VIPUL MITTAL,NEW DELHI vs. DCIT, CIRCLE-11(2), NEW DELHI

This appeal has been filed by the assessee against the order of ld. Commissioner of Income-tax (Appeals)-22, New Delhi (hereinafter referred to as ‘ld. CIT (A)) dated 25.02.2019 for the assessment year 2014-15. 2. Brief facts of the case are, assessee filed its return of income on 30.08.2014 declaring income at Rs.59,68,220/-. The case was selected for scrutiny and notice under section 143(2) of the Income-tax Act, 1961

The Assessing Officer noticed that the assessee has transacted with the scrip of Turbotech Engineering Ltd. (TTE) and observed that the relevant scrip is one of the various scrips which were involved in generation of fictitious long term capital gain. Accordingly, a show-cause notice dated 13.12.2016 was issued to the assessee and in the notice, the Assessing Officer has basically relied on the enquiry/investigations conducted by the Investigation Wing, Kolkata and based on the search/survey operation conducted in various entry operators and based on the statements recorded from various entry operators, he observed that from the investigation, it was emerged that some brokers have accepted that they

The allegations made / doubts raised in the show cause are vague and baseless. The allegations are based upon conjecture & surmises. The statements referred to in your questionnaire are not relevant to my case. You have not provided the copies of any statement. However, in the limited reference made to various statements in your questionnaire, these are totally irrelevant to my case as nowhere my name is mentioned. If anybody has stated anything adverse against me, kindly provide us copy of such 4 statements, if any, along with opportunity of cross examination of such person(s). Your goodself will appreciate that statement recorded behind the back of assessee without providing opportunity of cross examination has no evidentiary value in law, it is also against the principal of natural justice.”

After considering the above submissions, the Assessing Officer rejected the submissions of the assessee and observed that assessee has earned huge capital gain within a short period of time by investing in a penny stock whose fundamentals have no support for a premium it commanded and the Assessing Officer discussed various modus operandi relating to generating long term capital gain in a penny stock transaction and he discussed the same in length in his order. He treated the TTE scrip as penny stock and by relying on the decision of Hon’ble Supreme Court in Durga Prasad More vs. CIT and other decisions in relation to section 68, he treated the long term capital gain declared by the assessee as unexplained credit u/s 68 read with section 115BBE of the Act and also further added the commission incurred by the assessee for availing the above LTCG income and made the addition u/s 69C read with section 115BBE relating to commission paid to the extent of Rs.6,55,011/-. 6. Aggrieved with the above order, assessee preferred an appeal before the ld. CIT (A)-22, New Delhi and filed detailed submissions. After considering the detailed submissions of the assessee, ld. CIT (A) dismissed the appeal filed by the assessee and sustained the addition.

On the facts and circumstances of the case and in law, the CIT(A) erred in confirming action of the assessing officer of disallowing exemption of long term capital gain u/s 10(38) of the Act of Rs.1,29,82,516/-.

On the facts and circumstances of the case and in law, the CIT (A) erred in confirming addition of Rs.6,55,011/- made by the assessing officer on account of alleged unexplained expenditure.

On the facts and circumstances of the case and in law, the CIT(A) erred in not deleting the additions of Rs.1,31,00,220/- and Rs.6,55,011/- made by the assessing officer inspite of the fact that the assessing officer passed the assessment order and made the addition in violation of principles of natural justice as the appellant was not confronted with the alleged evidence collected behind the back of the assessee and also no opportunity for cross examination was provided to the appellant.”

At the time of hearing, ld. AR also filed application for admission of additional grounds of appeal and raised the following additional grounds of appeal :- “1. On the facts and circumstances of the case and in law, the notice u/s 143(2) issued in this case is bad-in-law and without juri iction and accordingly, the said notice along with the assessment order passed on the foundation of such notice are liable to be quashed.

On the facts and circumstances of the case and in law, the assessment order passed in this case is without juri iction and therefore, the same is liable to be quashed.” 9. On the other hand, ld. DR for the Revenue objected to the additional grounds and raised the same at this stage without raising the same before the lower authorities. Ld. DR for the Revenue submitted the comments of the Assessing Officer on the additional grounds raised by the assessee dated 27.11.2024. For the sake of clarity, the same are reproduced below:- “As regards juri iction of the Assessing Officer to issue notice u/s 143(2) of the Act, this is relevant to mention that as per PAN based juri iction, the juri iction over the case at the time of notice issued i.e. as on 28.08.2015 was with ITO, Ward - 11(3), New Delhi. Thereafter, it appears that the juri iction was transferred to Circle - 11(2), Delhi on 21,07.2016 who has passed the assessment order after allowing due opportunity to the assessee. Copy of the PAN based juri iction is enclosed. Hence, the challenge of the assessee w.r.t juri iction of the AO who has issued notice u/s 143(2) of the Act, is patently

(1) and (2)**

Considered the rival submissions and material placed on record by both the parties. We observed that the issues raised by the assessee in additional grounds go to the root of the matter challenging the juri ictional issue. In the light of Hon’ble Supreme Court in the case of NTPC Limited (supra), we are inclined to admit the additional grounds and take up the same for adjudication herein below. 11. Ld. AR further submitted that return of income was filed declaring income of Rs.59,68,220/-. He submitted that as per CBDT Instruction no. 01/2011, the juri iction over the case lied with Assistant/Deputy Commissioner of Income Tax since the income declared was above Rs. 20 Lakhs. He referred to the said CBDT Instruction no. 01/2011 which is reproduced as under: -

1 He submitted that however, in the present case, notice u/s 143(2) was issued by ITO, Ward 11(3) on 28/08/2015, who did not have juri iction over the assessee and thus, notice u/s 143(2) issued is without juri iction. He submitted that the fact that ITO did not have juri iction is evident from the fact that assessment has been completed by ACIT/DCIT, Circle – 11(2), thus in the absence of valid notice u/s 143(2) by the juri ictional AO, the assessment order is liable to be quashed and 13 the issue is no more res integra. In this regard, he relied on the case of Ashok Devichand Jain v. Union of India (452 ITR 43) (Bom) wherein it was held as under: - “Petitioner is impugning a notice dated 30th March, 2019 issued under section 148 of the Income Tax Act, 1961 (the Act) for A.Y. 2012-13 and order passed on 18th November, 2019 rejecting Petitioner’s objection to reopening on various grounds.

The primary ground that has been raised is that the Income Tax Officer who issued the notice under section 148 of the Act, had no juri iction to issue such notice. According to Petitioner as per instruction No. 1/2011 dated 31st January, 2011 issued by the Central Board of Direct Taxes, where income declared/returned by any Non-Corporate assessee is up to Rs. 20 lakhs, then the juri iction will be of ITO and where the income declared returned by a Non Corporate assessee is above Rs. 20 lakhs, the juri iction will be of DC/AC.

Petitioner has filed return of income of about Rs. 64,34,663/- and therefore, the juri iction will be that of DC/AC and not ITO. Mr. Jain submitted that since notice under section 148 of the Act has been issued by ITO, and not by DC/AC that is by a person who did not have any juri iction over Petitioner, such notice was bad on the count of having been issued by an officer who had no authority in law to issue such notice.

We have considered the affidavit in reply of one Mr. Suresh G. Kamble, ITO who had issued the notice under section 148 of the Act. Said Mr. Kamble, ITO, Ward 12(3)(1), Mumbai admits that such a defective notice has been issued but according to him, PAN of Petitioner was lying with ITO Ward (12)(3)(1), Mumbai and it was not feasible to migrate the PAN having returned of income exceeding Rs. 30 lakhs to the charge of DCIT, Circle 12(3)(1), Mumbai, as the time available with the ITO 12(3)(1) was too short to migrate the PAN after obtaining administrative approval from the higher authorities by 31st March, 2019. 5. The notice under section 148 of the Act is juri ictional notice and any inherent defect therein is not curable. In the facts of the case, notice having been issued by an officer who had no juri iction over the Petitioner, such notice in our view, has not been issued validly and is issued without authority in law.

In the circumstances, we have no hesitation in setting aside the notice dated 30th March, 2019. 7. Consequently the order dated 18th November, 2019 rejecting Petitioner’s objection is also quashed and set aside.”

The ITAT has in para 13 of the impugned order specifically adverted to the above aspect and correctly held that “The ACIT, Circle 34(1), New Delhi has admittedly not recorded that he had reasons to believe that income chargeable to tax of the Assessee has escaped assessment. He continued reassessment proceedings initiated by the ITO, Ward 34(4) of the Act without independently recording reasons for reopening or issuing a fresh notice u/s 148 of the Act.” Further the ITAT noted that “There is no order u/s 127 of the Act transferring the juri iction of the case from ITO, Ward 34(4) to ACIT, Ward 34(1). Thus this order of reassessment passed by the ACIT u/s 34(1) of the Act is without juri iction and hence is bad in law.”

In the present memorandum of appeal no attempt has been made by the Revenue to aver whether in fact there was an order under Section 127 of the Act transferring the case to the ACIT, Circle 34(1). That being the position, the impugned order of the ITAT cannot be faulted. In view of the above conclusion, there is no occasion to examine the other questions urged by the Revenue in this appeal.

No substantial question of law arises. The appeal is dismissed.”

5 Thus, in view of the above decision of Hon’ble Juri ictional High Court decision, he prayed that the assessment order passed is without juri iction and accordingly, the appeal filed by the assessee be allowed. 11.6 Further ld. AR for the assessee submitted the submissions on merit as under :- “1. On a reference from Pr. DCIT [Investigation) Kolkata, SEBI had conducted an inquiry about the manipulations in the subject scrip 'Turbotech Engineering Ltd'. During the course of investigation nine connected entities were found guilty of manipulating this scrip in clear violation of section 11[1], 11[4] and 11B of SEBI Act, 1992 and they were debarred from dealing in securities for seven years vide SEBI's final order dated 14.5.2019 [copy attached].(Annexure A)

The Hon'ble Indore of IT AT, vide order dated 17.8.2022 in ITA No.74IInd12019, also held this scrip as a Penny Stock and transactions made in this scrip were not found to be genuine. The Hon'ble Bench has elaborately discussed and followed the judgement of Hon'ble Kolkata High Court dated 14.6.2022 [Also found referred to and relied up in my Written Submission] in the case of PCIT Vs Swati Bajaj and ITAT Chennai Bench decision 2.1.2020 [supra]. Copy of Hon'ble Indore Bench decision is also attached.(Annexure C).”

On the other hand, ld. DR of the Revenue submitted that the issue raised by the assessee in additional ground should have challenged the same within one month before the Assessing Officer after receiving the notice. This issue was never raised before the first appellate authority also and she further relied on the submissions made by the Assessing Officer in his submissions as under :- “As regards compliance to the direction of Hon'ble ITAT regarding production of assessment records in this case, despite considerable efforts of this office, the physical records could not be recovered till date. This is relevant to mention that the Department has undergone through re-structuring and several charges merged together to form a JAO (Juri ictional Assessing Officer) charge in the year 2020. Such merger of charges created huge burden of physical records of 7/8 charges to be handled by the Single Charge. Thus, Circle 10(1) was created by merger of all circle charges of Range- 10, with records as it is where it is basis, So it remained a big challenge for a single officer to handle, manage and search out old records relating to pre-restructuring period. However, a file

On merit, she submitted that the scrip TTE is a penny stock and the ITAT Bench, Chennai has considered the similar issue and decided in favour of the Revenue and she submitted that she relied on the above decision. 14. Considered the rival submissions and material placed on record. We observed that assessee has filed its return of income declaring income of Rs.59,68,220/-. As per the CBDT Instruction No.01/2011, the juri iction over the assessee’s case lies only with Assistant/Deputy Commissioner of Income-tax as the income declared by the assessee is above Rs.20 lakhs falls under the category of non-corporate returns. It is brought to our notice that notice u/s 143(2) was issued by the ITO, Ward 11 (3) on 28.08.2015, who do not have juri iction over the assessee in the case considering the fact that the return of income declared by the assessee is over and above Rs.20 lakhs. The assessment was completed by the DCIT, Circle 11 (2), New Delhi u/s 143(3) of the Act. However, we observed that the juri iction lies only with DCIT, however the 18 statutory notice u/s 143(2) was issued by the ITO instead of the present Assessing Officer i.e. DCIT. In this regard, the Assessing Officer also filed the submissions which are placed on record in which it was submitted that as per the PAN based juri iction, the juri iction over the case at the time of issue of notice with the ITO, Ward 11(3). Thereafter, the juri iction was transferred to Circle 11 (2), Delhi on 21.07.2016 who was ultimately passed the assessment order after allowing the opportunity to the assessee. The Assessing Officer in its submissions as well as ld. DR objected to the submissions of the assessee for the reason that the present juri ictional issue now instead of raising the same during assessment itself within one month from the date of receipt of the notice u/s 124 (3) of the Act. After considering the factual matrix in this case, we observed that similar issue under consideration is considered by the coordinate Bench in the case of YKM Holdings Pvt. Ltd. vs. ACIT (supra) wherein it was held as under :- “4. We have heard the rival submissions and perused the material available on record. At the outset, we find that the additional grounds raised by the assessee go to the root of the matter challenging the juri ictional per se. All the facts relevant for its adjudication are placed on record. Hence, in the light of decision of Hon’ble Supreme Court in the case of NTPC Ltd. reported in 229 ITR 383, we are inclined to admit the additional grounds and take up the same for its adjudication.

We find that assessee’s returned income for the A.Y. 2015- 16 was Rs. 37,78,510/- hence, the juri iction of the assessee should lie with ACIT/DCIT since the returned income had exceeded Rs. 30,00,000/-, in view of the CBDT Instruction No.1/2011 dated 31.01.2011. For the sake of convenience, the said Instruction No.1/2011 [F. No.187/12/2010-IT(A-I)] dated 31.01.2011 is hereby reproduced:-

In the instant case, the notice under section 143(2) of the Act stood issued to the assessee on 12.04.2016 by ITO Ward 27(4), Delhi. In July, 2016, the ITO transferred the juri iction of the assessee from him to DCIT since the returned income for A.Y. 2015-16 is more than 30,00,000/- . Copy of the said transfer memo is enclosed in page 5 of the paper book. After the transfer of juri iction from ITO to DCIT, no fresh notice under section 143(2) of the Act was issued by ACIT, Circle 4(1), Gurgaon. The assessment was ultimately framed under section 143(3) of the Act for A.Y. 2015-16 on 14.12.2017 by ACIT, Circle – 4(1), Gurgaon. It is pertinent to note that assessment for the A.Y. 2014-15 of the assessee was completed under section 143(3) of the Act on 30.11.2016 by DCIT, Circle – 27(2), New Delhi. Hence, it was argued that the notice under section 143(2) of 20 the Act dated 12.04.2016 issued by the ITO selecting the return of assessee for A.Y. 2015-16 for scrutiny is without juri iction and consequently, the assessment framed under section 143(3) of the Act dated 14.12.2017 required to be quashed as void ab initio. When this was confronted to learned DR, he pointed out to the provisions of section 124(3) of the Act wherein it was mentioned that assessee should challenge within one month about the juri iction of the AO on receipt of the notice. In the instant case, nowhere up to learned CIT(A), the assessee has challenged the juri iction of the learned AO. In our considered opinion, this argument of the learned DR is wrong in as much as section 124(3) of the Act talks only about territorial juri iction, whereas the issue involved here is pecuniary juri iction. Further, the provisions of section 124(3) of the Act could be taken shelter by the Revenue only when legal valid notice under section 143(2) of the Act has been issued by the Revenue. In the instant case, notice issued under section 143(2) of the Act on 12.04.2016 by ITO is not legal as he did not possess juri iction over the assessee for A.Y. 2015-16 in as much as the returned income for A.Y. 2015-16 had exceeded Rs. 30,00,000/-. We find that the issue in dispute is no longer res integra by the decision of Hon’ble Delhi High Court in the case of Ashok Devichand Jain vs. UOI reported in 452 ITR 43 (Bom). In this case, very same issue was addressed in the light of CBDT Instruction No.1/2011[F. No.187/12/2010-IT(A-I)] Dated 31.01.2011. For the sake of convenience, the entire order is reproduced hereunder:

The primary ground that has been raised is that the Income Tax Officer who issued the notice under section 148 of the Act, had no juri iction to issue such notice. According to Petitioner as per instruction No. 1/2011 dated 31st January, 2011 issued by the Central Board of Direct Taxes, where income declared/returned by any Non-Corporate assessee is up to Rs. 20 lakhs, then the juri iction will be of ITO and where the income declared returned by a Non Corporate assessee is above Rs. 20 lakhs, the juri iction will be of DC/AC.

Petitioner has filed return of income of about Rs. 64,34,663/- and therefore, the juri iction will be that of DC/AC and not ITO. Mr. Jain submitted that since notice under section 148 of the Act has been issued by ITO, and not by DC/AC that is by a person who did not have any juri iction over Petitioner, such notice was bad on the count of having been issued by an officer who had no authority in law to issue such notice.

We have considered the affidavit in reply of one Mr. Suresh G. Kamble, ITO who had issued the notice under section 148 of the 21 Act. Said Mr. Kamble, ITO, Ward 12(3)(1), Mumbai admits that such a defective notice has been issued but according to him, PAN of Petitioner was lying with ITO Ward (12)(3)(1), Mumbai and it was not feasible to migrate the PAN having returned of income exceeding Rs. 30 lakhs to the charge of DCIT, Circle 12(3)(1), Mumbai, as the time available with the ITO 12(3)(1) was too short to migrate the PAN after obtaining administrative approval from the higher authorities by 31st March, 2019. 5. The notice under section 148 of the Act is juri ictional notice and any inherent defect therein is not curable. In the facts of the case, notice having been issued by an officer who had no juri iction over the Petitioner, such notice in our view, has not been issued validly and is issued without authority in law.

In the circumstances, we have no hesitation in setting aside the notice dated 30th March, 2019. 7. Consequently the order dated 18th November, 2019 rejecting Petitioner’s objection is also quashed and set aside.

Petition disposed.” 7. In view of the aforesaid observations and respectfully following the judicial precedent relied upon hereinabove, we have no hesitation to hold that the assessment framed under section 143(3) of the Act deserves to be quashed in the instant case as the initial scrutiny notice issued under section 143(3) of the Act dated 12.04.2016 by ITO was without juri iction as he did not possess juri iction over the assessee for the A.Y. 2015-16. Consequently, assessment framed under section 143(3) of the Act is hereby quashed as void ab initio. The additional ground no.2 is hereby allowed.”

Similar view was expressed by the ITAT, Mumbai in the case of Monarch & Quershi Builders vs. ACIT (supra) and by the coordinate 16. Further the Revenue has not brought on record an order u/s 127 of the Act passed in order to transfer the case to DCIT, Circle 11 (2), New Delhi except making the submissions that assessee should file the objection within one month u/s 124(3) of the Act. Since the issue of notice u/s 143(2) is the basis of initiation of the assessment u/s 143(3) and the 22 juri ictional officer should have issued the notice and also completed the assessment. The present Assessing Officer has completed the assessment without following the due process of law and we, respectfully following the decisions of the coordinate Bench and ITAT Mumbai, are inclined to hold that the juri ictional notice u/s 143(2) was not issued by the DCIT before completing the assessment u/s 143(3) of the Act and that there is an unwarranted defect in this case which is not curable. Accordingly, the assessment passed in the given case is quashed and accordingly, the additional grounds raised by the assessee are allowed. 17. The assessee has raised several grounds on merits as well. Since we have already decided the additional grounds of appeal on juri ictional issue, we are inclined to keep the other grounds of appeal open at this stage. 18. In the result, the appeal filed by the assessee is partly allowed. Order pronounced in the open court on this 15th day of January, 2025. Dated: 15.01.2025 TS