BMS TRADEWINGS PVT. LTD., JAGDALPUR,JAGDALPUR vs. ACIT-1(1), RAIPUR, RAIPUR

Ld. CIT(A) erred in confirming addition of Rs.1,13,02,975/- made by AO on account of share capital received by the appellant involving sec. 68. The addition made by AO and confirmed by Ld. CIT(A) is arbitrary, illegal and not justified.

Ld. CIT(A) erred in confirming addition of Rs. 14,00,000/- made by AO on account of unsecured loan by the appellant invoking sec. 68. The addition made by AO and confirmed by Ld. CIT(A) is arbitrary, illegal and not justified.

The brief facts of the case as emanating from the records are that the assessee is a resident company, engaged in the business of trading of coal and coke products and Iron ore. The return of income for the assessment year 2017-18 has been filed on 08.11.2017 showing the taxable income at Rs. Nil. Subsequently the case of assessee was selected for complete scrutiny under ‘CASS’. Statutory notices are accordingly issued along with questionnaire. In compliance, the assessee had filed submissions online along with supporting documents, which were examined by the Ld. AO. On verification of ITR, Audit Report, books of accounts and other records, Ld. AO have come across an issue regarding share capital / BMS Tradewings Pvt. Ltd., Jagdalpur vs. ACIT-1(1), Raipur premium received by the assessee during the year under consideration. Relevant information and clarification were sought from the assessee regarding the identity and creditworthiness of investors as well as genuineness of the transactions. Ld. AO observed that investment made in the assessee company by the investors are from cash deposits in their bank account, and the creditworthiness of the shareholders was also found to be questionable. Detailed deliberations were made by the Ld. AO and finally an addition of Rs. 1,13,02,975/- was made on account of unexplained cash credit received by the assessee under the guise of share capital and premium from various investors. Another addition qua the unsecured loan received by the assessee having similar facts and circumstances where in the creditworthiness of the lenders was not found to be established by the Ld. AO, therefore, an addition of Rs.14,00,000/- was made u/s 68 by adding back the said amount as unexplained cash credit under garb of unsecured loan received by the assessee sourced out of cash deposits by the respective lenders. With aforesaid observations and additions assessment was completed, determining assessed income of assessee at Rs 1,27,02,975/-

Aggrieved with the aforesaid addition, assessee preferred an appeal before the First Appellate Authority, where in the submissions of the assessee are not found convincing by the Ld. CIT(A), therefore, the

Being dissatisfied with the order of Ld. CIT (A), assessee filed the present appeal before us, which is under consideration.

At the outset, Shri R. B. Doshi, Authorized Representative (in short “Ld. AR”) of the assessee had requested to assail the legal grounds raised in the present appeal having firm conviction that the assessee’s case is strong on legal footing and is also covered by the decision of this tribunal in its earlier orders. Ld. AR submitted that impugned assessment order passed by the Ld. AO dated 12.12.2019 u/s 143(3) was illegal and without jurisdiction, as the same has been passed by the Ld. AO, who did not have jurisdiction over the case of the assessee, and therefore, the assessment order is liable to be quashed. In view of such facts, Ld. CIT (A) had erred in confirming the addition made based on an illegal order. The second legal contention has been raised by Ld. AR, stating that the impugned assessment is illegal, as no notice u/s 143(2) was issued by the jurisdictional AO, therefore, the assessment order is liable to be struck down on this count also. In order to support the aforesaid contentions, Ld. AR drew our attention to the copy of the assessment order and have submitted that it is a recorded fact that the income declared by the BMS Tradewings Pvt. Ltd., Jagdalpur vs. ACIT-1(1), Raipur assessee in its return was Nil, therefore, according to Instruction No. 1/2011 [F. No. 187/12/2010-IT(A-I)], dated 31.01.2011 issued by CBDT, the assessee’s case was to be assessed by the jurisdictional ITO, whereas the assessment order was framed by ACIT-2(1), Raipur. Ld. AR furnished before us a copy of Instruction No. 1/2011 [F. No. 187/12/2010-IT(A-I)], dated 31.01.2011 along with Instruction No. 6/2011 [F. No.187/12/2010- ITA-I], Dated 08.04.2011 regarding income limits for assigning the case to DCsIT / ACsIT and ITO’s. Copies of both the aforesaid Instructions are extracted hereunder for the sake of quick reference and to check its applicability:

On the basis of aforesaid submission, it was the argument by Ld. AR that the return income of the assessee for AY 2017-18 was less than 15 Lacs (declared for Rs. NIL), therefore, the jurisdiction over the assessee’s case was of ITO, Jagdalpur and not of ACIT, Circle-2(1), Raipur (who passed the assessment order), therefore, passing of an order by non-jurisdictional Assessing Officer itself vitiates the entire assessment proceedings and BMS Tradewings Pvt. Ltd., Jagdalpur vs. ACIT-1(1), Raipur accordingly the assessment framed u/s 143(3) dated 12.12.2019 is liable to be held as illegal and without jurisdiction, therefore, merits to be quashed.

To substantiate and support the aforesaid contentions, Ld. AR placed his reliance on the following judgments:

In terms of aforesaid submissions, it was the prayer by Ld. AR that the assessment framed u/s 143(3) in the present case dated 12.12.2019 is without jurisdiction, therefore, the same cannot be sustained under the eyes of law and the same is liable to be struck down.

We have considered the rival submissions perused the material available on record and the jurisprudence relied upon by the Ld. AR. Admittedly, Ld. AR’s contention assailing the legal issues found to be convincing of the decision that the assessment was framed by the Ld. ACIT, Circle-2(1), Raipur, who is barred by the Instructions No. 01/2011 issued by CBDT according to which the cases having declared income / loss below Rs. 20 Lacs for the corporate assessee’s (Mofussil area’s) are to be assessed by the jurisdictional ITO’s and such assessee’s having BMS Tradewings Pvt. Ltd., Jagdalpur vs. ACIT-1(1), Raipur declared income more than Rs. 20 lacs are to be assessed by ACs/ DCs. Further, the clarification was issued by CBDT by issuing another Instruction No. 6/2011 to the CCIT / DGIT to adjust the aforesaid limits by an amount of Rs. 5 lacs to ensure that the workload is equitably distributed amongst the assessing officers after recording reasons in this regard. In compliance to the aforesaid instructions a communication was issued on 13.05.2011 by the CCIT, Raipur and the limits are reduced by 5 lacs, accordingly, the limit for declared income/loss referred to in the Instruction No. 1/2011 by the CBDT has been reduced to Rs. 15 lacs instead of Rs. 20 lacs for corporate returns, effective from 01.06.2011. As nothing is brought on record by the revenue, it can be safely observed that there was no further communication / clarification or instruction issued by the CCIT, Raipur in this respect, thus, the Instruction dated 30.05.2011 shall apply its applicability in the present case.

Apropos, the contention raised by the Ld. Sr. DR that the case of assessee is under the jurisdiction of ACIT-2(1), Raipur, we observed that the notification issued by the JCIT, Range-2 dated 15.11.2014 clearly states that the cases of persons being registered under the Companies Act, 1956 having their registered office falling within the territorial jurisdiction of ITO-Jagdalpur are to be assessed by ACIT-2(1), Raipur. Further, there is a BMS Tradewings Pvt. Ltd., Jagdalpur vs. ACIT-1(1), Raipur rider in the said notification that the income / loss of such assessee’s should be above Rs. 15 lacs. Since the returned income of the assessee as per ITR filed, copy of which is placed before us at page no. 47-49 of the APB, is declared at “0” (Zero) i.e., NIL, which is less than Rs. 15 Lacs, therefore, the notification issued by JCIT, Range-2, Raipur dated 15.11.2014 does not suggest that the assessment in the present case is under the jurisdiction of ACIT, Range-2(1), Raipur. We, therefore, are of the considered view that the contention raised by the Ld. Sr. DR cannot be acceded to, therefore, the same cannot rescue the case of revenue.

On the aforesaid aspect, we find substance in the contention raised by the Ld. AR that the assessment has been framed by the Ld. ACIT, Circle-2(1), Raipur without jurisdiction as he does not hold jurisdiction over the case of assessee being lacks authority to do so, on account of the instructions issued by CBDT and further communicated by the CCIT (referred to supra). Under the identical facts and circumstances, the issue in hand has been deliberated at length and was decided by this tribunal in the case of ACIT vs. M/s Rajdhani Jewellers and Gems Pvt. Ltd. in for the AY 2015-16 vide order dated 24.01.2024, wherein the relevant findings of the tribunal are extracted hereunder to be adopted in the present matter:

For the sake of clarity, regarding the violation in adhering to the instruction of CBDT vide instruction no. 1/2011 dated 31.01.2011, we may note that, in the instruction no. 01/2011, the limits in terms of income declared for assigning the cases to AO’s have been revised, the limits prescribed by CBDT for corporate returns was further reduced from Rs.20 Lac to Rs.15 Lac by the Ld. CCIT, Raipur (in exercise as directed by the CBDT vide instruction no. 6/2011 dated 08.04.2011), vide communication dated 30.05.2011, effective from 01.06.2011, to revisit the limits decided by CBDT in order to adjust the same by an amount up to Rs.5 lacs to ensure that the work load is equitably distributed amongst the Assessing Officers after assigning reason. Copy of the communication dated 30.05.2011 issued by Ld. CCIT, Raipur, is extracted as under, for the completeness of facts:

In backdrop of aforesaid observations, respectfully following the decision of coordinate bench of ITAT, Raipur, in the case of M/s Rajdhani Jewells (supra), which has not been contradicted of rebutted by the revenue taking support from any judicial pronouncement or by way of producing any material, evidence or submission to dislodge the aforesaid decision, adverting to the facts of the instant case, wherein admittedly, the assessment u/s 143(2) has been framed by the ACIT-2(1), Raipur, on 12.12.2019, who was not vested with valid jurisdiction over the case of the assessee, also the notice u/s 143(2) dated 09.08.2018 was issued by ACIT, Circle-2(1), Raipur, having no authority to do so, being ineligible as per communication by the CCIT dated 30.05.2011, which was issued incompliance and adherence to the Instructions No. 1 & 6/2011 issued by CBDT. Further, there is no evidence brought on record by the revenue that, a valid notice u/s 143(2) was ever issued by the Jurisdictional AO i.e., ITO- Jagdalpur, in substance, the assessment framed on the foundation of an BMS Tradewings Pvt. Ltd., Jagdalpur vs. ACIT-1(1), Raipur invalid notice u/s 143(2) is liable to be struck down. In view of such facts and circumstances, the assessment order framed u/s 143(3) dated 12.12.2019 cannot survive.

We, therefore, in terms of our aforesaid observations, are of the considered view that assessment order passed u/s 143(3) dated 12.12.2019 by ACIT, Circile-2(1), Raipur, on the basis of proceedings initiated vide an invalid notice issued u/s 143(2) dated 09.08.2018 by ACIT, Circle-2(1), Raipur, who was not vested with valid jurisdiction over the case of the assessee, in contravention to the instructions issued by the CBDT and further communication by the CCIT, Raipur, cannot be sustained and therefore, the same is liable to be quashed, thus, we do so.

Since we have quashed the assessment for want of valid assumption of jurisdiction by the AO, therefore, we refrain from adverting to and to deal with the grounds of appeal raised by the assessee in the present appeal, which, therefore, are left open.

In the result appeal of the assessee stands allowed, in terms of our aforesaid observations.