), after taking note of the two Supreme Court decisions cited hereabove and also earlier decisions of the Court in Sagarmal Spinning and Weaving Mills Ltd. vs. CBDT supra, quashed the transfer order as being invalid and inoperative. 10.6 In the subject case, as submitted above, the show cause notice for transfer of the case from Gwalior to Bhopal was never served on the Appellant. That being the undisputed tact and the transfer of jurisdiction in the case having been carried out without following the mandatory procedure prescribed in this behalf by the statute the transfer of the case of the Appellant to Bhopal from Gwalior is ab initio illegal and invalid. Also any further action taken against the Appellant at Bhopal is against law and the defined procedure and would therefore be of no consequence. In this background the impugned order passed by the Bhopal Authorities merits to be quashed in limine.”
With above submissions, Ld. AR prayed that the AO had no valid jurisdiction against assessee and therefore the entire proceeding done by AO must be quashed.
Per contra, Ld. DR placed reliance on the order passed by PCIT for transfer of jurisdiction u/s 127 to the AO and the assessment-proceedings thereafter conducted by AO.
We have considered rival submissions of both sides and carefully perused the documents to which our attention has been drawn in the light of applicable provisions of law and judicial rulings cited before us. We have already noted the detailed facts/documents explained by Ld. AR at length in preceding paras and do not wish to repeat the same to avoid repetition. After a careful consideration, we find that the revenue is claiming to have issued two notices, one bearing F.No. Pr.CIT/GWL/Tech/127/Shivhare Group/ 2016-17/2508 and other bearing F.No. Pr.CIT/GWL/Tech/127/Shivhare Group/2016-17/2509. Both of these notices bear the same date of 01.09.2016, the only difference is that the first is addressed to ‘M/s Shakshi Township (P) Ltd., Jayendra Ganj, Gwalior’. and second is addressed to ‘M/s Shakshi Township (P) Ltd., C-63, Govindpuri, Gwalior’.
At first, we do not understand the necessity of issuing two notices on the very same date to assessee. Be that as it may, the first notice is simply mentioning ‘Jayendra Ganj, Gwalior’ which is an incomplete address. The second notice is containing ‘C-63, Govindpuri, Gwalior’ which the assessee
Page 49 of 52 is denying; the assessee has averred in the affidavit that this address is incorrect and does not have any relation with assessee. We have given an opportunity to the revenue authorities to provide service record of these notices and also clarify as to how the address ‘C-63, Govindpuri, Gwalior’ came to their knowledge but the revenue authorities are not able to provide any reply in this regard. It is also a fact that the assessee has given its address “S-36, Sanjay Complex, Jayendra Ganj, Lashkar, Gwalior (Madhya Pradesh)” in the return of income originally filed for the AY 2011- 12 under consideration on 19.01.2013 and this very address is used by department in all the notice u/s 148, assessment-order, first-appellate proceeding and even in the Form No. 36 filed to tribunal. Thus, the address “S-36, Sanjay Complex, Jayendra Ganj, Lashkar, Gwalior (Madhya Pradesh)” is the correct address of assessee and it is the only address known to department but none of the two notices u/s 127 has been served on this address. Thus, it is a case where the jurisdiction has been changed from Gwalior to Bhopal u/s 127 without complying the condition prescribed in section 127(1) which provides that the transfer in jurisdiction shall be made only after giving the assessee an opportunity of being heard in the matter. We find that the judicial decisions of Hon’ble Apex Court and Hon’ble Jurisdictional High Court quoted by Ld. AR in his Written-Synopsis, as mentioned in earlier para of this order, clearly hold that the order u/s 127 made out by authorities, without serving notice upon assessee, would be invalid and inoperative. Therefore, in the light of decisions, the order
Page 50 of 52 passed by PCIT, Gwalior u/s 127 dated 15.09.2016 transferring jurisdiction of assessee from ITO, Ward-1(1), Gwalior to AO [DCIT, Central-I, Bhopal] is bad and consequently the entire assessment-proceeding done by AO, are also invalid and cannot be sustained. Being so, we accept that the second issue of Ground raised by assessee that the DCIT-Central-I, Bhopal [“AO”] had no jurisdiction u/s 127 against assessee.
In view of above discussions, we arrive at a conclusion that the (i) the action undertaken by AO u/s 147/148 was illegal and (ii) the AO had no jurisdiction u/s 127 against assessee. Accordingly, the Ground raised by assessee in cross-objection is accepted and the assessment framed by AO is quashed. The assessee succeeds in its cross-objection.
Before parting, we may mention that during deliberations, there were certain other pleadings by both sides with regard to the non- issuance/service of notice u/s 148 within prescribed time and wrong transfer of jurisdiction from Gwalior to Bhopal on non-existent reason of directorship of Shri Ram Swaroop Shivhare (in whose case a search was conducted) in assessee-company. But those pleadings are not required to be adjudicated in view of the fact that we have already quashed the assessment-order on other substantial objections of assessee.
Page 51 of 52 Revenue’s appeal:
The revenue has raised following ground:
“1. On the fact and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 4,97,62,500/- made by the AO on account of unexplained cash credits u/s 68 of the Income Tax Act, 1961."
Since we have already quashed the assessment-order in assessee’s cross-objection, the revenue’s appeal becomes academic and infructuous, the same is dismissed therefore.
Resultantly, revenue’s appeal is dismissed and assessee’s cross- objection is allowed.
Order pronounced in open court / by putting on notice board as per Rule 34 of ITAT Rules, 1963 on 23/06/2025