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Facts
The assessee declared a significant loss for AY 2010-11. The AO made substantial additions to income by rejecting books of account u/s 145(3), disallowing losses from investments/share trading, and adding unexplained capital and other amounts. The CIT(A) provided partial relief. Both the Revenue (appealing deletion of major addition) and the assessee (cross-objecting against upheld additions and raising a jurisdictional issue) approached the ITAT.
Held
The ITAT did not delve into the merits of the additions. Instead, it focused on the preliminary objection raised by the assessee regarding the jurisdiction of the AO and CIT(A), as the assessee claimed to be a Non-Resident Indian (NRI). Given the agreement of both parties to remit the jurisdictional issue, the Tribunal set aside the orders and remanded the entire matter back to the AO to first determine the question of jurisdiction and then pass an appropriate order.
Key Issues
Whether the Assessing Officer and CIT(A) had proper jurisdiction over the assessee, a claimed Non-Resident Indian (NRI), and the effect of a subsequent assessment order on the original assessment's validity.
Sections Cited
10(38), 14A, 33B, 40(a)(ia), 43B, 120, 143(2), 143(3), 145(3), 147, 148, 234A, 234B, 234D, 244A, 263
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Income Tax Appellate Tribunal, DELHI BENCH ‘A’ : NEW DELHI
Before: SHRI SHAMIM YAHYA & SHRI SUDHIR PAREEKShri Abid Ali Khan,
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘A’ : NEW DELHI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER and SHRI SUDHIR PAREEK, JUDICIAL MEMBER (Assessment Year: 2010-11) DCIT, Circle, vs. Shri Abid Ali Khan, Bulandshahr. S/o Shri Mohd. Ali Khan, Prop. M/s. All India Metal Traders, Hanifa Manzil, Upper Kote, Bulandshahr (Uttar Pradesh). (PAN : ADLPK3005F) CO No.62/Del/2021 (in (Assessment Year: 2010-11) Shri Abid Ali Khan, vs. DCIT, Circle, S/o Shri Mohd. Ali Khan, Bulandshahr. Prop. M/s. All India Metal Traders, Hanifa Manzil, Upper Kote, Bulandshahr (Uttar Pradesh). (PAN : ADLPK3005F) (APPELLANT) (RESPONDENT) ASSESSEE BY : Shri K.P. Garg, CA REVENUE BY : Ms. Nidhi Singh, CIT DR Date of Hearing : 25.06.2024 Date of Order : 28.06.2024 ORDER PER SHAMIM YAHYA, ACCOUNTANT MEMBER :
CO No.62/Del/2021 These are appeal by the Revenue and cross objection by the assessee arising out of the order of ld. CIT (Appeals), Aligarh dated 05.12.2017 and pertains to Assessment Year 2010-11. 2. Grounds of appeal raised by the assessee in the cross objection read as under :- “1. The appellant denies his liability to tax AND interest as determined and computed by the learned assessing officer and the manner in which it has been so determined or computed.
2. The learned AO has erred in law and on facts in making the addition of Rs.7,95,36,044/- on account of estimated net profit @ 5.63% (Rs.1,98,56,837 plus loss shown at Rs.5,96,79,208) of gross turnover of Rs.35,26,96,927/- u/s.145(3) by rejecting the books of account, as per discussions in para-9 of the order, pages 5 to 9, and the Ld. CIT(A) has rightly deleted the additions, so that the appeal of the AO may kindly be dismissed.
3. The learned CIT(A), Aligarh has erred on facts and in law in upholding/confirming the following additions made by the ld. AO to the returned loss: a The learned AO has erred in law and on facts in making the additions of Rs.21,80,058/- as per discussions in para-10 of the order, page-10: a) On account of loss of Investment, Rs.12,50,000/- has been disallowed u/s.10(38) on the ground that the income on account of sale purchase of shares is exempted. Therefore any loss on sale of such investment cannot be allowed. And b) On account of disallowance of loss in share trading, Rs.9,30,058/- stating that the same shall not be allowed u/s. 10(38) as the assessee is engaged in the business of trading in shares. The same is disallowed u/s.14A. b The learned AO has erred in law and on facts in making the additions to the returned income of Rs.1,71,500/- On account of alleged failure to comply with the provisions of S.40(a)(ia) due to alleged delay in payment of TDS, as per para- 11 of the order, at page-12 c The learned AO has erred in law and on facts in making the additions to the returned income of Rs.4,20,04,705/- On account of unexplained source of capital introduced during the year, as per discussions in para-12 of the order at pages 12-19 d The learned AO has erred in law and on facts in making the additions to the returned income of Rs.10,54,85,151/- On account of unexplained source of capital in Himanchal Trading Company, Baddi, HP, by rejecting the b/f loss u/s.33B and the capitals of Satya Metals and RCL, as per para 13, pages 19-26 of the order e The learned AO has erred in law and on facts in making the additions to the returned income of Rs.30,20,151/- On account of liabilities for VAT and CST payable at Rs.27,43,482 and Rs.2,76,669/- u/s. S 43B, as per para-14, page 26 of the order f The learned AO has erred in law and on facts in charging Interest u/s.234A- Rs.3265416/-, 234B- Rs.1,95,92,496/- , 234D-Rs.2094/- Interest u/s.244A-Rs.995 and revisiting the same u/s.147 which is contrary to the provisions of law. G The order of the ld. CIT(A), Aligarh is without jurisdiction.”
3. The Revenue has taken the following grounds of appeal :- “That in the facts and circumstances of the case, the Ld. CIT (A) has erred in law and on facts in deleting the addition of Rs.7,95,36,044/- made by Assessing Officer by invoking provisions of section 145(3) of the Income Tax Act, 1961 and adopting N.P. of 5.63% against turnover of Rs.35,26,96,927/- made by Bulandshahr unit namely M/s. All India Metal Traders as the assessee failed to produce the complete books of accounts during the course of assessment proceedings.”
4. Brief facts of the case are that the assessee had filed his return of income declaring loss of Rs.5,58,84,944/-. Subsequently, the case was CO No.62/Del/2021 selected for scrutiny and notice u/s 143(2) was issued on 23.09.2011. It was observed that the assessee is carrying on business of ferrous and non-ferrous metals, Iron and Steel. During the year under consideration, two units were being run. The first is in the name and style of M/s All India Metal Traders and the second one M/s Himachal Trading Company At BADDI (HP). The second unit namely M/s Himachal Trading Company At BADDI (HP) has started working during the year under consideration only. While analysing the business of Bulandshahr Unit M/s All India Metal Traders, the AO observed that during the relevant previous year only trading activities were done on which gross loss of Rs.5,96,79,017/- was declared. For verification of the same, the AO had required the assessee to produce the complete books accounts. But only a part of the books of accounts were produced that too only towards the end of the assessment year. It was observed that the trading done through the Bulandshahr unit had resulted into loss whereas the trading from the second unit resulted in profit. The AO also observed that to a certain extent the purchasers and sellers for both the units were common yet it was not clear why one unit was in loss and the other unit was in profit. As complete books of accounts were not produced, the AO could not compare the sale/purchase prices declared in the two units. Under these circumstances, the trading results were rejected u/s 145(3) and profit for the Bulandshahr Unit was assessed by applying GP rate of the Himachal Pradesh Unit. This resulted in an addition of Rs.7,95,36,044/-. In the CO No.62/Del/2021 Bulandshahr Unit, the assessee had claimed Rs.12,50,000/- as loss of investment and an amount of Rs.9,30,058/- as share expenses in the PIL account. As income from share is the exempt income u/s 10 (38), these items were held not allowable. This resulted in an addition of Rs.21,80,058/-. An addition of Rs. 1,71,500/- was made u/s 40(a) (ia) for non compliance of TDS provisions. It was observed that the assessee had introduced new capital of Rs. 4,20,04,705/-. In this regard, it was explained that M/s Mohd. Abid Steel LCC Dubai had made payment to M/s Satya Metal from which the appellant had made purchases. However, from the certificate issued by M/s J & K Bank in respect of the inward remittance it was found that the payment was received against deemed exports. Under these circumstances, it was held that the source of the capital has not been explained. Accordingly, an addition of Rs.42004705/- was made. Similarly, an addition of Rs.10,54,85,121/- was made on account of unexplained capital introduced at Baddi Unit. Further, an addition of Rs.30,20,151/- was made on account of VAT and CST claimed as payable at Rs.27,43,482/- and Rs.2,76,669/- respectively. Thus, the total income was assessed at Rs.17,65,12,665/-.
Upon assessee’s appeal, ld. CIT (A) gave part relief.
Against the above order, Revenue is in appeal and the assessee has filed cross objection before us. We have heard both the parties and perused the records.
CO No.62/Del/2021 7. At the outset, in this case, ld. Counsel for the assessee submitted that the jurisdiction assumed by both the authorities is defective as the assessee is an NRI and was thus beyond the jurisdiction of the present AO and ld. CIT(A). Ld. Counsel for the assessee’s submissions in this regard are as under :- “1. That learned CIT(A) has passed the order and served the same only on the AO. The order was never served on the assessee. The assessee on receipt of copy of order of the ld. CIT(A), from Hon'ble ITAT on 27-10-2021 filed his CO on 29.11.2021.
The assessment order was passed by the JCIT, Range-33. Bulandshahr on 25/03/2013, on which date he had valid jurisdiction on the assessee, an NRI. The assessment order is silent on the residential status of the assessee, though in the course of hearing the learned AO had gone through the passport copy as specifically required by him, which gives date of his arrival in and departure from India during the year. The issue was examined in greater details in A Y 2011-12, which shows that the assessee was NRI not only in A Y 2011-12 but also in earlier years. These details were filed with Hon'ble ITAT by the assessee during his appeal no.2042/Del/2016 against the order of the ld. Principal Commissioner of Income Tax, Ghaziabad u/s.263 dated 30103/2016 in which order the ld. PCIT had not referred to the residential status of the Assessee, (A copy of the order of Hon'ble IT AT dated 28.11.2023 is enclosed herewith, as annexure-A) setting aside the order of the ld. PCIT, as per Para-11 of the order, reading as under: a. "In view of the aforesaid convergence of the stand of both sides for remanding the matter to the PCIT, Ghaziabad, we deem it fit and proper to set-aside the impugned order of the PCIT, Ghaziabad and restore the matter back to his file for passing an order afresh in all issues, including the preliminary issue raised by tile assessee based on tile Notification of the CBDT dated 03-11-2014 (supra) qua the issuance of show cause notice dated 23.03.2015 (supra)".
b. This order of Hon'ble ITAT would apply with full force to the order of ld. CIT(A), Aligarh, who had lost jurisdiction on the assessee as per the aforesaid notification of the CBDT. Needless to mention that originally the jurisdiction on the appeal of the assessee lay with CIT(A), Meerut, who had heard the case lastly on 16/10/2014 when we filed detailed written submissions as required by him with evidence and paper book consisting of the proceedings before AO-244 pages but before he could pass the order, appeal was transferred to CIT(A) Ghaziabad where we filed WS again along with evidence as further called for by the ld. CIT(A), Gbd. On 18/02/2015, 15/04/2015 etc. where the ld. AO filed his remand report, copy given to us on 17.01.2017. Again the appeal was transferred to CIT(A), Aligarh where we filed the rejoinder to AO report on 27.11.2017. The ld. CIT(A), Aligarh passed the impugned order on 05.12.2017, which was never served on the assessee. c. It is apparent that the transfer of appeal to CIT(A) Ghaziabad and CIT(A), Aligarh was made when they did not have jurisdiction on NRIs, irrespective of who passed the original assessment order.
It is on the basis of above facts and circumstances that the assessee has taken the legal objection to the jurisdiction of the ld. CIT(A), Aligarh and to the filing of appeal by the DCIT- 3, Bulandshahr, with Hon'ble ITAT as without jurisdiction. The Hon'ble Tribunal in their order dated 28.11.2023 has quoted in detail in para-7, page-6, judgment of Hon'ble Supreme Court in Arun Kumar and Others vs Union of India reported in [2006] 286 ITR 89 (SC) and reproduced extracts of the same, which may please be gone into. In addition, we rely on the following cases: a. After transfer of jurisdiction only the transferee AO-CIT- A has the jurisdiction on the assesse. CIT vs. Anjali Dua (2008) 219 CTR 183. DHC - on the issue of notice U/S 148. Once the jurisdiction is transferred U/S 120 the original AOICIT loses jurisdiction even on years earlier assessed by him. (PBP 296)
CO No.62/Del/2021 b. Bhatnagar's Digest P.6629. S.No.S1I4S747 - S.263 - Anand Kumar Agarwal (HUF) vs. ACIT (200S) 92 TTJ (Agra) 81,93 - CIT of '1' had jurisdiction on the assessee on the relevant date, as such CIT of 'G' had no jurisdiction over the assessee. Hence order declared void ab initio.
Another fact on the record is that the impugned order of the JCIT passed u/s.143(3), has been superseded by a fresh order dated 26.12.2017 passed u/s.143(3)/147and levying interest u/s.234A, 234B, 234D, withdrawing interest u/s.244A, totaling Rs.5,71 ,53,734, raising the total demand to Rs.11,10,96,730/-. Thus, the original assessment stands effaced. For this proposition we draw Your Honors kind attention to the judgment of the Hon'ble Supreme Court in INCOME TAX OFFICER A D A OTHER v. K.L.SRIHARI (HUF) AND OTHERS [2001] 250 ITR 193, (Held, on the facts, that on reopening of the original assessment order and making a fresh order of assessment of the entire income of the assessee, the earlier assessment order was effaced by the subsequent order, confirming the order of Kerala High Court in ITO v. K.L. SRIHARI (HUF) [1992] 197 ITR 694. Copies of both these orders are enclosed as Annexure-C.”
Referring to the above submissions, ld. Counsel for the assessee submitted that ITAT in its order DATED 28.11.2023 in assessee’s own case in in AY 2011-12 has noted that the assessee is an NRI. In the light of the facts and circumstances narrated above, he pleaded that the matter may be remitted to the AO to first examine the jurisdiction of the case and thereafter pass an appropriate order.
Per contra, ld. DR for the Revenue did not have any objection in sending the matter back to the AO to determine the jurisdiction as appealed by the assessee in his detailed submissions herein above.
CO No.62/Del/2021 10. Accordingly, in the interest of justice, we remit the issue to the file of AO. AO shall consider the issue of jurisdiction and thereafter pass an appropriate order as per law. Needless to add, assessee should be given an opportunity of being heard. 11. In the result, the appeal of the Revenue and the cross objection filed by the assessee are allowed for statistical purposes. Order pronounced in the open court on this 28th day of June, 2024.