ACIT, BHIWANI vs. M/S. VEGAN COLLOIDS LTD., BHIWANI

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “D”: NEW DELHI BEFORE SHRI H. S. SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No. 6716/Del/2013 (Assessment Year: 2009-10) ACIT, Vegan Colloids Ltd, Bhiwani VPO Siwani, Bhiwani Vs. PAN: AABCP1416R (Appellant) (Respondent)

ITA No. 6717/Del/2013 (Assessment Year: 2010-11) ACIT, Vegan Colloids Ltd, Bhiwani VPO Siwani, Bhiwani Vs. PAN: AABCP1416R (Appellant) (Respondent)

Assessee by : Sh Umesh Chand Dubey, Sr. DR Revenue by: Sh. Sudhir Sehgal, CA Date of Hearing 09/11/2016 Date of pronouncement 18/01/2017

O R D E R PER PRASHANT MAHARISHI, A. M. 1. These are the two appeals filed by the revenue against the order of the ld CIT(A), Bikaner dated 26.09.2013 for the Assessment Years 2009-10 and 2010-11 cancelling the penalty levied u/s 2(21)(1) read with section 140A(3) of Rs. 2331550/- and Rs.4979150/- respectively for both the years for want of jurisdiction. 2. The revenue has raised the following grounds of appeal for the Assessment Year 2009-10:-

Page 2 of 12 “1. The ld CIT(A), Bikaner has erred in deleting the penalty of Rs. 2331550/- imposed by the AO, Bikaner u/s 221(1) read with section 140A(3) of the Income Tax Act, 1961 by observing that the order was illegal and without jurisdiction. 2. The ld CIT(A), Bikaner has erred in not appreciating the fact that the assessee did not raise the issue of jurisdiction at the time of penalty proceedings before the AO. 3. The ld CIT(A), Bikaner has erred in not appreciating the fact that the assessee has accepted the jurisdiction by its conduct.” 3. The revenue has raised the following grounds of appeal for the Assessment Year 2010-11:- “1. The ld CIT(A), Bikaner has erred in deleting the penalty of Rs. 4979150/- imposed by the AO, Bikaner u/s 221(1) read with section 140A(3) of the Income Tax Act, 1961 by observing that the order was illegal and without jurisdiction. 2. The ld CIT(A), Bikaner has erred in not appreciating the fact that the assessee did not raise the issue of jurisdiction at the time of penalty proceedings before the AO. 3. The ld CIT(A), Bikaner has erred in not appreciating the fact that the assessee has accepted the jurisdiction by its conduct.”

Page 3 of 12 mentioned in the column of tax payable by the assessee. Therefore, in that year also a demand of Rs. 17797980/- was raised. 5. Subsequently, notice to the assessee and summon to the Director were issued but efforts of the Assessing Officer failed as no sum was deposited. On coercive actions of the Assessing Officer a sum of Rs. 50 lakhs was deposited on 05.02.2011 and recovery of Rs. 1047000/- was made by attaching the bank account. Despite repeated issue of notice by the Assessing Officer the assessee remained non-compliant at multiple times. Finally, the notices were last issued 22.03.2011 fixing the date of hearing on 29.03.2011. On that date the Director of the company appeared before the Assessing Officer at 6 PM and admitted that he has nothing to say on the issue. Despite this the Assessing Officer further issued notice to the assessee , ultimately, to which a written reply was filed on 25.05.2011. The main contention of the assessee was heavy recession in the US market and subsequently paying full tax in piecemeal. The ld Assessing Officer rejected the contention of the assessee holding that turnover of the company has increased three times and therefore the argument of recession was rejected. The ld Assessing Officer further stated that the assessee has a bank balance of Rs. 88.51 lakhs and therefore there is no paucity of funds. It was further rejected that merely being a tax payer for 10 years cannot be a ground for not paying the taxes in time and that too on admitted income. Therefore, he levied the penalty u/s 221(1) read with Section 140A(3) of the Act for both the years as stated above. 6. The another twist to the whole proceeding was that before three years the assessee has got transferred its old records from Bikaner to Bhiwani and therefore, according to the assessee the jurisdiction of the assessee lies with ITO, Ward-1, Bhiwani and not with ITO, Ward-2(2), Bikaner for the reason that assessee was assessed for AY 2004-05 u/s 143(3) by ITO, Bhiwani and subsequently, there was a survey u/s 133A at the factory of the assessee at Bikaner impounding certain records. Consequently,

Page 4 of 12 assessee filed an application to CBDT to transfer its case from Bikaner to Bhiwani as the registered office of the company is situated in Bhiwani. Therefore, it was the claim of the assessee that the ld Assessing Officer does not have any jurisdiction over the assessee. Though no order u/s 127 of the act was produced before the ld AO. Against order of the ld Assessing Officer passed on 16.08.2011 for levying penalty u/s 221(1) of the Act , assessee-preferred appeal before the first appellate authority who cancelled the order of the Assessing Officer as illegal and without jurisdiction. However, the ld CIT(A) did not adjudicate the merits of the case. Against this order of the ld CIT(A), the revenue is in appeal before us. 7. The ld DR contested that the ld CIT(A) has grossly erred in holding that the ld AO did not have jurisdiction over the assessee. He submitted that merely producing the correspondence between two officers the revenue transfer of the jurisdiction does not happen at the whims and fancy of the assessee. He further submitted that the order u/s 127 of the Act of the CIT, Bikaner was passed on 11.12.2012 and the order of penalties passed by the Assessing Officer are on 16.08.2011 and therefore, the penalty orders are valid orders. He further submitted that the ld CIT(A) erred in holding that the above order u/s 127 of the Act does not impact the claim of the assessee that the orders are without valid jurisdiction. He further submitted that the order u/s 127 of the Act passed by the CIT, Bikaner has not been challenged by the assessee but in fact has accepted it . Therefore the ld CIT(A)‟s order is erroneous. He further submitted that that correspondence cited at Sl. 1 to 5 are all the letters between the assessee and revenue but these are not the orders transferring jurisdiction from one Commissioner to another Commissioner. 8. The ld AR submitted that letter dated 24.08.2006 shows that transfer of income tax records has been transferred from Bikaner to Bhiwani. He further submitted that vide letter dated 26.11.2012 letter was written by the assessee to ld CIT, Bikaner for transfer of assessment records from

Page 5 of 12 Bikaner to Bhiwani. He further submitted that the issue is fully covered in favour of the assessee by the decision of Hon‟ble Kerala High Court in case of PA Ahmed Vs. CCIT 282 ITR 334 wherein it has been held that once the files are transferred the AO ceases to have jurisdiction and it is only the officer to whom the files are transferred can make an assessment. He vehemently relied upon the order of the ld CIT(A) who has held that the order passed u/s 127 dated 11.12.2012 by ld CIT, Bikaner did not change the status quo and the action of the ld Assessing Officer in levying the penalty were without jurisdiction. He therefore stated that the orders of the first appellate authority are correct order. 9. Ld DR in rejoinder submitted that in absence of any order u/s 127 of the act cases cannot be transferred from one commissionarate to another commissionarate and only order shown by the assessee which is passed by CIT (Bikaner) . 10. We have carefully considered the rival contentions and we have also perused the paper book submitted before us which contained the correspondence between the assessee and the revenue in five letters and the sixth documents of the paper book is the order of the ld CIT u/s 127 of the Act dated 11.12.2012. Only these documents were relied upon by the assessee before us. The first documents is letter dated 24.08.2006 written by ITO(Technical) for Chief Commissioner of Income Tax, Jodhpur stating that there is a representation dated 27.05.2009 from the assessee in the matter of transfer of records from Bikaner to Bhiwani. According to that letter it is mentioned that the assessee has filed all returns up to AY 2003-04 at Bikaner where the principal place of business i.e. all manufacturing activities were carried out. During the course of survey u/s 133A on 16.11.2004 it was noticed that the assessee has started filing its return of income for AY 2004-05 at Bhiwani showing nil income. The above return was assessed u/s 143(3) by ITO, Bhiwani. According to that letter there was a challenge in the reports on transfer of case reports by the authorities therefore there is a dispute

Page 6 of 12 between the two assessing officer and the objected to the said transfer mainly on the understanding that the principal place of business of the assessee as it began year when the factory is situated. In this regard it was mentioned that since the present directors are resident of Haryana and also the registered office is situated in Haryana there can be no challenge to the fact that the proper jurisdiction for assessment lies in the state of Haryana and thereafter by that letter the objections of the officers were overruled and after that it was mentioned that necessary instructions are being issued to the Commissioner of income tax begun to process the case for transfer. The letter dated 30th of August 2006 is addressed by the Chief Commissioner of the conveyor through ITO technical to the joint Commissioner of income tax range 2 Bikaner wherein it has been directed that in view of the letter dated 24/08/2006 that according to the direction given by that letter he is instructed to take necessary steps in this regard. As per the noting on the said letter by the joint Commissioner of income tax Bikaner he instructed income tax officer Ward to (2) Bikaner for submitting the report on this issue. The 3rd letter is a letter dated 15/09/2006 written by the office of the income tax officer Ward 2 (2) Bikaner to the income tax officer Ward 1 Bhiwani wherein it is mentioned that now it is decided by the Chief CIT Jodhpur while sending his report to the board for transfer of records to Haryana that the principal place of business is at Bhiwani hence the records be transferred to Bhiwani. Therefore he submitted that all assessment records along with seized documents are to be transferred to him as territorial jurisdiction lies with him . He further requested to direct inspector or someone to collect the assessment from the him undersigned at earliest possible. The 4th letter is letter dated 22/03/2010 written by the assessee to the income tax officer Ward 2 (2) Bikaner wherein it is mentioned that in response to the letter dated 24th of December 2009 of ITO Bikaner that registered office of the company has been transferred from Bikaner to Bhiwani and the company is filing the return of income with that

Page 7 of 12 particular officer therefore the old records of the company has also been transferred to the income tax of Bhiwani from Bikanaer. Therefore assessee requested to transfer all the files to the office of the Additional Commissioner of Income Tax, Bhiwani , Haryana who holds the jurisdiction for company‟s assessment case and for all the other matters. The 5th letter is a copy of the letter dated 26/11/2012 filed by the assessee to the Commissioner of Income Tax Bikaner for transfer of assessment records to Bhiwani. According to that letter it was mentioned that in pursuance of section 17 of the companies act 1956 the registered of the company got shifted from the state of Rajasthan to the state of Haryana vide Company Law board order dated 17/03/2004. Necessary certificate of incorporation issued by ROC dated 6 April 2004 was also filed. It was also mentioned in that particular letter that after request of the company to the Chief Commissioner of income tax Jodhpur while sending his report to the CBDT New Delhi has instructed CIT Bikaner vide letter dated 24/08/2006 for transfer of records to Bhiwani. 6th document submitted before us is an order dated 11/12/2012 under section 127 of the income tax act passed by the Commissioner of income tax Bikaner wherein he has held that that the case of the assessee has been transferred from Bikaner to Bhiwani w.e.f. 11/12/2012. 11. Now we extract the provision of section 127 of the act which provides as under :-

“Income-tax Act, 1961 POWER TO TRANSFER CASES Section 127 (1) The Director General or Chief Commissioner or Commissioner may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, transfer any case from one or more Assessing officers subordinate to him (whether with or without concurrent jurisdiction) to any other Assessing officer or Assessing officers (whether with or without concurrent jurisdiction) also subordinate to him.

Page 8 of 12 (2) Where the Assessing officer or Assessing Officers from whom the case is to be transferred and the Assessing officer or Assessing officers to whom the case is to be transferred are not subordinate to the same Director General or Chief Commissioner or Commissioner,-- (a) where the Directors General or Chief Commissioners or Commissioners to whom such Assessing officers are subordinate are in agreement, then the Director General or Chief Commissioner or Commissioner from whose jurisdiction the case is to be transferred may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, pass the order; (b) where the Directors General or Chief Commissioners or Commissioners aforesaid are not in agreement, the order transferring the case may, similarly, be passed by the Board or any such Director General or Chief Commissioner or Commissioner as the Board may, by notification in the official Gazette, authorise in this behalf. (3) Nothing in sub-section (1) or sub-section (2) shall be deemed to require any such opportunity to be given where the transfer is from any Assessing officer or Assessing officers (whether with or without concurrent jurisdiction) to any other Assessing officer or Assessing officers (whether with or without concurrent jurisdiction) and the offices of all such officers are situated in the same city, locality or place. (4) The transfer of a case under sub-section (1) or sub-section (2) may be made at any stage of the proceedings, and shall not render necessary the re-issue of any notice already issued by the Assessing officer or Assessing officers from whom the case is transferred. Explanation In section 120 and this section, the word "case", in relation to any person whose name is specified in any order or direction issued thereunder, means all proceedings under this Act in respect of any year which may be pending on the date of such order or direction or which may have been completed on or before such date, and includes also all proceedings under this Act which may be commenced after the date of such order or direction in respect of any year. [ Extracted from ITRonline , underline supplied by us]

Page 9 of 12 12. On reading of the above provision it is apparent that according to the provisions of subsection 1 of section 127 of the act , within the jurisdiction of Commissioner or Chief Commissioner the cases can be transferred after granting opportunity of hearing to the assessee and recording the reasons for doing so. According to subsection 2 where the transfer is not within the same jurisdiction of the Commissioner or Chief Commissioner and if there is no disagreement between the subordinate officers about the transfer of the case of the assessee then the order is required to be passed by the Commissioner from whose jurisdiction the cases to be transferred after giving assessee an opportunity of being heard and after recording his reasons for doing so transferring the cases of the assessee from his jurisdiction to the other jurisdiction. Therefore when there is no disagreement between the officers from whose jurisdiction the case is to be transferred and to whose jurisdiction the cases are required to be transferred then the Commissioner from whose jurisdiction the cases to be transferred may after giving reasonable opportunity of being heard to the assessee and after recording his reason for doing so may pass the order. Therefore the cases in such circumstances can be transferred to other jurisdiction only if the order is passed by the Commissioner from whose jurisdiction the cases to be transferred. Applying the above provisions of law to the facts of the case it is apparent that the case of the assessee is required to be transferred from Bikaner to Bhiwani. Therefore the provisions of section subsection 2(a) of section 127 applies and accordingly the case of the assessee can only be transferred if the order under section 127 is passed by the Commissioner of Income Tax Bikaner. In this case such order is passed by the CIT ( Bikaner ) on 11/12/2012. Therefore according to the provisions of the income tax Act, the case of the assessee are transferred w.e.f. 11/12/2012 only and not prior to that as claimed by the assessee. Further the 5 letters exchanged by the assessee and by the officers of the income tax Department are not relevant as none of them is an order under

Page 10 of 12 section 127 of the income tax act. In view of this we are not in a position to agree with the order of the Ld. 1st appellate authority who was swayed by the correspondence shown by the assessee between the assessing officer of respective jurisdiction as well as the correspondence of assessee with the assessing officers. We also do not approve the order of the Ld. 1st appellate authority in disregarding the order under section 127 passed on 11/12/2012 by CIT ( Bikaner) and holding that that order did not change the status quo. The impugned orders of the ITO Ward 2(2), Bikaner are passed on 16.08.2011 i.e. before the order u/s 127 of the Act. In view of above we hold that the order under section 127 of the income tax act passed by the Commissioner of income tax ( Bikaner) is a valid order and after that only the case of the assessee is transferred from ITO ,Ward 2 (2) Bikaner to ITO, Ward – 1, Bhiwani. Assessee could not show any other order passed under section 127 of the income tax act by the Commissioner of income tax ( Bikaner) prior to the date of order of ITO Bikaner levying penalties , which gives assessee right to file his return of income at different jurisdiction then with ITO Bikaner. It is not the choice of the assessee by which he can decide that which assessing officer will have jurisdiction over him. Once the case of the assessee falls in one jurisdiction then transfer from that jurisdiction to the other jurisdiction is to be decided by legal order for which adequate provisions have been made under the provisions of section 127 of the income tax act. Therefore the assessee is not entitled for jurisdiction shopping which has been demonstrated in the case of the assessee that without having any valid order under the provisions of section 127 of the income tax act the returns are filed and get them assessed at the different jurisdiction. Therefore according to us the order of the ld first appellate authority in allowing the appeal of the assessee under the pretext of the ld Assessing Officer not having jurisdiction over the assessee is erroneous. Further, the decision of the Kerala High Court relied upon by the assessee, which the ld first appellate authority has held that it is applicable to the facts of the

Page 11 of 12 case is also not correct. we have carefully perused the decision of the Hon'ble Kerala High Court, the Hon'ble High Court was on the issue whether the two Assessing Officers can retain concurrent jurisdiction over the same assessee unless provided by the law. The Hon'ble High Court held that at any given point of time only one Assessing Officer can have regular jurisdiction over an assessee for assessment under the scheme of the Act. Therefore, when a transfer is effected, the entire files old, pending and the returns to be filed will get transferred to the officer to whom the file is transferred by the Chief Commissioner. The Explanation to section 127 of the Income-tax Act, 1961, clarifies that the “case” means the entire proceedings under the Act. Once the files are transferred, the Assessing Officer ceases to have jurisdiction and only the officer to whom the files are transferred can make assessments. In the present case the issue is altogether different. Presently we are seized of the issue whether there is a transfer of „case‟ from one Assessing Officer to another Assessing Officer under the different Commissionerate without having an order u/s 127 of the Act. Therefore, the reliance placed on this decision is erroneous, as the Hon'ble High Court was not on the issue that whether there can be transfer of case without having any order u/s 127 of the Act. In the result we reverse the finding of the ld first appellate authority that the order passed by the ITO, Ward 2(2), Bikaner are illegal and without jurisdiction. In the result we allow grounds No. 1,2 and 3 of the appeal of the revenue for both the years involved in these two appeals holding that the order passed by the ITO, Bikaner are valid orders and having proper jurisdiction over the case of the assessee. 13. As the ld first appellate authority has allowed the appeal of the assessee on the issue of jurisdiction only and has not decided the appeal of the assessee on merit whether there was a “ good and sufficient reasons‟ for non-payment of taxes as admitted by the assessee in the return of income itself, we set aside both the orders to the file of the ld CIT(A) to

Page 12 of 12 decide the issue whether there was a „good and sufficient reason‟ for non- payment of tax a. when the assessee has admitted the tax in the return of income and has shown the amount outstanding as nil for three Assessment years. b. where there is enough bank balances in the books of the company and c. the turn over the assessee has increased three times. d. The repeated non-compliances of notices and promise to pay tax were noticed and without getting influenced by the fact of depositing tax later on. 14. In the result both the appeal of the revenue in ITA no 6716 & 6717/Del/2013 for AY 2009-10 and 2011-12 are allowed with above direction and for statistical purposes. . Order pronounced in the open court on 18/01/2017. -Sd/- -Sd/- (H.S.SIDHU) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 18/01/2017 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi